Week in Review: The rise of freemium

As ad revenues plummet, Telcos and publishers are quickly shifting to premium models.

This week, the media world took a big step away from the ad-supported content model—touted not long ago as the panacea for all content owners—and towards freemium.

The Cable operators are leading the shift. Comcast’s earnings increased 53%, even as ad revenue dropped and new subscriber growth declined due in part to slowing house sales and increased churn in poorer areas. So where’d the earnings come from? The average total revenue per customer rose.  The upper-middle class willing to pay a bit more for their content.

The same thing seems to be happening in Europe, where the Telecoms, fueled by subscriptions, are doing well and the free broadcasters, once propped by advertisers, are stumbling. Deutsche Telekom AG and Telecom Italia SpA reported solid earnings Thursday, following even better results from France Télécom SA and Telefónica SA last week. The continent’s second-biggest broadcaster, Germany-based ProSiebenSat. 1, saw profits slide 24% and the UK’s largest commercial terrestrial television operator, ITV, reported a net loss of $119 million. Both can trace the decline to a drop in ad revenue on free content.

Rupert Murdoch characteristically reacted quickly to these trends. He announced yesterday that all of his news websites will be put behind a pay wall by next summer. Advertising as a biz model for big media is dead.

On a broad scale, this is one more step in the fragmentation of the media bottleneck that started with the internet. First, the publishing monopolies dissolved, but not the revenue source for that industry—big advertisers remained the sugar daddies. The recession has accelerated the creative destruction of that revenue source, and media companies are shifting to a freemium model—away from big brands to the  consumers willing to pay higher subscription fees.

What this means for the quality of the content we consume remains to be seen. The media moguls and their employees are fretting over the death of objective journalism, but if the revenue source shifts from corporations to a diversified reader base, the future of "objective" may not be so cloudy.