Online content providers are experiencing a reality check with two-thirds of media companies anticipating the end of ‘free for all’ content according to global pricing and marketing consultancy Simon-Kucher & Partners.
A global pricing study from the firm suggests that only 27 per cent of media companies expect significant profit margin (EBITDA) increase in the next three years. As a result of this negative outlook, two thirds of media companies expect the ‘for free all’ culture to come to an end, with the expectation that within three years, the majority (90 per cent) of content will be behind paywalls.
The media sector possesses the most pessimistic outlook compared to other industries according to the firm. Only 38 per cent of media companies have a dedicated pricing function and this is the lowest across industries participating in the survey – 41 per cent lower than the average. Overall, companies with active C-level involvement in pricing are 18 per cent more likely to put through a successful price increase, according to the study.
But more importantly, suggests the consultancy, these organisations are 26 per cent more likely to get higher margins from their price increases than companies without C-level involvement in pricing. Pay-walls – with essential CEO support – could therefore be crucial to survival.
“Media companies clearly see optimised content offers (print and online) as key success factors for the future, but these offers needs to be priced correctly,” observed Mark Billige, UK managing partner and Technology, Media & Telecoms (TMT) expert. “Media sector senior management has understood the importance of switching to paid content for websites and apps as digitisation grows. But thus far, few companies have made the leap of faith in establishing dedicated pricing functions, which have powerful impact on value perception and prices charged,” he added.
Consumers have until recently had free access to content, regardless of the resources used to make the material available. “Readers can however understand the value of the content,” noted David Smith, senior consultant.
In a separate study on digital broadsheet newspaper pricing, readers were led to reflect on the expertise in content creation, and the fact that newspapers can no longer rely solely on advertising revenue to subsidise the cost of producing quality news. Following two rounds of reasoning, in round one, 50 per cent of all participants thought £15.00 per month “too expensive”. In round two, this was pushed back to £20.00 per month. Smith added, “Our study into digital newspaper pricing demonstrates that readers are sensitive to the value aspect, and could be educated to pay more.”
“Every point of margin you can get from a price increase is critical in today’s tough climate, and more so for online content providers whose customers have been used to everything for free,” concluded Billige.