Online Strategies for Paid Content Peter Krasilovsky, VP

1. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Online Strategies for Paid Content Peter Krasilovsky, VP May 20, 2003 UC Berkeley

2. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Borrell Associates’ research focus: How The Internet Impacts Local Media • Disruptive Technologies and Newspapers • Real Estate Classifieds Transition • Local Online Audience Measurement • Attitudes of Local Online Advertisers

3. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Today’s Discussion: Online Strategies for Paid Content • Review, analysis and strategies • Strategy insights • User survey • Follow-up of our 2001 report on “Free vs. Paid” for NAA

4. BORRELL ASSOCIATES INC.Executive Strategies for Local Media What Does Paid/Premium Mean For Local News Companies? (It Depends) • Paid Represents Net New Revenue From Subscription and a la Carte products

5. BORRELL ASSOCIATES INC.Executive Strategies for Local Media • " Area of Displacement Area of Net Growth Established Business Disruptive Business Origin of Disruptive Business Outside of Established Market

6. BORRELL ASSOCIATES INC.Executive Strategies for Local Media The Opportunities in Paid Content: Strategic and Financial • 10% of online users pay for some kind of content • Total content sales reaching $1.3 billion in 2003 • 63% of spending is for Personals, Business/Investment and Entertainment Source: Online Publishers Association/Comscore

7. BORRELL ASSOCIATES INC.Executive Strategies for Local Media WHY PAID ENVIRONMENT IS STILL INCUBATING* 1- Too much free stuff 2- Payment technology too primitive for charging a la carte 3- Need better reading devices, more intuitive wireless services 4- Offline products much more profitable. Publishers need to use online to support offline. *adapted from Michael Rogers

8. BORRELL ASSOCIATES INC.Executive Strategies for Local Media A Delicate Balance between Advertising and Circulation • Rule of Thumb-- 3 Ad Dollars for every Circulation Dollar. • ABC Rules dictate that alternative methods must be at least 25 percent of the home circulation price

9. BORRELL ASSOCIATES INC.Executive Strategies for Local Media “Paid content is real and growing but there is still an enormous opportunity in advertising and marketing.” Barry Briggs, COO, CNET

10. BORRELL ASSOCIATES INC.Executive Strategies for Local Media New York Times Digital Value Pyramid 500,000 Pay product users 1.5 million Loyal users 3.7 million Daily e-mail subs 11 million Active registered users

11. BORRELL ASSOCIATES INC.Executive Strategies for Local Media ‘All-You-Can-Eat’ Annual Subs are Norm Today • 59% of online content sales are annual subscriptions • 27% are monthly • 14% are a la carte • Source: Online Publishers Association/Comscore

12. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Est. Value of Premium Content Types, Circa 2003 (in order) • Tollgates for Full Site Access • Wireless Products • Broadband Products/Aggregations • Archives • Special Features (crossword puzzles) • PDFs (Newsstand, Olive) • News Tracking/Push (Infogate) • Paid Email Newsletters

13. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Delivery, Not Content, Key to Paid? ‘If we (again) have paid dimension in future, it won’t be paid content,it will be paid delivery. Our biggest competitive advantage is speed and immediacy. ‘ Jacob Weisberg, Editor, Slate

14. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Borrell Research Into Tollgates: Two Dozen Newspaper Sites Are Behind Tollgate • No site gets more than 2.6% of print circulation base to pay • Maximum registration sign-ups total 12.1% of print base • Potential retention value not as strong as anticipated • Generally a mistake in strategy* *except in remote places like Albuquerque and Winnipeg

15. Site Expense Effect of limiting traffic Reasoning Content acquisition Increases Paying users have higher content expectations Hosting/ Disk Space Bandwidth Increases Decreases More quality content is added Fewer users, less throughput Site management Content/design Tech support No change Increases Resources are simply redirected New system, real “customers” Hardware/Software Increases Payment or registration system will cost $ whether built internally or outsourced BORRELL ASSOCIATES INC.Executive Strategies for Local Media Effect on Operating Costs of Tollgate is Potentially High

16. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Tollgate Chases Non-Subs Away • Does not add value to print sub • Drives audiences away: 85% would not subscribe to print 77% would not pay for online • Makes it difficult to induce demand through improvements

17. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Not Even Worth a Buck a Month? • 71% would go elsewhere if charges were imposed • High Pricing Sensitivity Among Nonsubscribers

18. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Beyond Tollgates,Niche Content Represents ‘New Value’ • Audiences may pay – monetarily or with information – for: • Niche content, information of particular relevance • Content unavailable through other channels • Differentiation

19. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Niche Sites and E-Newsletters Have Had ‘Mixed Success’ • Circulation of Belo’s sports newsletters collapsed from 98,000 to 800 after $9.95 fee imposed. • But Milwaukee Journal Sentinel has 17,500 subscribers to Packer Insider w/ Season Pass of $19.95 . 72% of subs from out-of-state

20. BORRELL ASSOCIATES INC.Executive Strategies for Local Media SIGN OF THINGS TO COME: An ADHOC PREMIUM E-NEWSLETTER NETWORK • The Journal-Review exchanges premium content with a premium Minnesota Vikings site run by The Star Tribune. • Whether subscribers got the content from the Minnesota site or the Green Bay site, “they need to pay either way.”

21. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Broadband opens door to Aggregation “Cable TV” Model • 2.2 million of Yahoo's 215 million users pay for a fee-based service • 1 million subscribers to RealOne video service @$9.95 each. • Jupiter forecasts Audio/ Video will bring in $750 million+ by 2007 due to Broadband

22. BORRELL ASSOCIATES INC.Executive Strategies for Local Media “They Pay for Sports, But they Mostly use News” Merrill Brown, SVP, Real Networks’ Real One

23. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Positioning For Premium Content….Registration Is Better ‘Intermediate’ Path • Vast majority –print subs and non-print subs -- will register, depending on information requested

24. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Borrell View: Registration Best Entry Point for Next Gen Premium Content • Get better data for site development • Generate lists for email marketing • Target onscreen advertising

25. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Summary • “Paid” Content is potentially lucrative • Value for Services such as video is clear • Value of paid newspaper services is not • Registration achieves many of same goals as paid content...and acts as gateway to new premium environment.

26. BORRELL ASSOCIATES INC.Executive Strategies for Local Media Thanks…Let’s Talk About This Stuff! Peter Krasilovsky Partner, Borrell Associates pkras@borrellassociates.com 760-918-0450