I’m not a cynic by nature, but the times may be changing and perhaps not for the better.
I’d been planning to write this post for a while, and the recent news of Google’s talks with Verizon for the company to pay for better bandwidth gave new texture and urgency to the debate over the future of the web. Game-changing events in history are difficult to spot; big short-term developments may prove minor in the long-term, but the Google/Verizon deal — if it materializes beyond speculation — proves as good a turning point as any for the next wave of the media economy: when users pay.
Right now, the future is far from certain and maybe not so rosy. Let me try to tell a story; at the bottom of the post, a list of links and resources.
The Internet in the 1990s and 2000s
Let’s start with the preamble. In the United States, the story of the Internet has been one of relatively low barriers to entry. For consumers, access fees, which, of course, not everyone could afford, allowed relatively unlimited access: you could go anywhere and for as long as you wanted. (This is in contrast with the earlier European model, and in some developing countries, where access was limited either by time or cost, and this is still the case in many places today).
The mythology of the early web is one of young entrepreneurs and start-ups creating websites and programs, throwing them up on the open web, and living and dying by a consumer-led marketplace. This is, of course, a myth. Corporations were very active in the web, from the mid-1990s, and our most beloved start-ups, from Google to Facebook, were started (mostly) by the same kinds of people who run big corporations: overeducated men.
Still, there’s some truth to mythology. Consumers didn’t have to pay for much, neither did would-be publishers, developers and producers.
Venture capitalists took risks on new ideas, expecting profits to develop organically, counting on rising advertising rates and growing adoption of broadband Internet (more money, more users).
The Big Picture: What’s Happening Now
As those start-ups matured — from the early entrants like Amazon and Yahoo, then Google, followed by social networks like Facebook and content companies like YouTube — and as mainstream companies finally started to work out how to do the web right — Hulu, primarily, but I would also add publishers like CNN and The New York Times — a new conundrum emerged: there were a lot of users, advertisers were in the game, but revenue wasn’t rising fast enough and, for some, costs (hosting, licensing, producing, marketing) were going up, not down.
What’s so important about advertising? For most of modern media history, advertising has been the love-hate patron of content: from newspapers to television, magazines to radio. Advertising gives users “free” media, and for the early history of the web, the hope is it would stay that way.
The key problem: online advertising, while fluorishing, has yet to reach maturity. New media companies promised advertisers stronger connections with users, emotionally and practically: users would find the products they wanted alongside relevant content. This would ensure a diversity of content and content providers, essentially democratizing media. The problems with model? Measurement, for one. Reliable metrics were, and for some are, slow to develop, and advertisers wanted the deep metrics they knew the web could deliver, but all they received was mind-boggling complexity. Today, metrics are still being perfected, and while everyone knows it will happen, and many companies are starting to deliver, for media companies looking for more online revenue, it’s not happening fast enough.
The other problem, some say, has been competition: too many websites and too many portals for content lowers costs.
These twin failings have had numerous outcomes. To support still-inadequate ad rates, content providers are reaching for pay models; and to solve the problem of over-supply, larger companies are seeking to upend the net’s neutrality.
Adding to Ads: Alternate Revenue Streams
What’s the solution? There isn’t just one, and here enters paying for content. Among all the remedies sought by companies (many of which are publicly traded and must deliver returns for shareholders on a quarterly basis) nearly all involve some variation of pushing costs to consumers. These costs aren’t always direct, e.g. subscription rates. Some are indirect, not monetary but cultural and social.
So companies have sought alternative revenue streams. To be sure, this is happening all over media, old and new, and not every new-fangled idea is bad for consumers. Television, over the past ten to fifteen years, has been particularly zealous in its pursuit of new models. DVD sales, international distribution, syndication, creative branded entertainment and web series, and, most recently, retransmission fees are perhaps the most prominent examples. Some of these strategies save consumers money and diversify their options (branded entertainment, international sales), but some may eventually pass on costs to consumers (retransmission). Film industries have looked to 3D, IMAX and product placement with renewed fervor.
New media companies and mainstream media companies working online have had fewer options. Some companies with deeper pockets have employed some of the same strategies as their television companions — see, for a quick example, international syndication for Sony’s Crackle and MTV‘s web series. Google’s entry into television with Google TV is another major example of diversifying cash flow in fear of uncertain growth elsewhere (online ads), even though it doesn’t need the money.
The search for new streams and higher margins is leading new media companies into new territories, and demand direct payment seems to be the next frontier. Hulu has introduced Hulu Plus and is considering plans for a three-tiered model: free, subscription with ads, and ad-free subscription. Fearing online is symphoning ratings from on-air shows, Hulu partner NBC is warning consumers free TV online is not guaranteed, even though broadcast television has been “free” for most of its history, subsidized with advertising. Of course, long before Hulu, print publishers have been in an on-again, off-again love affair with subscription models — from the Times, Financial Times, Telegraph, Variety, Wall Street Journal, etc.
Hulu’s actions are a significant move because it marks a turning point for online video. IAC chief Barry Diller, which controls prize property CollegeHumor, said it plainly last year: “consumers will and must pay for good content.” Ad rates for online video simply aren’t keeping pace with revenue expectations from shareholders and in light of high costs — from hosting/data/bandwidth costs to licensing fees for high quality content.
Subscription is only the most obvious answer to the cash-flow. Other critics, like Jeff Jarvis, are concerned about the coming wave of “apps,” made most clear by the success of the iPhone and iPad, Android and Google TV (potentially), and its fast adoption by mainstream media companies, from print publications (who have also been excited by app subscription models through devices like Kindle) to video companies like Hulu. In this model, consumers pay both for data plans, subscriptions and individual apps.
Net Neutrality as the Next Wave: Controlling the Sea, Limiting Supply
All this asking for money is a lot of trouble (protests from consumers), especially for companies who already have the benefit of scale to pursue other ways of guaranteeing revenue. Why duke it out with millions of websites and thousands of producers when their content is already in demand and the most visible?
This bring us to net neutrality, Google and Verizon. The laymen’s version of what’s going on is simple: Google pays the Internet and mobile provider for higher quality access, priority over the web’s vast sea of free content. Why do this? Google’s argument is one of demand: everyone uses Google, and YouTube is still homebase for video, so it should be faster because more people want it. On the surface, it make sense.
What’s left unsaid is the aforementioned issue or revenue competition. With its content prioritized, the new media giant gets guarantees its ad revenue will grow. In other words, the stream of cash most publishers and new media companies are most unsure about — advertising — will become more secure but only for the companies that can pay up. Companies with cash to paying for special access — in online video, Google and Hulu — will limit the supply of content of online video, raising rates and view counts for the few and leaving the rest to wither.
The Google/Verizon deal has the sheen of greater efficiency, but in truth it’s as blunt an instrument as openly charging consumers to pay for content. It is, essentially, a move to tighten control over cables and restrict the number who can profit from the web. In this model, corporations take on the financial costs for content delivery — paying distributors for better access — in order to reap more benefits from as-yet immature ad models. But this plan still pushes cultural costs to consumers: we get fewer options.
“Speed matters when it comes to growing an online video audience. ‘Whenever you think about how to increase usage to a web platform,” Metacafe’s Hachenburg said, ‘the first thing is how quickly you can load your site.’…’At the stage of growth that this industry is at, an even playing field is important,’ Revision3’s Vance said. ‘Content should be able to be seen and viewed and judged on its merits, not on other matters.'”
Without equal access to consumers, new companies and content producers won’t be able to compete. In the end, users miss out on the kind of new ideas that could be the next YouTube or Facebook. That’s the cost. We are paying for the content we won’t ever receive and new ideas that could eventually lower our costs or add to the culture.
“Yet often overlooked is the fact that virtually all trend lines in recent communications history have moved, with success, from free distribution to some form of pay model. The viewing and listening public has demonstrated repeatedly its willingness to spend for content, so long as there is some degree of perceived value.”
Citing the examples of HBO and cable, then VHS and DVDs for TV and film, and finally satellite radio, Funt says consumers will pay for content, which is true. But there’s a bit of folly in the argument that media naturally tends toward pay models and greater concentration. The truth is, up until our recent digital conversion, television has remained at least somewhat free — HBO, after all, is just one channel, and pay-cable, while never-more-popular, is still a minority interest. Films are relatively low cost, especially with the rental market, and news, through television, has too been free, as has radio.
Translating this logic to new media is also a bit wrongheaded. Cheap and open access to web content — which encompasses most media — has been a hallmark of its revolutionary nature. The threats to this model are varied, and they’re not all bad per se — subscription-based web video is bound to happen, and, like HBO, won’t be the end of culture — but we should be aware of the changes.
Is the Web Dead, Dying?
This post began with hesistant doomsdayism, not a tone I’m comfortable with. Others, however, are leaning more stridently in this direction.
Rumor has it Wired is prepping a cover story by its influential editor, Chris Anderson of Long Tail-fame, entitled: the “Web is Dead.” (UPDATE: The cover story is out). There’s been no official word on whether the cover story is really headed for publication, but even the idea seems appropriately timed and thoroughly unsurprising. Anderson is a utopian. His most influential theories have proclaimed the web is an ideal marketplace for small, niche communities and markets and it will remain free.
One of the hopes put forth by those believing in a free and open web is the rising power of advertising to fund the great breadth of programming available to users and made by those users.
“Surely there are limits to the advertising dollars out there. Advertising can’t support everything,” Anderson wrote in Free, whose reviews were more skeptical and critical than The Long Tail, which arrived at the height of optimism about web 2.0. But, he maintained, “ad-supported models won online…and they’ll continue to win.”
A ghettoized (through direct pay models and app-based economy) and unfair (through a tiered Internet system) advertising market threatens to dismantle’s Anderson’s “free” web. No longer free, the web instead becomes subsidized by users, directly and indirectly.
What a Wired article about the death of the web might mark is a new wave in the myth of new media, from counterculture to cyberculture to a corporate culture resembling our 1980s moment of corporate consolidation, even as cable, home video and digital technologies threatened media hegemony.
The fear is we’ll all be locked in content ghettos or small complexes, confined to pay for a narrow amount of lackluster and mundane media controlled by the few. The concerns over apps, privileging payment and one-way business model, and subscription models, which segregate users by class, access and interests, all play into these fears.
We shouldn’t be worried about a stratified or concentrated web. Why? In many ways it’s already happened. Google already dominates web traffic, except for the precious few companies that can compete. A small group of publishers dominate page views. An equally elite group of ad networks and ad agencies dominate web advertising. And these companies, save Google and its newer cousins, are familiar: Microsoft, New York Times, ABC and the like. Our new media ecosystem lives in an old media world.
Yet even within these constraints, start-ups have been able to innovate business strategies, work with those who hold the pursestrings and maintain small but dedicated audiences and customers. Amateurs and independents continue to produce, improvise and create. There is little evidence to suggest these activities will cease in a new model of subscriptions, control and consumer-subsidy.
But we must continue to be vigilant and keep our eyes open for developments that could stifle innovation, close off citizen participation and stratify our media systems. The Google/Verizon deal, and the flurry of deals likely to proceed it, is one case of a particularly drastic and pugilistic development threatening to jeopardize many of the gains digital media has offered. We shouldn’t blame companies for taking these steps. They are reacting to specific market conditions over which they have little control and trends that seem particularly scary.
Nonetheless, it is up to public institutions and ourselves as consumers to safeguard our media experiences. A free Internet may be a myth, but it is a myth worth fighting for.
LINKS AND RESOURCES
Wiki information (for starters on net neutrality):
Ad networks and exchanges
CPM-based web advertising
Ad Networks and CPMs
Economics of Online Video (2007, old but useful for context): 1, 2
State of Online Video: Getting Paid for Content; How Videos Are Found and Consumed Online; How to Make Money in Online Video
Wikis: Branded Entertainment, CPM, Online advertising
Online subscription debates: