Villing & Company

Advertising vs. Subscription Fees: Striking the Delicate Balance

For me, one of the more intriguing aspects of the digital world is watching news and entertainment sources trying to make it on advertising revenue alone before replacing, or supplementing, that model with subscription-based content – sometimes at the risk of taking money out of their own pockets.

Take for instance Live365 Internet Radio. While one can still access free music on the site, Live365 is aggressively promoting its VIP service. For a monthly fee of $5.95, subscribers can listen to individual stations on the network at any time while avoiding the commercial interruptions and pop-up ads that populate the free service. Sounds great – unless you're a Live365 advertiser who’s left watching its potential audience shrink by the day as more listeners subscribe.

Another example is the news earlier this year that, starting in 2011, The New York Times will unveil a system where visitors to NYTimes.com will be allowed to view a certain number of articles free each month. To read more, the reader must pay a flat fee for unlimited access. Subscribers to the print version will receive full access to the site without any additional charge.

According to news reports, The Times says this will enable NYTimes.com to create a second revenue stream while still preserving its advertising business. Executives from The Times were quoted as saying they wanted to "create a system that would have little effect on the millions of occasional visitors to the site, while trying to cash in on the loyalty of more devoted readers." They also said they wanted to provide the "necessary flexibility to keep an appropriate ratio between free and paid content and stay connected to a search-driven Web".

Sounds like they know full well the slippery slope from which they are to embark. But, as a newspaper giant watching their advertising revenues continually shrink over the last several years, what choice do they have? I'm sure it’s not an easy task trying to forecast the odds of generating more revenue from paid subscribers versus the potential loss of revenue from advertisers.

From a slightly different perspective comes news that popular online site Hulu is starting to move to the subscription model. According to an April 22 Chicago Tribune article, starting as early as May 24, Hulu will allow only the five most recent episodes of current network television shows to be viewed for free. Additional shows can only be accessed with a $9.95 monthly subscription fee.

Since this is an unofficial account and not directly from Hulu, it is hard to anticipate how they intend to maintain their delicate balance of advertising versus paid subscriptions. Will Hulu still provide advertising on the older shows or will one’s paid subscription come with advertising immunity? Could this move actually benefit advertisers as more people flock to Hulu in relative real time in order to watch their favorite shows in a somewhat timely manner, thus avoiding the subscription fee?

Regardless of how this shakes down for organizations like Hulu, The New York Times and Live365, from both a marketing and consumer perspective, count me among the thousands of interested bystanders.

Filed Under: advertising

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