Why the subscription model is hard to lose

This post was inspired by Sean Carmody’s comment on my last post about subscription versus advertising business models on the web.

His observations initiated an important discussion about businesses in decline and those in their ascendancy. For businesses that are receiving significant cash flow from a declining/stagnant brand, it is difficult to forgo this income to gamble on a completely new approach to revenue. It seems that in the online publishing world the declining model is that of subscription and the model in the ascendancy is that driven by advertising, precisely because of the nature of the net and its multitudes – and the huge forecasts in online advertising growth in coming years. VC companies have had an affair with free content / advertising-driven models for some time now, much to the chagrin of those entrepreneurs with different ideas.

Web 2.0 is largely funded by advertising. Advertising is an AUDIENCE business. So, when Paul Graham is telling his companies to worry about building audience first, that’s actually a good point of view to take. It’s like building a magazine. If you don’t have any readers you won’t get any advertisers.

Robert Scoble – Scobleizer

However, subscription sites will continue into the future. An online media business with a significant subscription base would be loath to write off the resulting revenue to bank on it being replaced by advertising – even if that subscription business is markedly in decline.

The strategic end of those subscription-based media businesses caught in this quandary, such as the Australian Financial Review (under threat from Murdoch’s Dow Jones/Wall Street Journal purchase) and other major B2B organisations I have dealt with, either have related advertising-only businesses (such as the Sydney Morning Herald and The Age) or are investing in free, advertising-only models that service the same market under different brands, to hedge themselves.

As content creators and publishers determine who is best placed to do what over the coming years, we will see businesses managing the subscription and advertising models to maximise revenue from their assets.

Monetising future content

I was at the Future of Media Summit 08 on Tuesday and one of the discussion groups I attended focused on business models going forward as media organisations attempted to rationalise the continued breakdown of their traditional content models.

The move away from subscription-based and ‘pay for content’ systems was questioned as potentially due to a weakness in current technology, rather than an intrinsic and systemic change in the media environment and consumer needs.

Dr Stephen Hollings, CEO of News Digital Careers, asked whether the internet simply had not delivered the right form of micro-payment system that provided the required flexibility to all parties.

This is an important question. In a modern environment of information overload, will participants (and by this I mean those who read, interact and give feedback to media and content providers through comments, uploads and other connections – as outlined by Chris Saad in his presentation at the Summit) ever pay for anything again? Commentators cast the digital generations as having shorter attention spans, wanting greater diversity of views and perspectives, shorter pithier articles, videos and audio pieces. In short, they want to consume smaller things more ravenously – and be acknowledged for their contribution to the cycle of creation. This new media momentum is not stopping.

If this is true, complete subscriptions to publications of which few articles are read will be a hard-sell to participants who surf the web or, rather, take feeds from multitudinous sources to aggregators like Google Reader.

In the absence of an adequate micro-payments system, is advertising the only real source of revenue for online content creators? And if so, how do we organise ourselves into powerful engaging entities that will deliver relevant, salient information to transient participants and what will be the acceptable formats for advertisers?

(Update: Ross Dawson, who organised the comprehensive trans-Pacific Future of Media Summit, has just posted a list of 16 blogs covering the event.)