How are Telcos Like the London Times?

"Newspapers have found that chasing page views in the hope that advertising will save them is hopeless," says John Gapper, Financial Times columnist. And the newspaper industry's encounter with the Internet is very-much akin to the telecom, publishing, music and retailing industry's similar encounter: aside from removing a good deal of profit margin from the legacy business, the new Internet ecosystem will force providers to embrace new revenue models that supplement the traditional sources.

Where newspapers have had two sources--subscribers and advertisers--in the future they might require additional sources. Think about Bloomberg, for instance, which offers business information services but also television, radio, the Internet and printed publications.

Likewise, where most telecom providers have in the past had only one major revenue source, namely subscribers, in the future they likely must create additional revenue streams by providing valuable services to business partners, thus becoming "two-sided" or "multiple revenue stream" operations.

The point is that the Internet undermines the old revenue ecosystem and demands creation of a new model. It typically is the characteristics of success using the new model that remain murky.

Giving up on Internet-driven readership, News Corp. will soon put The London-based Times behind a firewall and even will prevent Google and other search engines from indexing the paywall content. television, radio, the Internet and printed publications.

The point is that News Corp has concluded there is no viable business model in the new Internet distribution system, save the closed model that essentially retrenches from wide Internet distribution.

Some might argue that is fundamentally what will happen with most service provider revenue from voice services as well. It will not prove viable except as a more-limited service more focused on some higher-paying customers, as much traffic bleeds off to free and low-cost alternatives made possible by the broadband accessed Internet.

News Corp estimates that the marginal revenue from an occasional browser is less than one tenth of a penny a year. Group M, the media buying agency of WPP, refers to the bulk of news surfers as “useless tourists” who not only pay nothing but have little advertising potential.

“Free distribution of premium content is like eating your babies," says Group M. "You will give value away until you go bust.” It's recommened strategy to avoid what it calls a “permanent oversupply of digital inventory” on the open web is by using a paywall to “lift the publisher out of remnant inventory and restore a much smaller but aggregated audience.”

Trade wide distribution for a smaller number of customers willing to pay, in other words. "Nice to have" must become "must have" for the strategy to work.

News Corp seems clearly to have concluded there is little money in online news, given the number of "free" providers. Providers in other industries, including telecommunications, will face different tactical issues, but the same strategic issue.

Over time, choices will have to be made about where it is possible to provide value, and where revenue streams therefore can be created and sustained. Willy nilly embrace of new channels likely will work no better than it has for most newspapers that have gone "online."

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