Fees for online content proliferating, but will users buy?

As the Internet matures, businesses continue to try and entice new users to visit their Web sites while also devising ways to generate revenues to pay for the sites.

And though the idea of paying for content online may still be foreign to many Web surfers, some well-known companies have quietly been making it work since the mid-1990s.

Dow Jones & Co has been selling an online version of The Wall Street Journal since November 1996, with all of the content of its daily print edition. The site launched in 1995 and was free, registering some 650,000 readers, said Todd Larsen, general manager of consumer electronic publishing at New York-based Dow Jones. By the end of 1997, about 172,000 readers paid to subscribe online -- just 26% of the number who had originally registered when it was free.

"We took some real heat for a couple of years" when the online subscriptions were established, Larsen said. "The company has been completely dedicated to the pay model since we started charging. There was a very strong belief within Dow Jones that consumers are willing to pay for high-quality content that adds real value to what they do."

Today, the online Journal has about 664,000 paying customers; only six traditional print newspapers in the U.S. have higher circulation figures, Larsen said. A one-year online subscription costs US$79, or US$49 for print subscribers.

The online operation recently reported that it's profitable, he said, and has an established and healthy revenue stream.

In retrospect, as the economy has made business tough for many companies, the Journal's decision to charge for content has put it in a good position, Larsen said. "The last year and a half has made a lot of businesses take a hard look at their business models and at their opportunities," Larsen said. "I think for us it's shown that we're moving in the right direction and have a long-term substantive business model."

Consumer Reports, the magazine of the US nonprofit Consumers Union, has been charging for its online content since November 1997, when its Web site was launched. The online edition has searchable archives going back four years for product tests and other consumer information, as well as free content for nonsubscribers, including general consumer safety information and mortgage calculators.

John Sateja, vice president of multimedia publishing at the Consumers Union, said the online magazine has more than 1 million paid subscribers, including about 25% who subscribe on a monthly basis and 75% who sign up on an annual basis. An annual subscription costs US$24, while the monthly fee is US$4.95.

Consumers are willing to pay for the online edition, he said, because it helps them in their buying decisions.

"If the information either makes money for you or saves money, then it has some value for consumers," Sateja said. There is no advertising in the company's print magazine or on the Web version, part of its mission to review products and services without advertising influences.

The revenue generated by the online edition helps the group to pay for its product testing and maintenance of its site, he said. "It provides quite a strong positive net income to the organization," he said. "It's worked very well for us."

Classmates Inc. has been charging fees since its inception in January 1996 as a central repository for old friends from schools, the military and other groups.

Randy Conrads, president of Classmates.com, came up with the idea after he and his wife attended their 20-year high school reunions and decided that the people in attendance would use such a resource to find one another in the future. The site began by inviting people to register for free to build up its membership, then initially charged just US$6.95 for a lifetime membership.

Today, Classmates.com charges US$36 for an annual Gold membership, which gives users the ability to e-mail other registrants and connect through chat and other means.

More than 32 million people have registered, including about 1.7 million who purchased memberships. About 15 million people visit the site each month. Getting more registrants to pay is a constant goal. "We really have to give people something they want to do," Conrads said.

The way his company has made it work, he said, is through a mix of subscription fees and advertising revenues on the site. Essentially, the memberships pay for the costs of maintaining the site and for marketing, while the ad revenues bring in the profits, he said.

"It's becoming more prevalent to charge money" for online content, Conrads said. "There are unsuccessful subscription models, too. You just have to have something people are willing to pay for."

The year, Classmates.com, which has about 200 employees, will bring in about US$70 million in revenues. It has been profitable since October of 2001, he said.

Conrads' latest subscription Web site project is RedWeek.com, which allows users to schedule time-share rentals with other property owners. The site, which had its soft launch last month, is free for now but will begin charging a US$25 annual fee by the end of the year.

Match.com, an online singles matchmaker service, allows visitors to register and search through thousands of profiles for potential partners. To e-mail someone, users pay US$24.95 a month -- or US$99 a year for a membership that provides e-mail privileges and other benefits.

Trish McDermott, vice president of romance and communications at company, said the site launched in April 1995 and began charging for memberships the following February after enough members joined to provide critical mass.

"The team felt that people would be willing to pay for content that would be meaningful in their lives," McDermott said. "I remember us talking about revolutionizing dating and the way people meet. I don't think we really understood the scope of the opportunity."

At the close of the company's third quarter in September, Match.com had 653,182 paid memberships and US$33 million in revenues. The company is profitable, she said.

A more recent convert to the pay-for-online-content model is American Greetings Corp., a greeting card company.

Charlie Fink, chairman of the board of AmericanGreetings.com said the site, which began as a free site in 1995 on America Online, moved to a hybrid model last December. About half of the cards online can be sent for free, while cards for birthdays and major holidays are available for a US$12 annual subscription. Last year, American Greetings bought BlueMountain.com, one of the most popular online greeting card sites.

"We have cards that people want at their time of greatest need," Fink said. "A paper card can set you back as much as $4 or $5. We have customers who send dozens [of online cards] in a week."

The free greeting cards lost money for the company for several years despite revenues from online advertising, he said, but things are turning the corner now. "We are focusing on breaking even this year. Next year should be a lot better."

The subscription model became very necessary as the economy soured, Fink said. "Had we been reliant solely on advertising, I'm not sure we'd be talking right now," he said. Some 75% of the company's revenues were from ads before the subscription payments began, but the online ad market has been hit hard by the tight economy, he said.

Now AmericanGreetings.com has about 2 million subscribers, with online ads still an important part of the site. "We're pretty happy about that," Fink said. "It should mean a stable, predictable business going forward. It should have been obvious to us from the start."

Carol Baroudi, an analyst at The Baroudi Group, said the lessons learned from these online companies are clear -- asking consumers to pay for content will be mandatory for more Web sites if they are going to remain viable.

"Everyone is going to have to do it because everyone has come to grips with the reality of business," Baroudi said. "Things that have arguable value are not going to make it."

When going to pay models, though, companies will have to be very careful to find the right price for their services so they can get consumers to bite, she said.

"It's very price-sensitive, I believe," Baroudi said. "I don't think there's going to be much in the way of free stuff online in the future."

Michael Dortch, an analyst at Robert Frances Group Inc., said consumers will likely "swallow hard and pay for it" if the content is worthwhile. But for enterprise customers, it's likely that any pay model will also have to have room for fee negotiations for a large number of users.

"IT executives are still reeling from their negotiations with our friends in Redmond, Wash., over software licenses," said Dortch, referring to Microsoft Corp. Those talks put IT executives in cautious and cost-wary modes, he said, making it likely that if new fees spring up for Web content, they'll seek discounts or other free online alternatives.

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