Pay to Play

Capsule:  How long can content companies wait before introducing pay-to-play online streaming?  Time Inc.'s Maghound sets a structure for buying and fulfilling paid magazine subscriptions by mail.  All that's missing is their online content and a structure that bundles online with print.  Pay-to-play may be easier than we think for brands that are ready to sell themselves.  (http://www.maghound.com/ )

How much content could a content store sell if a content store could sell content?  And, while we're at it, what's the difference between Amazon, eBay and Maghound, Time Inc.'s new magazine store?  A lot.  And, very little.

Time Warner has just achieved a quiet introduction for a new magazine commerce site.  Maghound sells subscriptions to all of Time Inc.'s titles through an attractive sales and fulfillment site that offers a new value proposition for magazine buyers.  Instead of magazine subscriptions being priced a la carte, Maghound invites readers to buy a bundle of magazines for a single low monthly price.  They encourage readers to stock up and feel the value, mentioning casually that they might substitute titles for home delivery if a magazine is not publishing in a given month.

However Time Warner ends up using this site, or the structure behind it in the future, the fact that Maghound is out of the kennel and in the home is important.  Rather than continuing to fear the relationships that might break if content brands began to sell themselves and become content and distribution hybrids, Time Inc. has walked its dogs to the commercial park with an intention to sell and a structure that could ultimately sell magazines in print, online and a whole lot more.  It's a shame that magazines had to sit at death's door before they could walk out the door on the arm of their media owners.

What's keeping other content brands from doing the same?  A few major concerns.  First, the bundling of online content, now free, with a paid version of that content must carry an independent value in order for customers to want to pay for it.  In Time Inc.'s case, the magazine group is starting in the safe waters of content it owns on both the paid and free sides of the ledger. 

Print content generally has a single ownership tie, even if its owners are a group of companies.  If The New York Times wants to bundle its online content with paid print subscriptions, they can do it, because they own--for the most part--their product and their product is The New York Times.  They've built their product and their brand with substantial investments in content and distribution and they have the flexibility to move boldly into the pay-to-play arena if they choose to.

TV brands have a tougher road.  TV content has a couple of owners sitting inside its value chain: the content brands who create the TV programs and the distribution businesses that bring the content to large audiences.  TV content companies up until now haven't had to pay for distribution (unlike newspapers and magazines who have invested substantially in printing presses and newsprint and labor costs.) Instead, they've been paid by satellite and cable distributors who have in turn built businesses based on bringing a better version of their content to the masses for a fee.

If TV brands want to play in the pay arena on their own, they'll have to pay a price--one that has not yet been established because no one wants to break the existing commercial relationships tying content and distribution together in favor of a risky consumer bet.  It's kind of like separating Siamese twins joined at the wallet.

But the structure for moving TV content to the market already exists all over the online experience.  News Corp. Disney NBC Universal Providence Equity Partners content aggregator Hulu has built a simple elegant TV viewing experience that draws a big loyal and youthful audience for easy-to-watch popular TV.  Its value addition, already present even though their product is free, is one of the best TV GPS systems--its navigation interface--in media today.  As long as that navigation keeps pace with the way audiences watch TV, Hulu will be a hit with a built-in marketing base.

Netflix brings its growing TV and movie catalogue to customers having already set a commercial fee with a sales and fulfillment support structure behind it. In this, Netflix has a leg up in having already gotten its hands dirty in the sales, operations and fulfillment side of the distribution business.  Netflix' scale is unlikely set to mass levels, but it has begun the process of growth and can keep its distribution expansion in step with its content acquisitions.

What will online TV streaming and selling do to profits made by staying on the current rights management trail?  Profits might ultimately increase when companies who bring their TV stores online are required to develop a new value proposition for consumers in order to make their products sell. 

Cable, satellite and telecom distribution--like Maghound--aggregates products and drives packages into the home that include the very profitable, as well as a few dogs, in attractive bulk array.  In their bundling, traditional TV distribution is more like the Sam's Club model than Walmart.  Both retailers sell everything their base could want, making the trip to the store seem more worthwhile when you leave with a loaded cart.  But Walmart sells a la carte--a privilege that requires truly massive scale as well as the bullying prowess that can jawbone suppliers down to their lowest wholesale rates, offering consumers the resale proposition of the lowest retail prices.  The Sam's Club model is a la carte plus--the important plus being a monthly subscription fee.

There's a lot to learn for digital brands inside big box retailing. Traditional retailers know how to think about real estate: it's the most important of their consumer marketing investments.  The location of stores, their size and leasing or purchase costs, their retail attire, the brands that they carry and their juxtaposition around their competitors are all marketing investments that can make or break a chain. 

Amazon and eBay have moved physical real estate into the digital world by building beautifully designed scaleable sites to sell mass.  They've chosen their locations and groomed their physical presentation and retail navigation to maximize sales.  The rest of their processes depends, like traditional retail, on their relationships with their suppliers in cost and marketing support.  And, they have a wonderful new expansion ability inside the digital world that enables them to activate international sales through similar storefronts without fully duplicating costs.

Should TV be available on Amazon?  It already is.  Amazon sells DVD's in massive volume as well as music CD's.  A decade ago, substantial concerns persisted about DVD rental and sales as competitive against cable and satellite TV, as well as movie theaters.  Today, we see DVD sales differently.  They're in a two-way marketing partnership with subscription TV content where each partner markets or sells the other. 

Pay TV will follow a similar course.  Streamed online TV content sold through pay subscriptions with slightly different viewing windows than the ones offered by traditional bundled distributors is inevitable.  But what about the new value proposition required to get customers to pay for content a la carte that they already get in cheaper bundled bulk via cable or satellite?  And what about the piece of the value chain that cable delivers in the managed services of its distribution platform, its quality of service standards and its local labor force?

Major content brands are wise in aggregating their content in order to step up to both competitive challenges.  Customers are more likely to buy abundant streamed content that complements the parapatetic way we watch TV versus the serial concentration we use to read books.  The more TV in the TV store, the more satisfied the customer is likely to be.  And, bundling for new content and distribution hybrids shouldn't be limited only to TV.  There are lots of added values that can be included in a monthly subscription for customers who love your brand--from DVD's and CD's to advertised products placed in or around the shows as well as streamed and site content of great value from a universe that includes partners of every stripe.

If content really wants to go retail, it will pay to play, starting with business models to justify the move and sales and service relationships to support a loyal customer base.  Properly sourced, content is the most likely place for advertising innovation as well as the best new TV and music GPS--meaning content players have a better than average chance of creating the best TV values for a new multi-channel generation.

And just like all retailers, content will have to pay significant commercial real estate, utility and display costs in the form of an altered financial relationship with their distribution partners.  Streamed content doesn't become a media force without cable broadband and to a much lesser degree telco broadband TV hybrids.  The ultimate pay to play will open up when the first content aggregator is ready to make a new deal.