Tag: f2p

In “F2P – Part I,” I discussed the two primary forms of making money on media in today’s day and age: advertising and microtransactions.  In “Part II,” I look more into how this all applies to other media and where I see things going.  Of course, as I am no expert in any of this, you should take anything I say with a grain of salt.

Where’s It Going

Long-story-short?  Who knows.  The beauty of the internet is that everyone’s trying different things.  I think there are interesting trends, however, that are worth considering.

The New York Times, for example, instituted their “pay wall” recently.  According to them, most people only look at maybe 20 articles on the site in a given month, so they are preserving that service for those people.  For everyone else (that doesn’t have a subscription to their newspaper), they will make you pay for the service after you have hit your 20 article limit.  The idea is very similar to the microtransaction: the relative few that use the service the most are subsidizing those that use the service the least.  There are other newspapers looking at doing something similar – my hometown newspaper, the Columbia Daily Tribune, has already implemented similar plans.

I think television media is the more difficult anomaly.  Hulu, for example, pulls quite a bit of its content from NBC and FOX, and has a good deal of “back catalog” viewing.  In some cases, you will get commercials that show up during the breaks, typically either one or two.  Sometimes, you’ll get a choice at the beginning of an “extended commercial” that may be 2 min long, and then you won’t get any more commercials for the rest of the show.

Their Hulu Plus service, however, is a crazy hybrid that was released in 2010.  The licensing behind these television shows is set such that you can watch them on a computer, or you can watch them on your television through your cable provider (or your antenna), but legally setting up a system so you can watch these shows over the internet and then display them on your television is much more murky.  They invented Hulu Plus as a way around this, where you have a subscription service that then allows you to watch some Hulu content on your television, including some current-run shows (i.e. you can watch all of this season’s “30 Rock” over the service).  However, there are other shows on Hulu that you can’t watch through your television, including practically all USA Network shows and SyFy shows, to name a few.  That means you not only don’t get access to their current-run shows, but you also don’t get access to the same shows that are running on Hulu through your computer.

Let alone the fact that you are paying the $8/mo to get this content on your television, yet you still get commercials to help subsidize the licensing.

Needless to say, the New York Times and Hulu are two separate examples of different ways media are trying to figure out how to get viewers and users over the internet, and make money doing so.  In my opinion, the New York Times has a much better strategy for it than Hulu does, yet Hulu is constrained by the “Old Media” way of licensing their content, written when there was no such thing as an “Internet.”

Now For Some Speculation

As I said before, no clue, but it still fascinates me, especially as companies try to find new ways to make money using the internet.  I think they all see the writing on the wall and they are doing their best to stave it off as long as they can.

In a relatively short amount of time, there will be no phone lines or cable lines: it will all be fiber optic (or wireless) and we will not only communicate through it like a telephone, but we will also get information and entertainment from it like a television.  Your news content will no longer come on paper to your doorstep unless you pay a lot for it.  The Internet represents a complete merge of all “Old Media” into something new, and it’s been happening very slowly for the past 15 years.  Very soon, however, new houses won’t be built with copper lines or coaxial cables: they will have a single fiber optic line that serves the purpose of both.  And old houses will be retrofitted with the same technology.  The house we currently live in has that fiber optic line running right up to it, and we live in the middle of nowhere in Iowa.  There’s a good chance your houses are next.

And while all that is happening, the companies that make the content will have to merge along with it, and deal with the other companies like Google, Facebook and Microsoft that have been in the game and have figured out how to make money on the Internet.  Google made a great search engine, but they made their money on advertising.  Advertising, I might add, that you barely notice as you browse their various web sites.  To the point where they can afford to provide you with web-based office software, Google Earth, Picasa image editing software, Chrome web browser, and even whole operating systems in the form of Android and Chrome OS – for free.  They figured out what they needed to do to get you to use their search technology, and they did it with advertising and made a lot of money doing it.

Effectively, whether they like it or not, cable companies aren’t going to have cable going into houses much longer.  They need to get their content on the internet, and soon.  Personally, I’d rather see this happen along the lines of the New York Times: allow a certain amount of programming for free per month over your web browser or an internet-ready TV, and then charge individuals on a per-channel basis.  This should have been done years ago (a so-called a la carte plan) by the cable companies, but they chose to create larger and larger cable packages instead.  Now it’s coming back to bite them.

Wrap-Up

How the “Old Media” guard will end up surviving, only time will tell.  But there are plenty of companies out there providing free content, subsidized by a fraction of their users.  Zynga and Turbine are developers making high-class games and making millions doing it.  And they do it using a model that provides services for free to the masses, making money on volume.

Once the “Old Media” groups figure out that they can’t continue doing what they’ve been doing for the last few decades and survive on the Internet, they’ll be better off.  Until then, they will continue to lose customers and money.

And the rest of us will simply move on.

I’ve been toying with thoughts on the “Free 2 Play” movement (“F2P”) for a few weeks now, as I find the whole thing to be fascinating.

In short, F2P is exactly as it sounds: you get a game, a program, or a web-based service for free, and then your free use of it is subsidized in some way.  In some cases, it can be through advertisements.  In other cases, it’s in the form of “micro-transactions.”  I’ll hit both of those separately, as I think they both contribute in different ways to how the internet is changing, or has already changed, e-commerce.

It should be noted that most people would look at “F2P” as applying solely to the realm of online video games, yet I think its trends extend into other media and have for a long time.

Advertising

The ad-supported model is probably the oldest form of these changes, as we’ve all been exposed to it for generations now.  Very few of us could pay for all the programming on any given television channel, yet the advertisements and marketing that go into each program help subsidize it to make each program cost practically nothing to us.  In the early days of the internet, when web sites like Yahoo! and AOL were trying to figure out how to make money from consumers and not rely as much on investors, we started getting ads displayed on pages.  They started out being banner ads at the top of the screen, and were mostly un-obtrusive.  Then, our good friends Adobe established Flash as the go-to web media platform, allowing for moving advertisements.  Combined with other web-based technologies like Javascript, the dreaded “Pop-Up” ad gained popularity.

Most large web sites will tell you that their advertisements don’t make a large enough dent in their revenues to fully cover their services.  We have come to understand this primarily in the “old media” sense, including magazines, television networks, and newspapers (more on the latter in a few days).  In the case of television networks, while Hulu still displays ads during commercial breaks on their programming, the revenue they make from those advertisements barely puts a dent in the costs of production and marketing of a TV show.  Quite a few people use the service, but it isn’t exactly paying for new shows.

Enough people got annoyed with pop-up ads (and installed pop-up blocking software in their browsers…) that their development has slowed down, however advertisements still subsidize quite a few web sites, and now, mobile phone applications.  You can buy Angry Birds for $1, or you can download a version for free that has small ads on the bottom.  Amazon recently announced that they’ll knock off $25 from your purchase of a Kindle e-reader if you get an ad-supported version that displays advertisements on the home screen and screen saver (thankfully, not between pages of your book).

Microtransactions

This is the new way of making money.  And it makes quite a bit of money.  Mostly, microtransactions have shown up in “the game space,” including free-to-play MMOs like Lord of the Rings Online or Free Realms, and free-to-play games on Facebook, including FarmVille.  In general, these games are all free, so you can usually play the majority of the content of the game simply by downloading it, or loading it up in your web browser.  However, there are some portions of the game that you can pay a small amount for.

In Lord of the Rings Online, for example, you can “die” and resurrect yourself where you died once per session – after that, you can only resurrect at the nearest town, requiring you to run back to where you were, potentially taking from a few minutes up to an hour.  Or, you can pay a small amount, like $0.50, to resurrect yourself again in that location.  To many players, that $0.50 is well worth the cost to not have to spend the extra time running back to that location.

In FarmVille, you are growing your crops and getting your friends to do things for you.  You need to water your crops in order to earn in-game currency, and this must be done within specific time restrictions.  Having your friends visit your farm for you, however, can help take some of the load off your tasks.  Of course, you can also visit your friend’s farms and carry out tasks for them, as well.  If you don’t want to wait for your friends to do things for your farm, you can pay a small amount to have it done sooner so you don’t have to wait.

This is the idea of the microtransaction.  You spend very small amounts of money, or you don’t spend any at all.  Statistically, this ends up working quite well for the company.  Zynga is the company that makes FarmVille, and more recently, CityVille.  The latter had 61 million monthly users last December, helping contribute to the company’s $850 million revenue in 2010.  For Lord of the Rings Online, their developer, Turbine, released statements saying that their revenues tripled since going free-to-play.  Where players were once spending $15/mo to use the service, they increased the number of people playing the game and actually made more money, having the users spend less.

Effectively, this is the idea of “selling on volume:” get more people to use the product by making it free, and you actually make more money doing it.  When interviewed, Turbine will tell you that almost 50% of the users for Lord of the Rings Online pay absolutely nothing, with only a small subset paying a little…and a smaller minority paying a lot.  The extreme minority ends up paying for the extreme majority’s fun.

Stay tuned for F2P – Part II, appearing on Friday.  I’ll try to apply these two models to media in general, including newspapers, television, and so on.  Then again, I’m no expert in these matters, so…take it as you will…