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msnbc.com

The fee frenzy is on. Consumers who rejected anything that wasn’t free on the Web are showing interest in paying for online content. In fact, online subscription revenue will jump over 500 percent in the next few years as Web companies steal market share from their offline rivals, according to new research.

Image: MSNBC Reporter Jane Weaver
ONLINE SUBSCRIPTIONS will increase from $517 million in 2003 to $3.5 billion in 2007, a 578 percent jump, according to technology research firm GartnerG2 in an upcoming report on consumer spending on media subscriptions.

Compared to the $34 billion Americans spent on cable TV last year or the $6.9 billion they paid for magazine subscriptions in 2001 (the most recent figures available), the online market is still small.

But as the number of homes with high-speed Internet connections continues to grow, online consumers will become more willing to pay for the special content, video and entertainment they access, Net analysts project. Earlier this month Pew Internet reported that 31 percent of Internet users go online with broadband connections, a 50 percent growth over last year. People who use broadband log on more often and spend more time online, making them good potential customers for paid content, researchers say.

In 2001, 52 percent of consumers said they were not willing to pay for Web content, Gartner found. By the end of last year, that number dropped to 45 percent of wired folks still not willing to pay up.

“People are becoming less resistant to paying for content online,” said Denise Garcia, the analyst who worked on the Gartner study.

The Gartner study excluded subscription fees from pornography, gambling or Internet access.

In particular, online subscriptions will steal market share from newspapers and magazines as people choose to subscribe to online versions of their favorite publications, Gartner projects. Online will grab a 12 percent share of the print subscription market by 2007.

Other industry experts counter that news and information sites will get only about five percent of their revenues from subscriptions, with the bulk coming from advertising.

“Instead the publishers will be developing premium services that will live off a solid bedrock of free content,” said Michael Zimbalist, executive director of Online Publishers Association.

Major online newspapers have already begun adding premium services. On Wednesday, The New York Times converted its free e-mail news alerts into a $19.95-a-year subscription service for new sign-ups. The 500,000 readers who already receive the News Tracker e-mail service will be charged starting June 13. With the premium service readers will be able to receive alerts on 10 separate topics of their choosing, up from the current three. The Times already charges for its online crossword puzzles and for access to stories more than seven days old.

WHERE THE MONEY IS

Personals

Looking for love on the Web is big business. Personals generated $302 million in revenue in 2002, or 63 percent of all paid content online, according to research from comScore and the Online Publishers Association. For example, personals helped drive Yahoo!’s first-quarter paid subscription revenue up 61 percent to $63.7 million. Rival Match.com generated $125.2 million from over 766,000 members last year. “Consumers will pay for content that delivers meaningful value to their lives,” said Trish McDermott, vice president of romance for the online dating service. The category shows no sign of slowing or of being limited to American lonelyhearts. Match.com, which is owned by USA Interactive, grew to 25 international sites last year.

Movies

Online movie rentals are successful for Netflix, which has over a million subscribers paying $20 per month to watch as many DVDs as they want. Blockbuster plans to offer online DVD rentals as well, which could put pressure on the monthly rates. By 2006, the digital movie market will finally reach the mainstream as technology allows consumers to watch downloaded films on TV rather than the PC, Gartner projects. In the meantime, premium Web services like Movielink or CinemaNow, which charges $9.95 a month to watch movies, will remain experimental. Cable operators will dominate the filmed entertainment market with subscription video-on-demand services where consumers pay about $10 per month for access to the entire season of “The Sopranos,” for example.

Games

Online game subscriptions are expected to remain a small market despite a push from giants like Microsoft, Sony, Walt Disney Co. and Yahoo!, Gartner said. Yahoo! charges $9.95 a month, $19.95 a quarter or $59.95 a year for users who want to set up games tournaments with multiple players. Online gamers are rabid loyal but just over 13 millon people are expected to subscribe to a service by 2007.

“There are many avid gamers, but they won’t necessarily subscribe,” said Garcia. “Subscriptions are a smaller part of the overall [online] games market.”

Microsoft’s Xbox Live, which launched last year with an initial yearly subscription fee of $49.99 or $5.99 a month, will command much of the market with almost $500 million in subscription revenue by 2007, according to Gartner.

Music

The various subscription music services on the Web have currently attracted barely over 100,000 paying members, industry analysts estimate.

Although Apple Computer’s new pay-per-song service has galvanized a desperate music industry, most rivals are clinging to the monthly subscription model. By 2007, online music subscriptions will cut into offline record clubs, gaining 30 percent of the market.

FEE FATIGUE

After paying the cable TV, cell phone and Internet access bills, is there any money left? Some wonder if consumers will collapse from fee fatigue.

“The challenge is, how many different subscriptions will a person hold before they’re tapped out?” asked Zimbalist.

Even though people will accept paying for content on the Web, finding the right price will remain a challenge, said Garcia.

Many services charge almost $10 per month, such as Yahoo!’s Platinum audio and video product. The online music service Pressplay, which has been bought by Roxio, charges as much as $17.95 for a full range of song downloads. However, most services woo customers with free trials.

“Online will struggle with being able to charge higher prices as they try to convert people from getting free content to paying for it,” said Garcia.

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