Digitalwall: Three Musts of Digital Content Biz (2) Stop Selling "Containers"

No business beats printing bills to collect fees at set internals.

In the digital content industry, PC game companies are among the first to stop selling the "containers," realizing what the Internet is all about. Earlier on, PC game companies made and sold games for playing on a standalone PC. That was a time when consumers got carton-packaged games, had the game installed, and played it by themselves at home.

Like I said, it could cost quite a lot to dispatch the containers through the retail network. A game software could thus easily cost up to US$30 or more, a price pretty daunting to students that made up the bulk of game consumers. This then gave rise to an army of pirated softwares circulating on campus for students to "share."

In the online game era, a software disc sells for only a tad more than US$1, meaning the game company practically gives away the disc free of charge as the price barely covers the costs of distribution and packaging. But the disc contains only software for consumers to install at home. To play, they must pay for connection to the game server by purchasing stored-value card or a monthly-fee card.

Since emergence of this business model, piracy has been snuffed out, as in this case, the purchase of the packaged game discs marks not the end of a transaction but the beginning of what should be an extended span of stable monthly fee inflow. Such customer relation can go a long way in helping pay for game development and content updates.

In fact, the new online game business model is a picture-perfect example of the convergence of the three musts of successful digital content business, which are a monthly fee, a community, and a real-time connection. The monthly fee helps companies rid themselves of the habit of selling containers; the existence of a community helps make players stick around, and the real-time connection helps consumers get over the obsession of tangible ownership.

Among other examples of success, Global Chinese Competitiveness Foundation (GCCF), founded by Dr. Zi-yi Shi, specializes in the provision of corporate management know-how to newsletter subscribers who pay an annual fee of US$80 or so for the right to search and read from a pool of over 10,000 continuously updating articles. This service has been in existence for over four years.

As to the question of whether newsletter makes a profitable business, many creative attempts have been made to find out. It'd be hard to argue against the reasoning that if a newspaper can be sold for a price, there is no reason why newsletters can't. However, any one who has tried would tell you that it's really difficult, if not impossible, to profit from sales of newsletter, especially when you try to sell them on a copy-by-copy basis.

Just imagine. If GCCE had attached a tag price to every single digital copy of newsletter, as in US$3 for a copy of newsletter on the topic of "six-sigma" and another US$3 for a copy of newsletter on "paradigm of leadership", you do the math, this business would not have gotten this far.

Another case in point is the IT Home newsletter that goes back a long way in Taiwan. Previously known as PC Home newsletter, IT Home newsletter's subscriptions hit 380k at one point before tapering off. What made the difference was the presence and absence of charge.

Following the traditional way of newspapers, IT Home newsletter should have been charging a daily fee the way daily newspaper charges US$30 cents a copy. But IT Home knew better and charged an annual fee of some US$50, which guaranteed daily delivery of newsletter to the subscriber's appointed e-mail account.

The annual-fee strategy proved a success as IT Home newsletter broke even in 2001. Other than the annual fees, IT Home newsletter also profited a great deal from leasing out ad spaces. IT Home newsletter's prevail corroborates my forecast five years ago. That is, I have foreseen that only newsletters that charge for reading can only boast ad spaces that are valuable. The rationale is simple. Only when the viewers are paying to read will advertisement clients take this media seriously.

Can news stories be sold on the Net for a price? If past experiences are any guide, the answer is yes. In 2001, UDN.com, a website maintained by a widely-circulated newspaper United Daily in Taiwan, launched a pay-to-use database service that provides access to back-number newspaper stories for an annual fee of some US$70. For that much money, subscribers can try your luck at finding reports and photos that might be of interest to you during the past 15 years in Taiwan.

What most consumers are not aware of is that while a newspaper contains many stories, there is inherent logic as to how these stories are arranged and picked as headlines. That is, a newspaper in print form is an integrated existence that can not be randomly.

These stories, once close-knit on conventional paper carrier, have to be broken apart on the Internet. When stories concerning earthquake during the past 15 years are retrieved from the UDNdata.com, they all stand independent of the daily edition of newspaper to which they originally belonged.

Given this nature of digitized existence of news stories, charging an annual or a monthly fee is the only plausible option for digital news newsletter business. Since consumers are looking after a standalone story instead of a whole digital copy of newspaper which contains many other stories that he/she doesn't want, selling an entire digitized newspaper to him/her would be out of the question.

The honors of pioneering in the field of pay-to-read digital magazine in Taiwan goes to cite Publishing's electronic magazine publishing net, which works by digitizing contents of paper-based magazines and having consumers pay to download these digital contents to read via reader software.

As these digital magazines are merely intangible copies of the real magazines, consumers are therefore offered the options of buying a whole magazines' worth of contents or subscribing to the digital magazine service for six months during which time one can search the texts and make personal notes on the virtual magazines, something not allowed by reading the paper-based magazines. The one thing that these various digital magazines have in common with their real-world twins, besides their variety, is that they cost about the same. That is, just because it weighs nothing does not mean that it costs nothing.

Interestingly, the electronic magazine publishing net also sells back-number magazines. Like in the real world, these outdated digital magazines also come in lower prices than the latest edition. I must point out that the whole idea of selling back-number magazines on the Net is a bit ridiculous if your memory of what I mentioned earlier is still fresh, because there is no reason why the news stories printed and stapled together as a magazine in the world still need to remain in one another's company now that they do not take up physical space any more, unless the seller is still bound by the belief in containers.

Something that also should not hold back digital magazine sellers is inventory. The paper-based magazines can take up a lot of space in the warehouse if they remain unsold till the end of the month. That's why sellers sometimes go on sales to clear them out in cheaper price. But in the case of digital magazines, the hassle of inventory simply does not exist if you ask for one. Given that, the thought of selling back-number magazines, at a lower price, makes little sense.

The reality that there is a demand for old magazines is due in large part to the fact that readers need access to one of the articles in a particular issue of a magazine that he or she missed. If this is true, then forcing people to buy the whole thing, especially a digital one, is undesirable, even if there is a discount. The sales of past issues of magazines, if necessary, should consider having the contents broken down into individual articles and then regrouped into one big database to which the access will be charged for a fee.

Old-school content businesses relied so long and so hard on selling via such hardware as paper and compact discs as content carriers that it never occurred to them that they had the option of dividing content into smaller units for sales. They have been in the company of the hardware, which can't be divided and cost a price to make and transport, for too long, that they treat content the same way one the Net.

If the aforementioned examples have taught us anything, it's that digital content sellers should give up the mentality that their products must be sold packaged in a "box" or "container." Sellers of any type of digital content, music, movie, book, course, you name it, must help themselves to the freedom of Internet, and the sooner the better. (
2004/09/19 - By Digitalwall.com - Way to
China Internet/Telecom )