Time Inc./AOL Restrict Access to Magazine Sites: A Breakthrough?

Byline: Barbara Love

If online content is valuable, magazines ought to get paid for it. That's what publishers believe; unfortunately, for the most part, online users do not yet agree. However, the industry is intent on changing consumer attitudes about paying for online content.

The current move by Time Inc., which restricts content on the Web sites of 13 of its magazines to subscribers, newsstand buyers and AOL members, is a step toward changing consumers' attitudes about paying for content. It is not the same as charging an outright fee, but it does require a form of payment to view content.

Very few magazines have tried charging for Web content - either for exclusive content "behind the curtain" or to enter the Web site. Smart Money charges for premium content. Fortune has had success restricting some content (Fortune 500 information, for example) to Fortune subscribers. Consumer Reports, which has unique content, is the only magazine that has really made a go of charging people for access to most sections of its Web site. Newspapers like The Wall Street Journal have been more successful getting people to pay for online content because they publish critical business news.

While the list of people doing it is small, "everyone has some initiative on to test the concept," says Douglas Olson, VP and general manager for Meredith Interactive.

Some observers say that what's required to charge people for online content is either time-sensitive information or exclusive, must-have information, neither of which characterizes Time Inc. publications. On the other hand, given the size of AOL, its considerable leverage, and the quality content on Time's magazine sites, "if anybody can do it, they can," one circulation executive says.

Restricting editorial to paying customers (either magazine buyers or AOL members) began with People and Entertainment Weekly at the end of March. Eleven other of what Time Inc. calls its "at-home user" titles followed in April and May. Time, Sports Illustrated, Fortune and Money - more frequently accessed at work - will continue to be free online.

"We have a relationship with AOL where we bring them exclusive content developed for our magazine Web sites, and, in return, they sell the advertising and help us generate subscriptions for our magazines," says Jeremy Koch, senior VP at Time Inc., who is working on the integration of the two AOL/Time Warner units. He confirms that AOL is paying Time Inc. a licensing fee for online content. This offsets the cost of providing content.

To what extent the new relationship will boost subscriptions and newsstand sales remains to be seen, says Koch. "Traffic from the Internet in general may go down for some sites because the content is now exclusive, but traffic from AOL users is expected to go up. From a circulation marketing point of view, we hope to convert that increased AOL traffic into subscriptions." Koch did not disclose how much circulation marketing AOL is going to do for Time Inc. magazines. "They know that magazine subscriptions are important to us, and they are motivated to make the relationship work," he says.

Also important is the concept of value-added content for subscribers to the Time Inc. magazines in this new AOL relationship. Under the new strategy, if you subscribe to a magazine, you also get access to "magazine.com."

"We believe readers often want to see more pictures or get more information than we can provide in the print magazine," says Koch. "Providing extended content will be good for the overall customer relationship."

In addition to providing a way to attract new subscribers, requiring subscribers to register online provides an avenue through which Time Inc. can market to current subscribers in a slightly different way. "When a subscription expires, the subscriber's access to the site will be blocked. Instead of being able to access the site, we will serve them a pop-up inviting them to renew," says Koch. "Being able to interact with subscribers online will also provide us a great place to get email addresses and convert subscribers to credit card continuous service."

Making the site exclusive also provides "an interesting new twist for newsstand buyers," says Koch. People who buy a single copy will get an access code in the magazine and will be able to go on the Internet and view the content on the magazine's Web site on a temporary basis. When that temporary-access period is up, the newsstand visitor will be served a "challenge" page that blocks his or her access to the site.

"This challenge page is the perfect place to sell them a subscription or promote the current newsstand issue," says Koch. "We're excited by what we see as an opportunity to engage our newsstand customers in a different way, in a different place."

INDUSTRY REACTION IS MIXED

Is Time Inc.'s pioneering path toward charging for content on its magazines' Web sites prompting other consumer magazines to follow? Interviews by CM with other major players would indicate "No."

Meredith Publishing, for example, has tested charging for online content, but feels the time is still not right. "It possibly could be a breakthrough for them, but at Meredith we don't see any reason to change our model," says Olson. "I think charging for content on the Web will only work if you have truly unique or very timely editorial," he says. "We have home and furnishings publications. We don't know if it's unique enough or timely enough to charge for. We believe a strong presence of quality editorial available on the Internet is a key component of our circulation growth. We continue to move more and more subscribers to the Net. If we wall off editorial and only take paying members, we feel it reduces our audience of new customers. Anybody can come to our sites (AmericanBaby.com, BHG.com and LHJ.com) and get the majority of our content."

Many see the forging of new synergies between Time Inc. magazines and AOL as way to help AOL, which has had difficulties recently attracting ad revenue and retaining members. One of the obvious concerns of publishers is whether charging for editorial content will impact page views, and to the extent that it does, how a shift in traffic will impact advertising sales. A high-level executive at another major consumer magazine company, who spoke on condition of anonymity, says, "I think it's a mistake. I think they have to go for this because they don't have much flexibility in different ad units with AOL and advertisers want that; They are absolutely losing advertising dollars because of that. When they wall off things behind the AOL service, that limits the people who see things. Whether there will be a mass migration to the new AOL model is yet to be seen. It's possible, but not likely."

Koch says, "We are prepared to see traffic decline in the short term, but I'm confident in AOL's ability to compensate very quickly for any lost volume from the Web. I don't think we'll see anything that is a problem for advertisers."

Sarah Chubb, president of CondeNet, the online division of Conde Nast, says her company is not about to introduce a model that would reduce page views when advertising for its site is so strong. "We're in our second year of over 50 percent ad growth," she told CM. "And now we are getting top-shelf advertisers like Jaguar and Kraft. In the early days it was all Internet advertisers.

"There are lots of people trying to charge for content," she adds. "For us, the question is do we put some portion or all of the site behind the wall and make you pay for it, or do something else? Why would we put even some of it behind the wall and sacrifice good ad revenue without knowing how it would benefit us?" CondeNet does have a paid newsletter on its Epicurious Web site, the online home for Gourmet and Bon Appetit. The $24.95 newsletter gives product reviews. "We leverage the fact that we have this free site with enormous traffic," says Chubb. "That's our current approach to paid content."

CondeNet's online ad growth is by no means typical. Most magazine Web sites have seen the same withering of ad revenue as AOL has experienced on its service. As a result, many sites have been scaled back. "People have re-trenched; the investment level is far less than it was, and getting less," says one VP, consumer marketing.

Because maintaining quality based solely on ad revenue is no longer an option, the spotlight is on circ revenue. So what's changed may not be increased consumer willingness to pay for online content as much as an increased industry need to charge. Nevertheless, the impact on circulation of a restricted-content model or a paid model - regardless of the origins - is of great importance to circulators, who are strongly focused on making the Internet a more productive partner.

David Leckey, senior VP, consumer marketing at Hachette Filipacchi, says, "It's a neat trick" if you can turn a free site into a paid site. "You condition people it's free and now you charge for it. It's kind of like a model of turning controlled circulation into paid circulation. It's a hard thing to do while maintaining circulation levels. It's kind of like turning water into wine."

Hachette uses its Web sites for subscription promotion, but access to the sites is free. "I think that's the way 'John Q. Public' views the Internet," says Leckey. "Now we are talking about levels of membership - if you go in the front door free, to go in the next door you pay. We have kicked around a platinum site for CarandDriver.com, which would enable users to compare types and models, with the idea we will charge an access fee for it." That's only in the planning stages.

Leckey's concern is, "How do we do this and not impact our other business streams? I want the user to get on our sites free so we can sell that person a back issue, posters, apparel. But if there is a priority in my book, it's to click on 'yes' to a sub. As long as the front door is open to shop, they can subscribe. To pay to go to the second floor is one thing, but to pay to get in is another thing. Can you imagine going into Saks and someone charging you at the door?"

While some in the industry are skeptical about the success Time Inc. will have with its restricted access model, there are also accolades from high up. "I think it's a good move from the standpoint of circulation," says a VP of consumer marketing for another large publishing company. "What does circulation get out of these Web sites? I don't think they generate very many subs now. This can't hurt."

Barbara Eskin, consumer marketing director for several Primedia magazines (Motor Trend, Automobile, Soap Opera Digest and Soap Opera Weekly) thinks the Time Inc./AOL initiative is the wave of the future. "The key is to find something people will pay more for, or pay for at all. It will take a certain amount of convincing people to pay for materials, which - if you search for long enough on the Web - you can get for free."

Koch thinks the Time Inc./AOL model for circulation marketing is a breakthrough. "We are beginning to find that you can - if not charge directly for content - use it as added value to get people to subscribe," he says. "It's a step in the direction of directly charging for Web content. The jury's out as to whether we will be successful, but it's what we need to do to get real value from these sites. Being able to work with AOL gives us a lot of flexibility and a more interesting formula for exploring the paid option. But I do think you'll see more and more magazines going in this direction in the future.

"The financial perspective on our Internet sites in the past has been to view them as stand-alone businesses: Web content had to be paid for by Web advertising revenue," he adds. "Now we're beginning to look at them as an integrated part of the overall magazine business. It is a more complex formula, but more substantial and more sustainable for the long term."