Selling Content on the Internet: It's Happening, But Is It Profitable? (page 1 of 3)

Surfing around the reaches of the Internet, consumers spent $748 million for content during the first and second quarters of 2003, a jump of 23% over the same six months in 2002, the OPA says.

Jupiter Research, an international research outfit, predicted earlier this year that spending on online content will grow by 30% in 2003 - to $2 billion from $1.6 billion in 2002. By 2007, Jupiter says, payments for online content will be $5.4 billion.

Meanwhile, some newspaper chains with web presences also offer rosy numbers. Knight Ridder Digital reports that in the third quarter of this year, revenues reached $21.5 million, up some 51% over the comparable 2002 period. Operating income was $5.4 million, a decided improvement over the $2.8 million loss in the same 2002 quarter. For its part, New York Times Digital says that third quarter revenues in 2003 climbed to $21.8 million, a 19.7% improvement over last year's $18.2 million. As a result, operating income reached $5.7 million, just about double the $2.8 million for the comparable 2002 period. Content that people pay for on media websites range from archived news stories to crossword puzzle solutions to articles bundled together around a particular topic.

"Consumers are slowly opening their pocketbooks for paid content," says David Card, vice-president and research director at Jupiter.

Are they? What do people mean by 'paid content'? And when online content providers report glowing revenue figures from online customers, they often don't mention profitability. Is anyone actually making money selling content?

Indeed, some of the figures cited above - and those of the OPA in particular - have been met with a degree of skepticism. Vin Crosbie, president and managing partner of Digital Deliverance, a Darien, Ct., consulting firm that helps clients market content online, thinks the Publishers Association's numbers are "questionable." The figures, he says, include sales of things like music, professional wiring reports from the Institute of Electrical and Electronic Engineer's web site, and all those greeting cards people send each other online at sites such as Blue Mountain Arts, not to mention information on former high school buddies sold by Classmates.com.

According to Anne Holland, founder of MarketingSherpa, a marketing consulting firm and the publisher of MarketingSherpa's newsletters: "You have to read those numbers carefully because they add in things that may or may not be (true content), things like dating services. There are different definitions of what information is and what people are paying for. It's very confusing."

Skeptics cast a dubious eye even on the figures reported by some newspaper companies since the numbers include items such as the sale of old articles on third-party services like LexisNexis. When Crosbie analyzes the online divisions of newspaper corporations, he "backs out" these kinds of earnings because, strictly speaking, they are not coming from the Internet operation.

Crosbie and others also note that in some cases newspaper companies attribute part of the revenues from their newspaper's print classified advertisements to the revenues earned by their web sites - on the theory that some of the ads are read online when browsers look at the paper's electronic edition or are duplicated online as part of the paper's web site. "If a newspaper says that its online service generated $60 million, but $20 million of it is an accounting transfer," then that can skew the actual revenue picture, Crosbie says.

Anne Holland, for her part, suggests that revenue reports such as the one released by the OPA miss many of the real marketing success stories in online publishing because the researchers concentrate only on the "big, famous" sites.