Want to read all about it online? It may cost you

With their advertising revenue drying up, newspaper publishers spent much of the spring and summer debating whether to cut off free online access to some of the material they run in their shrinking print editions.

It looks like the talk will turn to action this fall, when some large newspapers are expected to put up Internet toll booths.

They'll be testing readers' willingness to pay for information and entertainment that mostly has been given away online for the past 15 years. That happened largely because most publishers could afford to subsidize their Web sites with profits from their print franchises. But now those profits have crumbled, just as the prices for online ads are tumbling, too.

A recent study by the American Press Institute found 58 percent of the responding newspapers are considering online fees. Of that group, 22 percent expect to introduce the fee before the end of the year. The findings drew upon 118 interviews of newspaper executives in the U.S. and Canada.

The free-to-fee transition likely will occur in tentative steps rather than bold leaps that would lock all online content behind a pay gate. Publishers are taking this cautious approach because they are still trying to devise online payment plans that will generate more revenue without alienating too many of their readers.

For instance, the Pittsburgh Post-Gazette, a newspaper with a weekday circulation of about 206,500, recently launched a Web site that includes coverage and commentary on sports, politics and entertainment that isn't in its printed product or free online edition. The service costs $36 annually or $3.99 per month.

Other newspapers that have talked up subscription plans remain reticent. Newsday of Long Island, New York, still hasn't rolled out fees for its Web site, even though the newspaper's owner, Cablevision Systems Corp., said it was going to do so this summer. Newsday spokesman Paul Fleishman declined to comment.

The conundrum facing publishers: It's hard to figure out how much, if anything, readers will be willing to pay. Internet search engines and digital communication tools such as Twitter and Facebook ensure people still will be able to find and share plenty of free content.

But running totally free sites hasn't been paying off for most newspapers. Even before the online market began to slump this year, Web ads were generating only a small fraction of the revenue that print ads do. The disparity has made publishers realize they need more ways to make money on the Internet, but few of them have been able to figure out how.

"This is like a four-dimensional chess game. It's really complex," said former newspaper editor Alan Mutter, who is now an industry consultant when he isn't writing "Reflections of a Newsosaur," a free blog.

The Associated Press also has been part of the online fee movement. The not-for-profit cooperative, which is owned by newspapers, is setting up a system that will track the usage of its stories. It's a crucial piece of a plan that could improve the AP's ability to run ads next to news stories and perhaps even lead the AP to charge readers to see major scoops or other "premium" content.

"The value of content has to rise," said Tom Curley, the AP's chief executive. "We are all looking how to make that happen."

Even as newspapers mull just how much to commit to charging readers, a competition is already brewing to provide the technology to enable it.

Four of the world's largest technology companies — Google Inc., Microsoft Corp., IBM Corp. and Oracle Corp. — have expressed an interest in developing an online payment system for publishers. Mutter also has been promoting his own approach to Internet fees, a concept he calls ViewPass.

Separately, more than 1,000 newspapers and magazines have signed nonbinding letters of intent to join an Internet fee system being assembled by Journalism Online LLC. It intends to begin collecting money on behalf of publishers before winter.

Backed by former leaders from Court TV and The Wall Street Journal, Journalism Online wants to run the cash register for a digital news smorgasbord. Readers will be able to buy stories from a wide range of participating publishers without having to repeatedly provide their credit card numbers and other personal information at each Web site. The content would be distributed on the Web and electronic reading devices, with each publisher dictating its own terms. As a commission, Journalism Online plans to keep 20 percent of the revenue collected through its system.

Although he isn't jumping on board with Journalism Online, News Corp. Chairman Rupert Murdoch is sold on online fees.

News Corp. already owns the newspaper industry's most successful Internet subscription model in The Wall Street Journal, with more than 1 million customers who pay for online access. The annual rates vary from $103 for an online-only subscription to $140 for a package that includes delivery of the print edition too. Now, Murdoch hopes to make online fees pay off for his other publications, which include the New York Post and The Times of London. Murdoch hasn't provided a timeline or specifics about his plans, however.

The New York Times is considering charging online readers a membership fee, with more details promised in the fall. It's a road the newspaper has been down before, only to reverse course after management concluded that the online subscription it required to read the Times' top columnists was crimping its Internet ad sales. The subscription service, which cost $50 per year, was scrapped in 2007 after a two-year run. It had 221,000 customers when the Times tore down the toll booth.

These days, the printed versions of newspapers are suffering so much that publishers appear determined to find a way to get readers on the Internet and mobile devices to pay something, even if it's just a few bucks per month. The question is mainly which publisher will jump off the sidelines first.

"There's still a lot of 'wait-and-see' attitudes out there," said Randy Bennett, senior vice president of business development for the Newspaper Association of America. "I think a lot of publishers would like to see some empirical evidence of what happens to other publishers who dip their toes into the water."

In a worst-case scenario, imposing online fees would drive away so much of a newspaper's Web audience that publishers would lose more in Internet ad sales than they would gain in new revenue.

In a best-case scenario, newspapers charging their online readers would still retain enough of the audience for their Web sites to remain attractive marketing channels. What may be even more important, the fees might make readers more willing to pay for the print editions if the same content isn't on the Web for free, especially if print subscriptions include free or discounted Web access.

Preserving the value of their print franchises is one of the main reasons for publishers to charge for Web access. That's because newspapers still get most of their money from print ads, which accounted for $35 billion of the industry's revenue last year. Newspaper print ads are on pace to fall below $30 billion this year.

Online ads, in contrast, contributed just $3.1 billion in revenue last year. And while that category had been growing until this year, it wasn't fast enough to offset the erosion in print ads. From 2005 through 2008, the industry's annual revenue from print ads dropped by $12.7 billion. Meanwhile, newspapers' annual revenue from online ads increased by just $1 billion.

Journalism Online's co-founder, Steven Brill, believes newspapers can still hold on to most of their online readership by charging for only their best work — information, images and audio unlikely to be found anywhere else on the Web. This presumes publishers will be able to prevent the content from being copied and pasted or even just summarized at other sites, a potentially daunting task.

Some publishers still have no intention to charge for online access because they have concluded online fees are bound to backfire on the newspaper Web sites that adopt them, Mutter said. The American Press Institute study found 44 percent of the respondents don't think Internet fees will provide a significant lift to newspapers' future revenue.

"The guys who hold off (on Internet fees)," Mutter said, "could have a huge windfall in new traffic."

Asian social networking sites profit from virtual money

By selling an array of virtual products from avatar clothes to e-furniture, Asia's social networking sites appear to have solved the conundrum of how to leverage big profits from their extensive user bases.

It's simple, they say, the money might be virtual but the profits are all too real.

Chinese university student Tan Shengrong spends about 20 yuan ($2.90) per month purchasing outfits for her pet penguin avatar or playing games on QQ, an instant message portal on Qzone, China's most popular social networking site.

It might not seem like a hefty sum, but every fen, or cent, is money in the bank for Tencent Holdings, which owns Qzone and saw an 85 percent increase in its second quarter net profit this year compared to 2008 despite the economic downturn.

"They keep growing even though the economy's bad because they keep making millions from cents from millions and millions of people," said Benjamin Joffe, head of Internet consulting firm Plus Eight Star.

From virtual clothes to e-pets, Asians spend an estimated $5 billion a year on virtual purchases via websites such as Qzone, Cyworld in South Korea and mobile-phone based network Gree in Japan, according to Plus Eight Star. That's about 80 percent of the global market for virtual products, it says.

"Social networking is just a way to get people together, but if you want revenue you have to sell them something. What they found was that people were happy to pay for content related to emotion, status and entertainment," said Joffe.

Of the virtual sales in Asia, about 80 percent comes from the sale of such items as equipment for online games such as rods for GREE's fishing game Tsuri Star 2. The rest comes from purchases for avatars on social networking sites.

Such is the success of virtual sales on Asia's most popular social networking sites that Myspace and Facebook are starting to look with a fresh eye at the potential of virtual money to generate cold hard cash.

Qzone's Tencent Holdings made over $1 billion last year with just 13 percent coming from advertising revenue. In contrast, Facebook and Myspace depend on advertising to fund most of their revenue.

The evolution of virtual money on social networking sites in Asia is partly due to a less developed online advertising market which drove Asian web businesses to seek new ways to profit.

Cultural issues are at play too. Gaming is popular among adults in Asia, whereas in the West it tends to be only for kids.

East Asian societies are also very status conscious. Players are loath to be the only avatar without the latest gear and Asians are perhaps more willing than counterparts in the West to buy virtual products to update their avatars or social space.

Asia's social networking sites tend to be country specific but they have very active user bases.

Qzone had 228 million active user accounts for the second quarter of 2009, although it won't give out monthly visitor figures. Meanwhile, Cyworld, which says that 90 percent of South Korea's 20-somethings are members, had 23 million unique visitors per month at the end of the first quarter of 2009.

Virtual rentals

Like their Western counterparts, Asian social networking sites allow their users to chat, play games and share photos.

There is also some advertising, but the sites earn most of their revenues from their users. Members are represented by avatars and acquire virtual currency from the sites to buy digital goods, game packages or upgrades.

The model has taken off abroad but there is still a long way to go until the West catches up with Asia.

Habbo, a social networking site for teenagers owned by Finland's Sulake Corporation, sells virtual clothes and furniture. Meanwhile, games such as Pet Society which is available on Facebook and allows users to raise virtual pets, sells goods such as virtual pet accessories and e-food.

Playfish, creator of Pet Society and other social games, says it has 47 million active users per month playing its games.

With seven million or so inhabitants, the virtual world Second Life offers a range of e-wares for sale for Linden dollars. Some are mundane and others are controversial such as guns and virtual phalluses with price tags based on the size.

Asia is also a playground for a range of virtual business models such as rentals. For example, Cyworld rents background skins of popular South Korean baseball players for limited periods. Such rentals drive repeat sales and tap into trends.

Lost in translation

The success of these East Asian sites contrast sharply to the frustrated social media landscape across the Pacific where despite immense popularity, Facebook and Myspace are yet to fully harness the profit potential of their massive user bases.

Facebook, the world's biggest social network with close to 300 million visitors per month, is on track to bring in more than $500 million in revenue this year, mostly from advertising, but its focus is on growing its user base rather than making money.

Still, a recent New York Times article suggested signs of an exodus from Facebook as disillusioned users leave due to privacy concerns or complaints of rampant commercialism.

Rupert Murdoch's MySpace has been unusual among the major social networks in turning profitable through advertising sales, although is now undergoing a major overhaul, including ousting its CEO and firing hundreds of staff, in the face of worrying user metrics.

Meanwhile, both Facebook and MySpace are eyeing the virtues of virtual money. Facebook, which sells virtual goods mainly in the form of 'Facebook gifts' through a credit system, said in March that it was looking at offering a common virtual currency to third-party application developers.

At the Web 2.0 Summit late last year, Myspace's recently-departed chief operating officer Amit Kapur mentioned that that the firm was also seeking to develop a payments and virtual goods system.

Meanwhile, Internet entrepreneurs are coming to Asia to pick up on innovative web business models.

In June, 32 venture capitalists and Internet entrepreneurs visited Japan and China under the banner "GeeksOnAPlane," to learn about local success stories such as DeNA, video hosting website Tudou, and gaming website PopCap.

"They were all blown away even though some of them already knew about what was going on here," said George Godula, founder of Shanghai-based consultancy Web2Asia. "They (Asian social networking sites) are quite nimble at finding out business models or ways of how to make money," he told Reuters.

Social networking sites grab big slice of Web ads

About one of every five Internet display ads in the United States is viewed on a social networking Web site like MySpace and Facebook, according to a new report.

The report by analytics firm comScore underscores the increasing prominence of social media sites in the Internet landscape and broadening acceptance of the sites by brand advertisers.

It also illustrates the increasing competition between social media sites and established Internet companies like Yahoo Inc and Time Warner Inc's AOL which have long billed themselves as the top online destinations for brand advertisers.

The study by comScore, released on Tuesday, said social media sites represented 21.1 percent of U.S. Internet display ads in July, with MySpace and Facebook accounting for more than 80 percent of those ads.

"Because the top social media sites can deliver high reach and frequency against target segments at a low cost, it appears that some advertisers are eager to use social networking sites as a new advertising delivery vehicle," said Jeff Hackett, senior vice president of comScore.

According to comScore, AT&T Inc, Experian Interactive and IAC/Interactive Corp's Ask Network were the top three advertisers on social networking sites in July.

While social media sites have enjoyed a surge in popularity in recent years -- Facebook is now the world's fourth-most visited Web site -- some observers have questioned whether the sites can be effectively monetized.

Because the content on social media sites is created by users, and could therefore prove racy or offensive, some have questioned the willingness of marketers to place their brands alongside that content.

"They are sensitive to some extent, but nowhere near to the extent you might think," Sanford Bernstein analyst Jeff Lindsay said of advertisers.

The price of placing ads on social networking sites is significantly less than on a Web portal like Yahoo or AOL, said Lindsay. The vast amount of Web pages available on social networks means that advertisers can purchase a massive volume of ad impressions at bargain prices.

The strategy may not be ideally suited to smaller marketers, or advertisers seeking a direct response from their ads, said Lindsay.

"For big, national brands it works just fine, just like TV," said Lindsay. "It's a huge, huge volume game."

A Google model for mobile advertising?

The week is not over yet but it seems I've already exceeded my quota of interviews with IT executives. Most of them are mobile officials who came over to the country to attend the recently concluded IMMAP (Internet and Mobile Marketing Association of the Philippines) conference.

I picked up a number brilliant ideas from these guys who all argued that the next battleground in digital marketing is in the mobile sector. While Google has undoubtedly made the most money out of the Internet, its competitors, including archrival Yahoo, are locked in a race to conquer the mobile space.

One of the most interesting comments I got from my interviews is from a Dutch guy named Boudewijn Pesch, who is the managing director for Asia-Pacific of Acision. I almost did not attend my session with Pesch because my interview schedule was mixed up with that of another reporter and the venue was the company's office in the opposite end of the metropolis. The late-afternoon gig became messier when strong rains made traveling doubly hard.

But, I'm glad I dragged myself to the Pesch interview since the guy was not the typical executive I usually encounter. He was quite stingy with his answers and responded with a single sentence for each of the questions I threw at him. Thus, I had to constantly ask questions to keep him talking.

At the start of the interview, Pesch proudly pointed out that Acision, a Netherlands-based tech company, is the inventor of SMS or text messaging. Since I had no idea who really invented this technology service, I didn't dispute his assertion and accepted it at face value.

Pesch also admitted that his company developed the Duo service offered by Globe Telecom. The innovative offering allows mobile phone users to make unlimited calls to landlines and other Duo-ready phones at a fixed subscription fee. Pesch stressed, however, Globe had first broached the idea and Acision only provided the technology.

One interesting comment he made was on the issue of mobile advertising. Acision, he said, has actually developed a technology that allows advertisers to insert their ads in the text messages sent by subscribers.

Pesch this is similar to the Google model in which ads that are related to the queries of users are placed alongside the search results. As we all know, Google has extended this model to its Gmail service wherein ads related to the e-mail sent by its subscribers also appear inside their inbox.

The exec said they already presented this service to local operators, which, I'm sure, will thoroughly study it first before deploying it commercially. Pesch didn't mention any pricing scheme, but the only reason I can think of that consumers would agree to have ads in their text messages is for operators to give free subscription service in return.

It would be interesting how this thing will pan out.

Rigodon Update

Internet firm Yahoo has just appointed a new guy to lead its Philippine operations. Jonathan "Jack" Madrid, former head of technology incubator iAyala and managing director of MTV Philippines, will replace tech pioneer Jojo Anonuevo, who will take up a regional post at Yahoo in Singapore.

Madrid also had a short but uninspiring stint as a manager at Dell Computer's call center before the facility was sold recently to Teleperformance. But, I guess the company had to put in a marketing man in charge after Anonuevo, a technology guy, was done setting up the local office.

Also, veteran IT exec Nilo Cruz has reportedly taken up a new post as head of the joint venture of Smartmatic and TIM, the consortium that won the 7 billion pesos (US$144.2 million) 2010 automated elections contract. Cruz's experience and network as former country manager of Compaq, Hewlett-Packard and BT will surely come in handy in his new job.

RP mobile marketers eye $60M ad pie

Local mobile marketers are targeting a larger piece of the local advertising pie as consumers continue to give more attention to digital media, the president of the Internet and Mobile Marketing Association of the Philippines (IMMAP) said Tuesday.

IMMAP president Arthur Policarpio said the trade group's vision is to capture 2%-3% of total ad spend in the Philippines, amounting to $60 million-$90 million, in the next three to five years. The IMMAP is currently composed of 86 member companies, including 37 mobile companies, as well as advertisers, agencies and publishers.

He said that while some companies have spent money on Internet and SMS advertising, a large portion of their budgets still goes to traditional print, TV, radio and outdoor media platforms.

One platform that remains largely untapped by local advertisers is mobile marketing. From less than a million subscribers in 1996, the Philippines now boasts of over 70 million mobile subscribers this year.

Policarpio said one challenge faced by marketers is lack of understanding of mobile's potential and potency as a marketing tool. "The mobile phone is the only device that you have on you almost 24/7. It's a marketing platform just waiting to be tapped," he said at a digital marketing summit at SM Mall of Asia.

He said that beyond SMS, marketers could also look at other mobile marketing initiatives such as bluetooth advertising, mobile Internet advertising and mobile applications.

He noted that Yahoo! Mobile's site receives 1.2 million unique users per month and 128 million page views as of August 2009. He said separate data supplied by Admob showed that local mobile sites logged in 380 million page views a month.

Admob statistics also show a rise in sales of smartphones in the Philippines such as the Nokia N70 and Nokia 3110c, which is fueling the increase in mobile Web browsing.

Policarpio acknowledged though that there are some barriers into increased adoption of mobile marketing including the abuse of consumer privacy and rights, lack of industry-specific research, lack of knowledge on the part of the advertisers and lack of industry-wide metrics and measurement.

"This is the vision of IMMAP - to become the recognized thought leader and center of mobile marketing innovation in the Asia-Pacific region and to leverage global best practices, standards and consumer guidelines," he said.

The IMMAP recently partnered with the Mobile Marketing Association and established the MMA Philippines Local Council. The objective of the partnership between MMA and IMMAP is to foster the mobile advertising and marketing industry in the Philippines.

A shift to digital media

MMA president and CEO Mike Wehrs said advertising companies in many parts of the world have exhibited a shift in brand thinking by seeing mobile as an essential and not just an experimental platform for marketers.

He said that with over 4.8 billion mobile subscribers worldwide, the platform has outpaced the growth of Internet and fixed-line users.

He said he expects spending on mobile messaging to rise to $2.9 billion in 2010. For this year alone, he said advertisers are reallocating $65 billion of their ad budgets from traditional media channels to digital channels including online, mobile, viral and search engine optimization (SEO).

He also noted trends in some countries such as mobile banking, alerts, mobile vouchers and coupons, as well as customer service application, which can be done via mobile phone.

"[Mobile marketing] delivers on the promise of one-to-one marketing. There's a higher level of engagement and interaction controlled by the consumer. Empowering the consumer makes the ad more effective," he said.

Yahoo-Microsoft deal finally worked out (confirmed)

The story has had quite a volume of press since a few months ago when Microsoft's offer to buy out Yahoo! for $47.5 billion was turned down by then Yahoo CEO Yang.

A couple of weeks later, rumors about a different Yahoo-Microsoft deal came out. This time, it was only for the Yahoo's search business, and Microsoft's advertising arm. In this new deal, it was supposed that Microsoft will handle Yahoo's search engine, while Yahoo handles Microsoft's online advertising.

Just yesterday, however, a deal not very different from what was rumored was confirmed to have been struck between the two tech giants. The obvious drive behind this would be to take on search and targeted advertising giant Google. But the question of whether it's going to work remains.

The long-expected deal means Microsoft's new Bing search engine will be combined with Yahoo's experience attracting advertisers in the first serious threat to Google Inc -- if the companies get regulatory approval and can make the partnership work.

Yahoo shares fell 12 percent as some investors were disappointed by the limited scope of the deal, which did not include up-front payments for Yahoo. Some investors had expected up to $3 billion up-front, according to a Bernstein report.

"I would have preferred more money," said Ryan Jacob, chief investment officer of Jacob Asset Management, pointing to the lack of an upfront payment, as well as revenue-sharing and cost-savings terms that were not as high as he expected.

"There are risks on both sides. Big deals like this tend not to work out. It's a long-term deal that's going to take a long time to implement," said Jacob, whose $40 million fund holds some Yahoo shares. "It's better than no deal."

Microsoft shares closed up 1.4 percent, while Google shares fell 0.8 percent.

Yahoo estimated the deal would boost its annual operating income by about $500 million and yield capital expenditure savings of $200 million. Yahoo also expects the deal to boost annual operating cash flow by about $275 million.

Antitrust obstacle

Under the deal announced on Wednesday, Microsoft's Bing search engine will power search queries on Yahoo's sites. Yahoo's sales force will be responsible for selling premium search ads to big buyers for both companies.

The partnership poses only a theoretical challenge to Google at present. It could take two-and-a-half years to get approval and be fully implemented, according to Yahoo Chief Executive Carol Bartz, which would mean the partnership would not be fully effective until early 2012.

Microsoft and Yahoo still face antitrust and privacy issues. Google dropped a planned search partnership with Yahoo last year under pressure from the U.S. Justice Department.

But experts said the deal would likely get the go-ahead after examination by Obama administration antitrust officials since it would create a stronger rival to market leader Google.

Google said only that it was "interested" in the deal, while the chairman of the US Senate antitrust panel said it warrants "careful scrutiny."

Microsoft and Yahoo expected the deal to be "closely reviewed" by regulators, but they were "hopeful" it could close in early 2010.

The deal concludes a lengthy, and at times contentious, dance between the two companies. They have been in on-again, off-again talks since Yahoo rebuffed Microsoft's $47.5 billion takeover bid last year.

Microsoft CEO Steve Ballmer clashed last year with former Yahoo CEO Jerry Yang, who was strongly opposed to an all-out acquisition. Relations between the two companies improved under new Yahoo CEO Bartz, who took the reins in January and started to shake up Yahoo's management.

Ballmer and Bartz met "three or four times" over the past six months as they hammered out a deal, according to Ballmer.

How the deal works

While Bartz had previously said any deal would require a partner with "boatloads of money," she said on Wednesday the agreement provided "boatloads of value," adding the revenue- share agreement in the Microsoft deal was more valuable to Yahoo than a one-time payment.

"Having a big up-front cash payment doesn't really help us from an operating standpoint," Bartz said.

Microsoft's AdCenter technology will serve the standard sponsored links that appear alongside search results. Microsoft will pay Yahoo an initial rate of 88 percent of search revenue generated on Yahoo sites in the first five years.

That means Yahoo can concentrate on selling ads on its websites, while still generating revenue from search ads without the expense of maintaining its own search engine.

Bartz said the deal will result in "redundancies" in Yahoo's staff, although she declined to be specific. She stressed any changes would not occur until after full implementation of the partnership.

According to comScore, Google has a 65 percent share of the US search market, compared with Yahoo's 19.6 percent and Microsoft's 8.4 percent.

"Microsoft will be able to report a greater share in terms of search ... And Yahoo doesn't have to spend any more money on search," said Barry Diller, CEO of IAC/InterActiveCorp, which owns rival search engine Ask.com.

Yahoo shares closed down $2.08 at $15.14 on Nasdaq, while Microsoft closed up 33 cents at $23.80 and Google shares closed down $3.61 at $436.24.