Ernst & Young report argues that people will pay for premium content — just don’t try bundling
At long last, there’s hope.
After years of seeing profits plunge in the wake of the online revolution, media companies may finally have discovered a life raft.
The popularity of online gaming and mobile apps proves that customers are willing to pay for digital content, argues a new study by Ernst & Young. They just need to be sold the right types of content for the right devices in the right ways.
"The magic is in understanding and targeting customers," Howard Bass, senior partner for media and entertainment at Ernst & Young, told TheWrap. "There is inherent value to compelling, high-quality content, and we are not moving toward exclusively user-generated content.”
After years of offering music, magazines and television shows online for free, it may be difficult to put the genie back in the bottle. Thus it is critically important that older companies follow the example of businesses that came of age in the digital world, the study says.
Gaming companies such as Zynga — and not older and more orthodox media conglomerates — have been the most successful at getting people to pay for programs like Farmville and Mob Wars. In a show of their influence, the virtual goods market reached $1.6 billion this year, but the bulk of the money, some $835 million, came from social gaming.
But it's not an unalloyed success, the study reports. The costs of processing digital purchases are still too high, amounting to 20 cents per transaction, prohibitively expensive for an average payment of $1 or less.
On the plus side of the ledger, customers' willingness to engage in e-commerce is rising even in parts of the world where there is a great deal of free online content available. For instance, the United States has an average penetration of free online activities of 57 percent, but it also had the third highest levels of e-commerce and online transactions.
The report also outlines some ways that media companies have successfully boosted their online revenues.
Out with the old packaged subscription deals, pay walls and bundling of content. In dividing content into more easily digestible and a la carte morsels, the study says media companies are employing methods that worked for online games and digital music downloads.
In other words, making content pay involves better understanding consumer needs and the devices on which they watch movies and TV or listen to music.
One promising solution detailed in the report is the progress that media companies are making on digital lockers such as Ultraviolet. This technology would allow users to purchase digital content and transfer it from their computers to their mobile devices to their home televisions.
“A digital locker is a critically important technology enabler. It is the secure, trusted, private way to experiment with new distribution models and access. It could be critical to providing new forms of premium content,” Bass said.
In particular, the study suggests that a digital rights locker could allow consumers to purchase movies or TV shows prior to the wide release, giving them more incentive to spend money.
In other words, getting to watch "Harry Potter & the Deathly Hallows" on your iPod the day it hits theaters?