ISP Column - June 2001
A column on all things Internet

                                                        June 2001
                                                        Geoff Huston

Where is the Content Economy?

  Come out, come out, wherever you are!

  We've all heard that the Internet is making profound changes to the
  way we conduct business, and we've also all heard the predictions of
  further massive changes yet to occur that will be fuelled by the
  Internet. Some predictions about Internet-induced change have been
  realized at frightening speed, while other predictions languish as a
  recalcitrant reality moves onward in an entirely different direction.
  One of the more challenging tasks has been to predict the longer term
  stable economic model of content provision on the Internet. In this
  month's column we'll look at some of the models of content provision,
  and how these models have fared on the Internet.

The Medium is the Message

  The classical content provisioning models, or if not classical, at
  least one of the oldest, is that used by the book publishing industry.
  Here the consumer purchases the medium, or in this case the book. The
  consumer's payment is used to compensate the retailer, the
  distributor, the publisher, and with luck, ultimately the author gets
  a percentage. The book world has proved remarkably resilient to
  technology-induced change so far. It’s difficult to reproduce an
  entire book, even with a scanner or a photocopier, and unauthorized
  redistribution by a consumer is more difficult as a result. The
  publishing industry is dominated by the costs of paper, printing,
  warehousing, distribution and marketing. The impact of the Internet on
  this activity  has been concentrated on competing with the retail
  sector, creating virtual bookstores with greater inventories and
  discounted pricing.

  The much younger recorded music industry followed a similar path of
  using the medium as the means of pricing content. However, in this
  case, a combination of technology advances in consumer electronics and
  the Internet have made it relatively easy to duplicate and
  redistribute music content. The problem with this model, as
  highlighted in the court action involving Napster in the United
  States, is that such redistribution may occur without the due
  recognition of the rights of the copyright owner of the music. Until
  appropriate licensing arrangements and associated copy limitation
  technology is deployed to prevent wide scale redistribution of
  content, content provision in the music industry, and related
  medium-reliant content industries, are reluctant to abandon the paper
  or the CD and move away from their established business models. In
  such a circumstance, the Internet does not rewrite the economy of
  content publication or distribution, but takes on the more traditional
  role of a being a competitive retail channel. We are going to have to
  look elsewhere for an Internet-based content economy.

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  Another economic model for content is commonly used when distribution
  is essentially unlimited and redistribution is relatively easy.

  Instead of attempting to limit distribution of content to those who
  have purchased the content, the content is interlaced with paid
  advertisements. The advertisements compensate the content creator and
  the content distributor. To maximize the advertising revenue, the
  wider the distribution of the content, the better.

  Here the Internet appears to offer some potential. The ease by which
  content can be circulated so as to be accessible by tens of millions
  of potential viewers is without precedent in any other content
  distribution system. The cost of reaching each potential viewer is
  also at an unprecedented low point. This would appear to be the answer
  to the content economy, replicating free to air television and radio
  in its model of advertiser-paid content distribution.

  However its not quite as seamless as some would hope, and cracks have
  emerged in the application of this model to the Internet. For the
  interlacing of advertisement and content to operate effectively, the
  interlacing must not be filterable by the viewer. It is possible to
  take a compound web page and alter the interlacing of advertisement
  and content. To be effective, the demographics of the viewer should be
  known to the content distributor, so that the advertisements with the
  greatest relevance and interest can be directed towards each viewer.
  The banner ad model of advertisement has not been so effective. The
  ads can be readily stripped from the remainder of the page. More
  importantly, the attention levels obtained by these ads, the so-called
  'click-through rates' where the viewer actively follows the reference
  embedded in the ad, is extremely low and declining. And, most
  critically, the Internet is too unconstrained as a distribution
  network, and has no reliable targeting demographics that are
  accessible to the advertiser. For advertisers the Internet, as an
  advertising channel, has lost its sheen of novelty, and now the
  traditional methods of measuring advertising effectiveness come into
  play. For content providers who are using an advertiser funding model
  of revenue generation this is not welcome news, as the effectiveness
  outcomes for Internet advertising are much lower than many other
  advertising channels. At present it appears that the advertiser-funded
  model of content distribution will not flourish as the dominant model
  of the content economy on the Internet.

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  Necessity, they say, is the mother of invention, and the need to
  derive a revenue stream from the provision of content on the Internet
  has fuelled other approaches. One of these is the online subscription
  model.

  Here the consumer enters into an ongoing relationship with the content
  provider, and is granted access to content that would otherwise be
  inaccessible. This arrangement has some obvious attractions in that
  there is no significant additional overhead in distribution of the
  content: no print, no distribution and no retailing requirement. The
  consumer pays the content originator directly for the content itself,
  without the added impost of the cost of distribution of the medium of
  the content. But this model has also failed to really take off on the
  Internet. Consumers are reluctant to enter into a myriad of individual
  content access relationships, and, for the content provider, the
  consideration is that once the content has been passed to the consumer
  digitally the content provider loses control over any consequent
  redistribution of the content. The digital content can be readily
  saved and redistributed, depriving the content provider of further
  revenue. The international nature of the Internet also implies that
  seeking legal remedies to such unauthorized redistribution is often
  unwieldy and expensive, even when successfully prosecuted.

This Message is bundled with your Internet service

  The original concept, of a separate and distinct content economy as an
  overlay on top of the underlying connectivity of the Internet is one
  that has not been realized so far. Yet, paradoxically, every day tens,
  if not hundreds, of millions of individuals spend tens, if not
  hundreds of millions of hours viewing content downloaded from billions
  of web pages published on the Internet. Most of this content is free
  to the viewer, and this raises the issue that if all content on the
  Internet is to remain free of consumer charges then we are going to
  have to work out some other way to compensate the original author or
  creator of the content.

  We are not quite in that dire position yet, as there is one other
  consumer relationship in the Internet economy that may be used to
  sustain a viable content economy. This relationship is the provision
  of Internet access, where the consumer pays the ISP, or access
  provider, for access to the Internet. The line of argument here is
  that without content there would be no demand for Internet access and
  no access market, and, bearing this in mind, the case is made that the
  access provider should use some of the access revenue to compensate
  content providers.

  Admittedly its a line of argument which has a number of weaknesses,
  but the reality is that the access point is the point at which
  consumer revenue is injected into the Internet, and the case made is
  that this revenue should fund the entire Internet service, and not
  just the network elements that deliver packets to the user. What this
  is doing is attempting to rewrite the access market to encompass a
  broader domain of an internet service, where access and content are
  bundled into a single retail offering.

  Of course convincing access providers that they should share their
  revenue with various content brokers is not an easy task, and while
  the concept of greater levels of customer revenue is always welcome,
  the requirement to share this revenue with content providers is not
  viewed as enthusiastically. Perhaps it is now up to the content
  providers to demonstrate to access providers that such an arrangement
  will lead to greater commercial opportunities for all parties, and
  that such an arrangement is the most effective path to provide
  valuable and valued content on the Internet.

  There is little doubt that the model of the consumer entering into
  many hundreds, or even thousands of micro-payment relationships with
  thousands of content providers is one that is not attractive to
  consumers. Bundling content into a smaller number of larger
  relationships is the right direction, but getting consumers to
  separately value and pay for the content they use to the Internet
  access service they use is a path of very high resistance. It may be
  that its the next step to bundle up the two services and offer both
  access and content within a single consumer relationship.

The Message and the Internet

  In looking at the various options for the development of the Internet
  content economy, the overall observation is that perhaps we are simply
  too impatient for the right answer. The Internet is a broad and highly
  efficient communications system, and by virtue of this alone it
  already undertakes a massive proportion of the global content
  distribution workload. This is in spite of the fact that we have yet
  to latch onto an enduring and stable mechanism to ensure that all
  participants in this content distribution network are duly and
  properly compensated for their efforts.

  So the prediction remains that the Internet content market will be a
  robust and highly valued market. Its just that we've yet to reach that
  particular reality where this prediction becomes established fact.



















 
 
 
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