September 25th, 2007

Media Embraces Free, Ad-Driven Web Sites

By Jake Coyle
Associated Press

In just a week’s time, the Internet took drastic steps to becoming a predominantly ad-supported medium.

First, the music Web site SpiralFrog.com started its service of free downloads with tunes backed by Vivendi SA’s Universal Music Group on Sept. 17. Instead of selling songs for 99 cents a pop, SpiralFrog plans to make its money from the advertisements on its site.

Within days, NBC Universal, a unit of General Electric Co., announced that it too would make its content available for free. Downloads of NBC episodes will be free and ad-supported on its own service, named NBC Direct.

The service will allow users to download episodes of shows like “Heroes” and “30 Rock” to computers running Microsoft Windows software for up to a week after the show has aired on television. The file will contain embedded advertising that cannot be skipped.

NBC has pulled its shows from Apple’s iTunes, which typically charges $1.99 per episode, sans commercials.

It’s not only music and TV that are increasingly relying not on download or subscription charges, but ads on Web pages. The New York Times announced last week that it was ditching fees to access parts of its Web site, including op-ed columnists and archives. The feature, called TimesSelect, had cost $7.95 a month or $49.95 per year. The service had a total of 787,400 customers, including only 227,000 online-only paying customers. (Those with home delivery subscriptions were able to sign up for free, and some college campuses also offered it for free.)

“A lot has changed since the time we launched TimesSelect,” Vivian Schiller, the manager of NYTimes.com, told The Associated Press.

One of those changes has been the amount of money spent on online advertising. According to a figures published in late August by the Newspaper Association of America, online advertising at newspapers rose 19.3 percent to $795.7 million in the second quarter of the year. Those gains were even more in previous quarters. As a portion of all newspaper revenues, online ad revenue is up to 7 percent of total revenues in the first quarter, compared with 5.4 percent in the same period a year ago.

For Duncan Riley, a columnist for the influential blog Techcrunch, the Times change of strategy symbolizes a greater evolution of the Internet.

“The notion of paying to access content is flawed in a connected online world where virtually everything is free, particularly the content,” he wrote on Techcrunch.com., adding that companies like the Times can make money without charging for its stories.

It’s difficult to imagine that some online premium pricing won’t continue to exist or even grow (after all, little seems to stay free in this day and age). But others agree with Riley’s vision.

Ruport Murdoch, the media mogul whose News Corp. is purchasing Dow Jones & Co., last week said he expects to make the site for Dow Jones’ Wall Street Journal free as well. Wsj.com charges a fee of $99 per year for online subscription ($49 for those who subscribe to the paper). With about a million subscribers, it’s easily the most successful pay-subscription media site.

Murdoch believes the ad revenue of a free site to be greater than the earnings from subscription charges, estimating the gain for the Journal at $50 million. “Would you lose $50 million in revenue?” he said last week. “I don’t think so.”

As Murdoch points out, the move to ad-supported models is market-driven. Right now, it’s simply more profitable to give content away for free.

Of course, the ads that are generally used on these sites are the surrounding banner ads. So take a moment to look at those little flashing boxes that — if you’re reading this online — may well encircle this article.

Though this reporter can’t ever recall in all his years of Internet surfing even once (intentionally) clicking on such banner ads, they will soon apparently constitute the currency of media companies everywhere.

All hail the online advert.

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