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The key to a media business model is the size of the market and the demographic of the consumer. eMarketer is forecasting the number of monthly Internet users in the US will increase from 221 million in 2010 to 250.7 million in 2014. The size of this consumer group is creating a larger audience which looks more like the general population and has a lot of potential. The internet is a low-cost distribution method with a superior ability to target advertising. This creates a medium which can economically serve the public and deliver niche products with high value content. The question most analysts are now asking is how media companies will get paid for the content they deliver.

Large media companies such as News Corporation (NASDAQ: NWSA) and The New York Times (NYSE:NYT) are already using the internet as a mass delivery mechanism for a lot of free content. Yet these companies have large editorial staffs and overhead which are hard to support on advertising alone.

To counter this situation Rupert Murdoch has said that News Corp, where he is CEO, is within two months of changing its model and will be charging for the online content of the New York Post and some other newspapers. Murdoch sites the success of the Wall Street Journal for this proposed change. Yet Murdoch’s statement is a bold move for a general circulation product. A recent Nielsen study of 27,000 consumers across 52 countries showed that 85% of respondents prefer free content.

The film and entertainment industry is also confronting many of the same issues as the news industry. Witness the rapid growth of online sites likes Hulu which offer lots of premium content for free in contrast with Netflix’s (NASDAQ:NFLX) Watch Instantly which provides hundreds of movies on computers for only $8.99 a month.

Now that it has a huge audience will Hulu start charging for content? A recent Nielsen survey showed that more than 50% of the consumers canvassed had paid or would consider paying for film, music or gaming content.

Ever since cable TV entered the media landscape we have lived in a hybrid market. This market provided commoditized information supported for free via advertising and premium content for pay by subscription. The internet simply expands this trend with a larger market and more efficient delivery channel for premium or niche market content. It is more than likely that many digital media companies, both news and entertainment, will adopt hybrid models. They will have larger audiences with a lot more competition. They will earn whatever they can off their general “commoditized” content with advertising and have low-priced subscription pay walls for the rest. The trick will be having the right content and knowing how to price it for the various segments within their user base

Steve Gear