New Trend? MSN May Charge Fees for UK Content

The plan is yet another signal that portal access fees on sites such as MSN and Yahoo! are just around the corner, as those companies try to defuse the ongoing slump in Internet advertising sales.

"We're in a new Internet economic situation today where the rules of 1998 are no longer valid," David Smith, vice president of Internet strategies for the Gartner Group, told the E-Commerce Times. "The year of free lunch on the Internet is coming to a close and Microsoft may be out in front of the trend here."

Neil Holloway, Microsoft's UK managing director, told the Independent, a UK newspaper, that he believes MSN users would be willing to pay about £60 (US$87) a year for specific portal content such as news and sports, as well as extra services such as access to live music broadcasts and games.

MSN's core services, such as Hotmail, would remain free, according to the report.

Advertising Crunch

Advertising revenues have been the bread and butter of Web portals such as MSN and Yahoo!. But according to Forrester Research, ad spending in the UK decreased from 17.7 million Euros to 17.3 million last December.

"It is clear that the online advertising and the click-through model alone won't generate enough revenues," Holloway said.

Smith said he expects similar fee models to start taking hold at portals such as Yahoo! within the year. Yahoo! has already started charging its auction users listing fees.

"All of the companies that have based their model on advertising are feeling the pinch," Smith said. "You're going to see lots of different kinds of tiers of service from content providers -- some will be free, some will charge, and some may be very expensive. It's not going to surprise me if two years from now you see premium services in Yahoo! and many other portals."

Pay or Play?

The tough question for the major portals is: will users pay for content they have already been receiving for free? According to a survey conducted last year by the Consumer Electronics Association, half of Internet users oppose fees for downloading content online.

Indeed, when it comes to fees for downloading information, pictures, audio files and games, consumer opposition is as high as 77 percent, the study found.

However, Smith said that more than a few cases prove that a fee-based model can work.

"Thus far, there have only been a few examples of people willing to pay for online content, but there are some [that have worked], such as the Wall Street Journal," Smith said. "It really depends on what services they're going to offer. Microsoft has had in the past a lot of pretty good content they've given away for free, some of which they could have attempted to charge for."

Something for Nothing

Late last year, Microsoft spent US$1 billion to revamp its UK portal. According to MMXI Europe, MSN is the most visited portal in the UK, with more than 5.4 million visitors in November 2000.

Yahoo! is second in the UK with 4.4 million visitors, according to the audience measurement firm.