Tuesday, June 30, 2009

Free vs. Premium: ESPN.com Case Study

Lot of discussion recently about free content online versus charging for it -- ad-supported models versus subscription fees. Obviously, the answer is some combination of the two.

Here is a thought experiment, using one of the more powerful brands/products in online media:

What if ESPN.com put everything original they did under an Insider subscription?

Free: Commodity products like AP stories, game recaps, scoreboards (and scoreboard info like box scores) and fantasy games, plus anything video. They could also make free any hard news the site reporters break or report, which will be out there anyway as fast as they hit "Publish."

Subscriber-only: Anything original, which means -- basically -- analysis and columns, but I would even include blogs like TrueHoop or Rob Neyer or the NFL divisional blog group. And, yes, even Bill. Especially Bill. But we'll get to that in a minute.

They already put magazine content behind the Insider wall, along with a small selection of other content. Most notably and recently, they showcased Chad Ford's NBA Draft content -- not just his mocks, but his original reporting, too.

Here is the quandary of the current context, of course:

News reporting has been commoditized; as fast as someone can "break" something, I can post it here (with my take) or anyone can post it anywhere. (Happy to credit you for "breaking" it, by the way -- not sure consumers have ever cared about that. You would be much better off not worrying about the credit and making sure you got me to LINK to it. A link is worth more than "as first reported by" text credit. Much much more.)

But even as news reporting has been commoditized, commentary has been commoditized even further. You could read a newspaper columnist's take on the Dodgers in the LA Times or the Red Sox in the Boston Globe. Or you could read your favorite team blogger -- one of many that cover your team. Or you could read the message boards of your favorite team's best online community. Or, hell, just the tweets of smart fans. The terrific thing about this commoditization of commentary is that it has become far more of a meritocracy; the best stuff tends to win.

Sure, promotion on a highly trafficked site helps artificially inflate page views, but that remains in the short-term; the long-term trends point towards highly fragmented audiences going to the sources that serve them best (presumably with the best-quality analysis, however you define "quality" to you -- a cute turn-of-phrase, a smart idea, well-researched data). Long-term trends also point toward the power of passed links: What people you trust recommend you look at.

Back to my thought experiment:

Let's assume that the majority of ESPN.com's page views are coming from this commoditized "free" content -- headline news that folks come back to check 5 times per day, scores and scoreboard information, fantasy. You could continue to sell ad sponsorships on this content with little if any erosion of the audience size necessary to generate large sponsorship deals. (Take it from me: The Quickie was sponsored from time to time -- you missed out, Starbucks! -- but it was a rare piece of original content that WAS revenue-positive; compare that to the mega sponsorship of, say, Tournament Challenge.)

Now, after you have still sold out your sponsorship inventory on the free content, take everything original you have created and offer THAT for a subscription fee: Forget the piecemeal offerings currently available; this is EVERYTHING. It has incredible value -- the best columnists across every sport, real-time commentary and morning-after commentary and enterprise super-stories that are worth the investment. Everything original.

What percent of ESPN.com's 20 million unique visitors per month would be willing to pay for that kind of content value? 5 percent (1 million)? 10 percent (2 million)? More? (I don't have the existing Insider subscriber numbers to use as a baseline.) And what if you charged a nominal fee for all that content: They currently charge around $40 a year. $3 per month seems more than fair for all that high-quality content. That nets ESPN.com anywhere from $40-100 million a year, on top of the ad sales.

Now, the downside: Going behind the pay wall provides an opening to competitors to emphasize that they have FREE commentary! But if quality is going to be the differentiating factor between sources of commentary, it forces everyone to step up their game: If you're going to charge for your commentary, you better have the best stuff; if you're going to try to convince people that your free commentary is just as good (or better), you better have great stuff, too. I am somewhat convinced that most sports fans would simply consume both, even at nominal cost to them -- especially if it was only nominal cost.

(Actually, I would make everything related to Fantasy sports free, including commentary and analysis, because the fantasy landscape is SO competitive that you have to offer as many high-quality free services as possible. If you satisfy the fantasy consumer, you will make back any lost subscription revenue in selling sponsorships to reach participants; besides, it's not like ESPN.com would lack for original content if you removed fantasy -- still a ton every day.)

The larger issue is that pay walls remove the content from the wider conversation online. Set aside the issues with search discoverability -- I don't mean to minimize that, because it's huge, but our example property, ESPN.com, has never really been focused on optimizing its original commentary for search (note that I specify its "commentary"; ESPN.com's commodity content like headlines, scoreboards and team pages is VERY search-friendly, to their credit). No, it really makes it harder for people who traffic in passed links -- bloggers, message-board participants, people on Twitter -- to link to your stuff, because there's always that pesky "Subscription required" caveat you have to apply.

But here's the upside: See enough of those links -- and those caveats -- and soon consumers might start to wonder what they are missing by not having a subscription themselves. That, in turn, will create more subscribers; once a critical mass of folks are "inside" (no pun intended), the passed links generate even more value.

(Funny: You hear a lot of newspaper company executives talking very hostile about Google and Huffington Post; you haven't heard that kind of talk from online-sports-media execs... I suspect that's because they recognize the traffic that comes from Google and from folks who excerpt-but-link-back, like sports bloggers. Might not drive a TON of traffic, but it drives credibility.)

Again, this is just a thought experiment. My inclination is to say "Information wants to be free!" My inclination is to go to sites that offer me free content, rather than pay for it, because I think that every time someone puts up a pay wall, someone else creates (or can create) free content of equal value on the same subject (without ripping the other outlet off, obviously). But that's because there are very few places that have shown me that they are worth my subscription payment -- put something as valuable as, say, every original piece of opinion and analysis on ESPN.com behind a subscriber wall and I'd pay for that in a second. It would simply be too much content that is too good to be missing.

Maybe I'm cherry-picking my argument, because it feels like it would work for ESPN.com in a way that it wouldn't for other competitors in the online sports media world -- or certainly the news or entertainment world. Besides, none of ESPN.com's competitors have an existing subscription product to build off of, as ESPN does.

And, make no mistake: I see the potential downside -- what if consumers don't adopt? (It certainly would indicate something about the value of the original content -- "I like it, but not so much that I'm willing to pay for it.") What if consumers stop coming to ESPN.com, not just for original commentary, but for the commodity stuff, too? Honestly, maybe it would happen like that. But -- and, again, maybe this is because ESPN is a special case -- the brand loyalty remains very very high. I think that if anyone could do it, ESPN could do it.

And, yes, purely from an academic perspective, I would be very curious to know how many folks would pay, say, $3 a month to read Simmons. He does, what, a million or two uniques per column? Let's be absurdly conservative and call it a million uniques, in aggregate, over an entire year. If even 10 percent of those fans felt strongly enough about him to pay $3 a month, that's $4 million a year, which -- as the business manager -- I would gladly split 50/50 with my star, roughly doubling what I figure is his current annual deal. Yup, those are 10 percent of his readers.

I have mentioned this idea to folks around ESPN.com a handful of times over the years -- I bring it up every couple of industry shifts. Usually, it is dismissed as a crackpot theory -- for a lot of good reasons listed above. I'm not even going to commit to supporting it myself -- I just think it makes for an interesting theoretical discussion. You might not be willing to pay for a small fraction -- however high-end -- of ESPN.com's original content, but would you be willing to pay for EVERYTHING they do?

I guess you could file it under "Freemium" -- some stuff free, some stuff paid. Antenna TV: Free. Basic cable: Paid. "Sopranos" and "Curb Your Enthusiasm" and "Joe Buck Live": Pay even more.

Again, this is just a thought exercise, inspired by the current discussion over free versus subscription and the "value" of original content produced by high-end content publishers.

I can say this with certainty: Who in their right mind would try to make LINKING illegal? (Oh, a Federal judge? AWESOME.)

-- D.S.

UPDATE: Great tweet response from a reader about a terrific case study for successful deployment of a "freemium" strategy being Rivals.com.

How did Rivals pull it off? Three main reasons:

(1) Partly, it was the same reason that the Wall Street Journal pulled it off -- they launched with a strategy to make subscribing part of the service, right from the start.

(2) Partly, it was because they trafficked in, what was then, very exclusive information. It's the same reason finance and political newsletters still find a paying audience.

(3) Partly, it was because of the incredible message board communities -- incredible, in part, because the subscription fee was a hurdle to keep out the trolls and leave it to serious fans.

Hard to replicate now:

(1) Sites that might charge aren't launching; they are established (as free destinations);

(2) Info/intel -- even recruiting -- is simply too commoditized; you could not start Rivals or Scout in 2009 and expect folks to pay a subscriber fee;

(3) Great message boards are VERY hard to develop. They take years and dedication, which was all more available pre-Web 2.0.


bill_carrera said...

didn't the new times try this to some extent with its commentators? How did that work out for them? Oh yeah, they stopped when people wouldn't pay. There are enough big sports sites out there that I have a hard time believing it would work.

The Chicago Tribune tried it with their Chicago Bears coverage as well, and promptly drove people to the Sun Times online, which ended that experiment.

Dan Shanoff said...

New Times? Versus ESPN.com? Seriously? No relation. And, as I said, other sports sites could very well siphon off traffic.

Legit question: Do you think that most fans, for national news, look at all the sports sites every day? Or do they have their favorite?

(Chicago Tribune? Cherry-picked example: Positioned uniquely poorly to try it, given the competition with the S-T. I would liken it to why ESPN would never do it with fantasy content, because the comp with Yahoo and CBS is so intense.)

Unknown said...

I would pay 10 bucks a month to read Simmons...that's how good he is..I know he doesn't subscribe (no pun intended) to the pay model of charging of his work but wouldn't you say his salary represents that? He would make a lot of money if he were to split some of the subscriber fees.

bill_carrera said...

Sorry that would be NY Time, my bad for not checking my comment. My point with the Tribune v Sun Times is that they believed they were in a position to offer what people would pay to get without realizing that there were other ways to get your Bears fix.

Granted ESPN offers more unique content than the Tribune, but with NFL.com, MLB.com, NBA.com, CNNSI.com, sportingnews.com (which did I miss?), as well as the ability to RSS sports writers from around the country, I'm not so sure that ESPN could pull it off.

Brian said...

I'm actually an ESPN Insider subscriber (I wish I could pay less, and not get the magazine), so I have no problem paying the $40/year for the excellent content.

My concern would be if that model was successful for ESPN.com, how many other major content providers would follow? What if CNN & MSNBC decide to charge for premium commentary/analysis? What if Hulu decides to charge for premium shows? Go down the list of top web sites, same thing.

While I am willing to pay $3/month for ESPN, at some point there's a limit to the number of sites I'll pay $3/month to. And then some major sections of the internet might be closed to me.

Andrew Garda said...

Interesting idea and maybe it would keep ESPN from speculating so much - a few years ago you just couldn't believe what Mortenson & company were saying regarding the NFL. They were throwing so much at the wall hoping something stuck that you dissmissed everything that came out of their mouths. It's gotten better but maybe something like this would IMPROVE ESPN's overall coverage - more substance and less worry about being first.

Miss Daisy said...

I have long said that I would hold off subscription for ESPN until I couldn't get Simmons for free anymore. I still buy Rob Neyer's books but there's so much sabr-analysis that I don't miss the daily stuff as much. But yeah, his being put into the insider wall nearly made me a subscriber years ago. It's an interesting argument, Dan. I just wonder what the percentages would be and whether that drop off in numbers would make Simmons' ability to tap into the zeitgeist that much more constrained. His mailbags and access to the thousands of folks that write him endlessly is an asset that he exploits to color his columns. Don't they get worse without as many viewers?

Steph said...

I think the most difficult part of promoting premium content is the following:

If the content is so super awesome people feel the need to pay for it, then that super awesome content will find its way out on the internet with people who cut and paste or screenshot it out.

And if it isn't worth stealing, then it probably isn't worth paying money for.

I personally do not republish premium content, but I see a ton of it out there.

I think most premium content is evil and stupid. Authors hate it because it means they don't get read by people who have interest. Readers hate it because it can't be linked and well they have to pay for it. It's hard to promote because how do you know you want to pay for something that you haven't seen.

Premium content that is likely to succeed is stuff that you can't get anywhere else--like data, and not so much funny or news articles. It's like eating out at a nice restaurant-you should always order something that is difficult to make at your house. If you can easily cook it at home, why pay money for it?

Unknown said...

Umm... Dan... New Times = New York Times. Pretty relevant. (AP wire news like everywhere else, key feature commentary unique to the Times)

I don't go to ESPN (online) for scores and basic wire stuff. I would rather get that through the cleaner, faster form that Yahoo provides. Or through a blog reader. (and now even more via Twitter)

I go for interesting articles by their exclusive columnists. (which I'd probably be willing to shell out a few bucks for)

Really, I think the point is that you can't have it both ways. You can be an "everyman" site that generates huge ad revenue or you can be the premium site that get those willing to pony up to throw in money.

And I think your Rivals case proves the point, I'm going to guess that Rivals provides a miniscule sliver of the ad revenue for Yahoo Sports (maybe a touch more during the last week before LOI day), and their contribution is largely from subscription revs.

skpatel73 said...

Eh...I guess I'm the opposite. I try to avoid ESPN as much as possible because the site is too darned busy. I find that I can get my sports fix from non-ESPN blogs and sites just fine. Even recruiting. I think you are seriously overestimating the conversion rate for current readers. Maybe it would be useful to find out what the conversion rates were for other folks that tried it, and use that as the most conservative scenario, even though you are arguing the ESPN is unique.

My counter example would be Howard Stern going to satellite radio. The number of listeners that followed him to a pay model was far less than even the most conservative estimates at the time.

bill_carrera said...

"...The position of Internet professionals is straightforward: while it’s possible to charge for certain kinds of specialized information—specifically, information that helps you make money (and that you can, as with an online Wall Street Journal subscription, buy on your company expense account)—there are no significant examples of anyone being able to charge for general-interest information. Sites where pay walls have been erected have suffered cuts in user traffic of, in many cases, as much as 95 percent as audiences merely move on to other, free options..."