Remarkably missing from the FREE debate are some facts.
1) The freemium concept – giving away something first and then asking
for money is NOT the way most of the money has been and is made in the
media/entertainment industry: Historically, Cohn left the rag business
(where he struggled to collect receivables) to start Columbia Pictures
BECAUSE he observed people paying for a movie ticket IN ADVANCE, with
no returns if not satisfied. This model still works: you pay your cable
bill in advance and the cable segment is the healthiest in revs and
profits in the industry today.
2) Music, the entertainment segment which is the “poster child” for the
“freemium” concept – by
“sampling” on free radio first to sell
recordings and tickets to concerts – is the entertainment segment
struggling the most in this marketplace.
3) The highest direct-from-consumer profits and revenue growth are in
the sports industry, where the audience pays to not just watch but to
PARTICIPATE (tickets, merchandise to represent team loyalty, fantasy
league games, etc.)
4) Historically, the distributor was the link in the value chain with
the closest proximity to the consumer and “owned” the marketing role.
The distributor paid for the content in the advance, taking the risk
that they could sell access to the consumer. BUT, while distributors pay a premium for “known”
high value content, they aren’t willing to take this risk on anything
else. So this structure benefits the established content brands, and
keeps out the new players.
5) When the established content brands realize they can make a lot more
money selling directly to their audience and are confident they can
market effectively in this highly competitive marketplace, the relationship between content owner and distributor will change (e.g., Kindle model - consumer pays for content, Kindle pays distributor - i.e., Sprint)
Here’s how the “freemium” tactic can be leveraged successfully:
In marketing history, sampling is optimal when: the product’s is significantly superior to anything on the market and this superiority is observable in an “appetizer” portion, so that by sampling, intent to purchase and pay a premium vs. the competition increases.
(In any other scenario, giving away product or services for free is perceived by consumers as an act of desperation and lowers the perceived value of the product or service. Case in point: newspapers one once paid for are now available for free online and our value perception has dropped)
Capitalizing on the value of PARTICIPATION demonstrated by sports entertainment brands, established media companies will produce a quality interactive experience and will learn to market directly to consumers premium priced entertainment experiences. Advertisers interested in tapping both the entertainment brand’s marketing know-how and relationship with their audience will pay a premium to participate in these entertainment brands and enjoy an opportunity sell directly to consumers too.
