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Pay for Content? Whaddya, Nuts?

The growth of paid online content is going to be slower than media companies would like, according to a new study, which found that a full 70 percent of Internet-using adults polled this month "can't understand why anyone would pay for content."

The researchers, from Web measurement and analysis firm Jupiter Media Metrix, said that any transition from free to fee is up against some significant obstacles. In fact, online content revenues will only reach $5.8 billion by 2006, up from $1.4 billion this year, the company predicts.

Jupiter forecast that revenues reaped from paid general content will reach $2.3 billion in 2006 (up from $700 million in 2001), while revenues from online games and digital music will reach an estimated $1.8 billion and $1.7 billion by 2006, respectively (up from $260 million and $30 million in 2001).

One conclusion that could be drawn from the study is that advertising support will remain an important way to monetize online content, as subscription models take hold slowly. Alternatively, the predictions may spell failure for more online media companies that accept advertising, as their efforts to diversify their revenue streams meet with resistance. Increasingly, portals and other sites have turned to subscription services, as they scrambled for revenues in the face of a general decline in Internet advertising.

"While there is money to be made in the online content business, Jupiter's latest survey and market forecast numbers indicate that the mass market still largely shuns anything that smells like a subscription online," said David Card, Jupiter vice president and senior analyst, who presented at a forum in New York City today.

"However, in the near term, media companies will create subscription services via packaging, exclusivity and added interactive features," he said. "Over time, they must use the gradual U.S. broadband transition to re-set industry ground rules and re-condition consumer expectations."

There are some success stories in online paid content -- ConsumerReports.org and the Wall Street Journal online, for example. But there is also an Internet tradition, particular among the old hands, that subscribes only to the "information wants to be free" philosophy.

That philosophy is rocking the music business, and was one of the main topics at last night's Silicon Summit III.

Jupiter said its survey this month found that 42 percent of online adults expect over time that people will have to pay for content on the Internet, although that percentage is worse than opinions expressed in August 2000, when 45 percent of respondents answered the question the same way.

But despite consumer reluctance, Jupiter analysts believe that major media properties are in a better position than they were four or five years ago because they no longer face well-financed start-ups giving away quality programming in an effort to lure new users.

"The online future is beginning to look a lot like cable TV," Card said. "Established portals will emerge as networks that aggregate premium content and services in packages -- both those that portals determine and those that users customize. This will pave the way for content providers to resell premium content through numerous partners."

Jupiter's survey found that within the general content category, the highest revenue generating genres in 2006 will be audio/video entertainment ($600 million), adult entertainment ($400 million) and financial and business news content ($350 million).

Genres expected to generate the least revenue in 2006 include: consumer/shopping aids ($85 million), kids content ($95 million) and sports content ($95 million). According to the survey, fewer than six percent of online consumers would be willing to pay for kids, sports, video or shopping aid content.