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Archive for July, 2010

The Paid versus Free Debate at CII Digital Media Conference in Bombay

I chaired a panel at the Digital Media Conference run by CII the trade organization yesterday in Bombay; the panel had some very talented media practitioners on it.

In my opening remarks I made the point that the free ( which is to say ad revenue is the main revenue and consumers have free access) versus paid ( where the consumer pays a periodic fee for access) is a debate that periodically surfaces.

It is rumoured that Alexander Bell, soon after he invented the telephone, seriously tried running it as a free service supported by ads but soon gave up on it.

The debate recently re-surfaced when Mr Murdoch raised the question about search engines making money by crawling and indexing newspaper content that has been created at great expense.

It is worth examining what are the circumstances under which a paid model works as opposed to the circumstances when a free model works? Or more realistically, since practically all media have some mix of each,  when does ad revenue become most of the mix and when does subscription dominate?

When the web industry started in 1995, we at rediff thought that subscription would be the order of the day but discovered within days that it owld not be so! Is the issue then that you cannnot charge for content when everyone else is giving things away free?

Music looked destined to be ‘free’ in the early 2000 period with web-based services like Napster and devices like the Creative music player, but Apple came along and combined a service ( iTunes) and a player (iPod) and built a very sucessfull model. Did this work because the payment process was so simple? Or did it work because the vertical integration helped simplify the whole business for the consumer?

Or does the stage in the life cycle of the industry matter? Broadcast TV was free ( ie mostly ad revenue) but Cable TV came along and built a subscription-based model. And the TV industry has always had another business mode- where the State subsidizes all or part of the cost of running the business: BBC TV ( where the consumer pays a license fee) , many European TV channels, PBS in the United States and Doordarshan in India are examples of variants of this  third business model, if we can all it a business model.

And then Radio was always free- till Satellite Radio came along and charged a subscription.

And finally, newspapers always charged a subscription till Metro in Europe created a business out of a free newspapers and this is spreading to the US as well.

What are the circumstances which create these different pay vs free regimes?

Tarun Katial, who runs the radio and TV business for Reliance Broadcast: The way the TV value chain is constructed with broadcasters, producers, cable MSOs, local cable operators and consumers , it is often not easy to spot why pays who and how much in the TV industry and also unclear from the way the value chain is constructed who makes the choice of what program is aired.

Ajai Puri, who runs Airtel’s DTH business: the total cost of creating and delivering content in India is about RS 1400 per user per month whereas the consumer is not prepared to pay much above Rs 200 per month.

Harish Dayani, who runs Moser Baer, asked the audience of over 300 media professionals for a show of hands from all those who can truthfully say that they never ever have consumed any pirated DVD. No hands went up.

Jaspreet Bindra, who runs Microsoft’s X-Box and related consumer businesses: is it that tools for creating and distributing content have evolved so much that the marginal cost of producing and distributing digital content is near zero- is this the reason, he asked, that the free model is possible?

Paritosh Joshi, who runs the Star CTV business described how he is experimenting with an v-commerce business- running a TV channel by generating income from TV-based ecommerce.

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