Shaping digital content becomes a major challenge for publishers as the shift from content to platform has resulted in the development of new business models. Traditionally, a focus on improved editing, design and marketing are the key features that a publisher develops and adapts to change. However, these changes are not sufficient enough to persist in the modern digital age because the internet has “facilitated the dissemination of artistic works by allowing users to mass distribute files within seconds”(Bittar, 2014, p.1). Instead, a continued integration of innovative solutions is needed where added value and personalized services are just as important as the content itself. Freemium, is the combination of the words “Free” and “Premium” and the idea behind this model is to offer a product or content for free while reserving additional content or services for paid users, also known as premium users. Even though freemium business models does not benefit niche products and content, by adopting the freemium business model, publishers are enabled to expand their audience reach which leads to an increase in revenue in a highly saturated digital market.
Free content is effective for converting users to paid subscribers as it lowers the barrier of entry for readers. Digital products are distributed through different channels and face different distribution cost structures. Often, the only costs associated with distributing a digital product are hosting expenses and platform fees. Low marginal distribution and production costs create the opportunity for a product to be adopted by a “large number of people, quickly, at little to no expense on the developer’s part”(Seufert, p.4,2014). With content being easily accessible via the internet, making content free can lower the barrier of entry for readers. Charging for content suggests that the quality of information is valuable to that certain reader and that they would not be able to find similar or related information elsewhere. A professional reader in search of information about a particular topic would be prepared to pay if it “provided better insight, highly relevant choice in the selected area, and is prepared to pay”(Book Industry Study Group 2013). However, occasional readers desire a range of information from various fields, therefore, such readers can withdraw from the purchase because of high prices as content is to niche for them (Book Industry Study Group 2013). The Los Angeles Times and The New York Times (NYT) each tried charging for access to some content online, then dropped the requirement because it cost them audience and advertising revenue(Salmon, 2011). The introduction of paywalls combined with a freemium strategy proved that freemium model can work in news industry. The NYT wanted to increase their user base, so they created a business strategy that was primarily a freemium model combined with a metered paywall, where users are able to read 10 articles for free. It allows anybody anywhere to read any NYT article they like, which makes them more “open and inviting”(Salmon, 2011). The premium features include, “Subscription to the print edition, digital access to all content on nytimes.com and mobile/tablet apps”(Froberg, 2015). In fact, the NYT after just four months, converted 224,000 free users to paying ones, which had premium access to the NYT website. (Salmon, 2011). The NYT has taken a different approach and their paywall, which is a modal box that pops over the web browser after reaching your limit has allowed the company to increase its revenue by at least 18% from 2011 Q1 to 2014 Q4 (The New York Times, n.d.). This creates a situation where you can give away the core product for free and create a profitable business model from just up-selling to a few percent. If you hit the paywall on a regular basis and decide to dismiss it, eventually you start feeling a bit of guilt and pay up. One thing to note, if “freeloaders value what they’re getting, a lot of them will end up paying anyway” (Salmon, 2011). In addition, value of free users can take two forms: Some of them become subscribers, and some draw in new members who become subscribers. Typically, a free user is worth “15% to 25% as much as a premium subscriber, with significant value stemming from referrals” (Kumar, 2014). So, a free user can contribute to your revenue model through other means, such as helping publishers grow their user base through referrals and Word of Mouth.
By adopting the freemium business model, it enables publishers to drive engagement with readers and authors. Since you are giving away a core part of your business for free, it is crucial that publishers understand the needs of their users. To be profitable in a freemium business model, without strictly relying on advertisers, 80% of respondents believe that the combination of a subscription model with a freemium strategy would be inevitable (Despot, 2015). Premium features need to convince readers of its value of converting from a free user to a paying one. However, publishers realize that readers are not their only source of revenue and are creating business strategies that can engage multiple users to and have a monetization strategy from both the reader and author. Flat World Knowledge, a well-known textbook publisher, published their material under a Creative Commons license, which means that not only can “readers access the material for free, but they can also reuse it and modify it as they please”(Doscdoce,p.20,2015). Their business model consists of selling different downloadable formats of the same book in PDF format, chapters, and modules, while providing extra assistance. The business model coming from authors include “reduced publishing times, creativity support, and the chance to update their texts”(Doscdoce, p.20,2015). Whereas, the focus on the readers, which is students can read textbooks online for free and are only charged if they want to print the material on demand or if they want to download the eBook version (Dosdoce, p.23 2015).
In my opinion, another method that could help generate revenue could be offering the material for free in a single format, but charging for DRM (Digital Rights Management) free EPUB files so that content would work on multiple ecosystems. As defined by Bittar (2014), DRM is a technique that allows “copyright owners to enforce their rights by controlling what users can do with their digital files, for instance, DRM can determine under what circumstances, how many times, for how long, and on which platforms a user may access a file” (p.5, 2014). A restrictive DRM causes a lack of interoperability, which can increase barriers to entry, switching costs, and network effect, which locks consumers into an e-book ecosystem. In addition, the extent of the DRM restrictions imposed on a file is determined by the copyright holder, which raises serious concerns about users’ privacy and fair use(Bittar, p.20, 2014). Thus, the premium feature of offering an unrestricted DRM file format has a value proposition that allows readers to interact with multiple systems and read on different ebook device without getting “locked” down to one.
The freemium business model is a challenge for niche publishers as their target audience is much smaller. The broader the appeal of a product, the more potential users it can reach and the more widely it will be adopted. A broadly appealing product has a “widely applicable use case, or purpose” (Seufert,p.2,2014). Generally speaking, products that address a universal need, pain point, or genre of entertainment appeal to more people than do products that serve a specific niche. The freemium business model success relies on scaling the user base as there is a low proportion of users who monetize in freemium products, which contributes to the “necessity of large potential scale: a low percentage of monetizing users within a very large total user base might represent a respectable absolute number of people”(Seufert,p.4,2014).This concept is referred to as the 5% rule, or the understanding that “no more than 5% of a freemium product’s user base can be expected to monetize prior to product launch”(Seufert,p.5,2014). Therefore, a focus on growing a user base initially is crucial for publishers adopting this business model. A strategy to making this model work is to offer mixed variety of content, but also services and other features that can engage users to monetize. With topics that are niche, the initial target audience is too small to begin with and the potential for scale may be challenging for niche products and content.
Freemium includes a core of your business for free, but can offer a sustainable business model with additional payment for advanced functionality. The content packaging options and the methods for monetization of content or products will be a great challenge for publishers in the times ahead as premium features must engage users with a clear value proposition in order for free users to switch to paying users. Information wants to be expensive, because it’s so valuable as the right information in the right place can change your life. However, information wants to be “free because the cost of because the cost of getting it out is getting lower and lower all the time”(Levy, 2010), so you have this tension between the two principles. With the saturated digital modern age, publishers are faced with having to create new business models and develop new publishing products and services, which will continue to have an impact on business models in the publishing industry.
Bittar, A. (2014). Unlocking the Gates of Alexandria: DRM, Competition and Access to E-Books. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2620354
Book Industry Study Group. 2013. “Digital books and the new subscription economy, a major new BISG research study, releases today” Accessed November 23, 2014. https://www.bisg.org/news/digital-books-and-new-subscription-economy-major-new-bisg-research-study-releases-today
Despot, I. Lebeda, I. Tomasevic, N. (2015). “Freemium” business models in publishing. New packaging for the needs of readers in the digital age. Retrieved from http://libellarium.org/index.php/libellarium/article/view/216/314
Doscdoce.(2015). New Business Models in The Digital Age. Retrieved from http://www.dosdoce.com/upload/ficheros/noticias/201504/new_business_models_in_the_digital_age__bookmachine_special_edition.pdf
Froberg, P. (2015). Freemium: The New York Times. Retrieved from http://www.freemium.org/new-york-times/
Kumar, V. (2014). Making “Freemium” Work. Retrieved from https://hbr.org/2014/05/making-freemium-work
Levy, S. 2010. Hackers. Sebastopol, CA: O’Reilly Media.
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Salmon, F.(2011). The New York Times PayWall is Working. Retrieved from http://blogs.reuters.com/felix-salmon/2011/07/26/the-nyt-paywall-is-working/
Seufert, E. (2014). The Freemium Business Model. Retrieved from http://scitechconnect.elsevier.com/wp-content/uploads/2014/02/Chapter-1.pdf
The New York Times. (n.d.). Retrieved from http://www.responsiveads.com/new-york-times-paywall-starbucks-ads-local-advertisin/