Digitalwall: Three Musts of Digital Content Biz (4) Pricing by Consumers' Budget

The essence of digital content business is to turn fickle income into a stable one.

When a certain type of digital content is finally equipped with three musts of digital content business that are the monthly fees, the community, and the real-time connection, most clients will choose to pay a monthly fee, but that doesn't mean that a company is denied the options of a multitude of pricing strategies.

The most vivid example is online game. At this point most gamers pay US$10-12 for a monthly fee card to store value in and play within 30 days of depositing of value. This makes more sense to hard-core gamers who play the game as frequently as they can, usually daily.

For less addicted players, they have the option of paying US$5 for a card carrying 150 points of playing rights. For every entry of the game, 20 points will be deducted for the right to stay logged on for one day. Consumers will do the math. For a player who habitually logs on 18 days a month, buying a monthly fee card is the better deal.

By providing these two different ways of paying for log-ons, game companies have proposed the distinction between frequent gamers and less frequent ones and treat them accordingly. Frequent players are credited with guaranteeing constant income for game companies and are therefore rewarded with lower fees than that of less frequent players.

This is the beauty of the digital content business. It used to be that game companies needed to develop standalone game one after another and have then packaged in a box and sold on the market. As there was telling a particular game would be a hit or not before launching, game companies were subject to very unstable inflow of revenues. Here is where new online game business can come to their aid. That is, the whole point of converting to digital content is that such business can help induce a periodic, say monthly, cash in-flow.

This is an idea that must sink in for the digital content business to make sense. By selling digital music song by song and digital publications book by book, even digital content business can not bring in stable and sustainable income. Therefore, digital content operators must endeavor to increase the number of monthly subscriptions so that they can rake in monthly income the way telcos do.

But for those who aren't willing to pay a periodic fee, we should have something for them. Take the IT home newsletter from the previous article for example. For people who are only interested in certain standalone articles and won't pay US$50 for an extended subscription, IT Home newsletter service offers them the option of calling a number (not toll-free) to get a temporary set of account and password, with which one can log in to read one article. The phone bill will cost you about US$ one cent per minute. To read a second article, of course, you'll have to dial again.

As far as content producers are concerned, all the production cost are calculated on the basis of a book, a song, a movie, an article, a speech, so on and so forth. This is in stark contrast with consumers' demand to be charged by the month. How can this difference be reconciled?

To locate the answer, we must look into the value chain that threads up the entire digital content industry. As illustrated below, the answer to the problem is division of labor. That is, the role of content producer and that of content distributor should be assumed by separate enterprises.

As indicated by the illustration above, an Internet book renter can charge a monthly fee of US$10 or so for unlimited access to its book collection. Every time a book is ordered and read, the renter will pay about US$30 cents to the author or the publisher. By adopting this division of labor, the issues of charging the consumers and rewarding the producers can at gotten around at the same time.

Even so, websites might be worried that a system that grants free access to all the books all the time by charging only US$10 a month might leave the business vulnerable to consumers who set his heart on taking advantage of the website. But let's now forget that there are only 24 hours in a day. How many books do you suppose one can read in a month?

The monthly fee of US$10 is but an assumption of mine. Websites in their real operations have the liberty of setting up price they find reasonable. But this liberty is as much a curse as it is a blessing for such websites, because if one charges too much, consumers would find it too expensive and won't come, but if one charges too less websites will not be able to profit as planned from the business. To find the right price, there are a number of strategies.

As illustrated above, the rates are one book for US$4 and unlimited access to the entire book collection for US$10 in this particular instance. However US$10 a month on books might pose as a burden for many. That's when US$6-7 for two books of choice comes in as such rate is in the midst of two extremes and should serve as a good compromise.

The figures here are but examples. They are to show that when setting prices for digital contents, we need to first make out the target price range on the basis of consumers' average spending on the commodity. Also, we should help ourselves to some distinction of users of varying frequencies. Such strategy can be of use to operations of other digital contents than eBooks.

The introduction of monthly payment and real-time connection can help us break the chains of selling containers but it also sets us up for the crisis of price war. Image a competing eBook rental service charges only US$8 a month when it sees you charge US$10. Once such price war begins, it will not stop until people get hurt.

At a time like this, let's not forget that once digital content business adopts the monthly payment model, its success hinges upon maintaining long-term relationship with its subscribers. That is, how can the website make consumers stick around in the fact of price competition by peers? To do that, website operators must really put their hearts to their businesses. More importantly, they must resort to the force of community to make consumers stay.

Besides, the uniqueness of the digital contents is also a key. That is, even TV news broadcasters know that nothing beats a scoop, an exclusive piece of news. The same applies to digital content business. How can I give what other can't? How can I give the same thing faster than other? These are the things that should be on the mind of digital content sellers.

Post Script: This article uses eBook as an example. But the bottleneck of eBook operations lie not in the pricing but in the fact that PC monitors have too low a resolution to serve as an appropriate platform for an extended time of reading. That is what results in its low market acceptance. But we won't touch upon that issue here. (
2004/10/03 - By Digitalwall.com - Way to
China Internet/Telecom )