People started talking about micropayments from about 1998 and then again in 2003 but then it all seemed to go quiet. Until recently that is. Now, the state of the economy, and most importantly, the level of ad revenues that media owners are deriving from both their printed and digital media is forcing the issue. In the UK, 70 local papers have shut since the beginning of 2008 and in the US, across the country a newspaper is reportedly closing each week. For micropayments, the time is now.

Last week Rupert Murdoch, the head of News Corp, came out and said as much. He has assembled a team of executives to devise a system to charge for content on the Web. In the UK, The Guardian is also considering charging users to access specialist areas of its site to counter falling ad revenues. The Guardian Media Group CEO Carolyn McCall said:  “There will be some parts of our website - Media Guardian, specialist areas - where we should think about how we should charge for content. More people are looking seriously at how they can make money charging for content that costs a lot of money to make. I don’t think we will be doing much content online in B2B unless we get money for it.” The Independent News & Media and Bauer are reportedly also considering moving to a paid-for model.

For the last five years, everyone has thought that advertising was the answer. Between 2004 and 2007 online advertising doubled from $1.5B to $3.2B, but in the second quarter of 2008, at the same time that the decline in print and classified ad revenues accelerated.

There are many arguments for and against micropayments. What is certain is that if they are to work they need to be done well. There are four current models that are worth looking at: the Wall St Journal model, the Financial Times model, the Spotify model and the online gaming model.

1. The Wall St Journal Model – the WSJ charges for certain types of news. It gives away free news that will appeal to the masses (headline stories, film reviews etc.) but it charges for deep articles on areas where people are likely to a have specific interests. This is clever. You hook people in and where people really want to know about something, they’re already on your platform and they’re willing to pay for it. An issue with this, of course, is that people’s willingness to pay for an article is inversely correlated with the size of the potential audience.

2. The Financial Times model – you force registration for anyone wanting to see more than three articles a month (allowing you to serve them highly targeted ads) and you force payment for people wanting to see more than 10 articles a month of £3 or £4 per week. With this system the FT has over 1M people registered and over 100,000 people paying on a daily circulation of 420,000.

3. The Spotify model is to offer a free version that is flawed and then to offer people an upgrade to an unflawed perfect version for either 99p per day or £10 per month. In the case of Spotify the flaw is adverts getting in the way of the music. In the case of written media it could be incomplete articles or pop-up adverts, or something else.

4. The online gaming model – this is where micropayments have been around the longest. Here the model is fairly standardised. You start with a free version but then you need to pay to either “unlock” new levels or to buy tools that enable you to progress or beat your competitors. The way this works is very simple. You load up an e-wallet and then spend those credits. The e-wallet is quite often converted into a currency particular to the game and the key challenge for the providers of these currency has been finding as many ways as possible for players (who are often young – i.e. without credit cards – or in countries where payment is more challenging) to be able to pay.

All of these are well and good, but they aren’t yet offering a solution where micropayments will work for tabloid papers. In tabloid papers there are rarely deep interests (as there are for the WSJ or the FT), rather the reader is grazing the news. It is difficult to see how you could offer a free service with impediments that might compel them to upgrade to a paid service and even if you did, the risk of switching to a competitor is too high. And with an e-wallet solution, there is simply too much of a barrier in asking someone to fill an e-wallet. For instance, I may be willing to pay 2p to read an article in the Guardian but I am not willing to load an e-wallet with £20 in order to pay that 2p.

The opportunity in this space is for a company to develop a platform that can work across all media (helping aggregate the payments in a timely way) that allows for a slow ramp introduction for users and that can orchestrate the major media owners within any given media vertical in a specific geography to move at the same time. Two years ago that would have sounded impossible. Now, with a burning platform scorching the toes of the media owners, it seems like a very real and exciting possibility.

Source: The Economist, May 16th 2008, “Briefing: the news business”;  New Media Age May 6th; New York Post, May 6th; Newspaper Association of America

Here’s the latest thinking (as of 21st July 2009) on what’s happening in the UK press from Media Week:

News International
Emboldened by the success of the fee-charging Wsj.com, Rupert Murdoch has set the tone in favour of online charging. Newspapers such as The Sun and The Times could be charging within 12 months, while The Sunday Times is reportedly set to launch a stand-alone subscription website within the year. A final decision over whether it will involve subscription or micropayments has yet to be made, although it is believed the outcome could shape the way the company charges for content.

Trinity Mirror
Trinity Mirror’s total digital revenue increased 27.1% to £43.6m in 2008. But this also represented just 5% of the group total, at a time when overall revenue dropped more than £60m. Mark Hollinshead, managing director of Trinity Mirror’s nationals division, says the company is “evaluating whether there is a feasible model for charging content”. However, he maintains a payment model is more likely to work for niche content unique to the Daily Mirror, Sunday Mirror and The People brands than for generic news copy.

Guardian News & Media
Ratcheting up a record of 29.8 million unique users in January, Guardian.co.uk remains the leading newspaper website. GN&M managing director Tim Brooks says: “The free model has served the first chapter of the evolution of the internet extraordinarily well.” Speculation on a transactionary future was heightened earlier this year when Carolyn McCall, chief executive of Guardian Media Group, suggested some of The Guardian’s specialist content could become chargeable property in the future.

Daily Mail & General Trust
The parent company of the Associated and Northcliffe newspaper groups is also considering charging for content. James Bromley, managing director of Mail Online, says: “Free content will continue, but publishers, including us, will find increasingly innovative ways of charging for digital services.”  Micropayment or specialist content such as supplementary celebrity coverage were among suggestions mooted by DMGT chief executive Martin Morgan earlier this year.

Telegraph Media Group
The Telegraph has focused on unifying its print and digital offering in recent years, with investment in online video and a range of rich content. It already charges for its fantasy football and crossword offers. TMG also looked to exploit mobile, initially launching a mobile site with a £5 monthly subscription service, but dropped the pay barrier last August. The Telegraph declined to comment, but issued a statement: “Our strategy is to continue to grow our audience and ensure our content is available to as many users as possible, while also maximising commercial digital opportunities.”

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