As paid content booms, will ad opportunities shrink?

Marketers should start acting like content creators to get their messages across, because actual media companies could give up on advertising funding as people start paying for their material.

That’s the view of a Forrester analyst, who forecasts the number of people buying digital content will grow by eight to 12 percent by 2017 in western Europe.

“While consumer research for years reported that consumers claimed they wouldn’t pay for content, the forecast revenues indicate otherwise,” Darika Ahrens writes.

“Forrester forecasts that, by 2017, in Europe:

  • 20 percent of tablet users will pay for news,
  • “the online game buying population will have increased by 27 percent,
  • “60 percent of video-buying will be digital
  • “and the number of music subscribers will double.”

The forecast sees a total 192.9 million people paying for those content types in seven European countries, making for a €10.2 billion ($12.2 billion) paid content industry in the region. The boom will be fuelled partly by the currently-radiating explosion in new devices designed for media consumption, many with attractive built-in payment mechanisms.

For context, it is worth recalling that Forrester in 2011 observed growing consumer willingness to pay but precious few services to support their comfort level, equalling pent-up demand. Now, however, those services are increasingly available.

Ahrens reckons:

“The potential impact on marketers is huge. Successful online content providers no longer need to rely on ad spend. (There will be) fewer chances to reach consumers with ads.”

She says marketers should respond by building their own content channels, sponsoring content packages within a paid content environment and otherwise start advertising as though it were creating content for end consumers.

But is there truth in any of this?

Although Ahrens’ report cites and Netflix(s nflx) as examples of content providers that rely exclusively on payment, others, like Spotify and The Financial Times, also operate advertising businesses. And, while those businesses are freemium funnels with which to snag paying subscribers, they are not just sidelines; they also turn over several million dollars.

For many a company, the adage should be that a healthy business is one with diverse revenue streams. The Times may have started charging news readers in mid-2010, but it did not give up on its ad sales business. Indeed, its pitch was that confining its audience to a few select, paying readers would drive up its online ad rates.

This thesis also contradicts the trend that is now increasingly worrying publishers — that, on the free web, ad rates are shrinking horribly because the number of websites on which to advertise is expanding. If premium content services start charging, there are plenty more low-rent alternatives. Advertising opportunities won’t shrink – but premium advertising opportunities will.

So, one can’t deny the tenet of Ahrens’ observation. Thanks to technology developments, the outlook for content payments is positive. Of those providers who succeed at it, some will rely exclusively on user payments, and some, like The Financial Times, will seek to reduce advertising in their revenue mix as much as possible. Many publishers were buffeted by the advertising downturn of 2008-2010 too hard to go on relying on that model alone. While The Times website still runs ads, they many of of the sponsored-section variety Ahrens describes.

New-wave marketing strategies like sponsored content have a large part to play, both as an alternative to free, ad-funded content and alongside it. Vice Media, for instance, relies on big upfront sponsor deals to finance its edgy online magazine and video projects, like its Intel-bankrolled Creators Project.

The consequence of such a model is that, as more content becomes marketer-created, disclosures describing the relationship between advertiser and publisher must be visible to readers, who are as used to the traditional church-and-state separation of editorial and commercial as content producers themselves are.