Cable Pioneer John Malone on How to Get People to Pay for Content They Now Get for Free

2 06 2009

MaloneInterview with Walter Mossberg in today’s WSJ:

MR. MOSSBERG:But you’re the guy that got people to pay for what was free television.

MR. MALONE: There’s the secret.

MR. MOSSBERG:How did you do that?

MR. MALONE: This is a titanic fight, Walt. … The way it was successful was blending together the transport service with the charge for the content. When you were a cable subscriber, you weren’t sure whether you were paying for connectivity or whether you were paying for the content that was embodied in the connectivity.

You had broadcast television initially. Then you started out with distant broadcast. That’s where Ted Turner comes in. Distant broadcast television is brought into a market and added and a charge is increased. You want to get the superstation; it’s another dollar, right? Were people paying for connectivity or were they paying for content? Then, as that blurred environment continued to grow, along comes HBO and says you can watch non-commercially-interrupted movies, but now it’s optional. You don’t have to take it, but it’s another X dollars a month.

At that point, the concept of paying for some television was well enough established in the public’s mind that paying a little more for some premium television started to sell. Of course, that created the opportunity to add the CNNs and the Black Entertainment Televisions and the Discoveries and all of that. Every time we added a channel, we charged a little more. Some of the money went back to the producer of the content.

When the Internet came along, I was terribly concerned that here’s something that’s “for free.” People will pay for connectivity. The industry’s never made successfully the transition to higher-quality content or unique content delivered by the Internet you should pay for. That’s a big intellectual jump.

MR. MOSSBERG:Having not charged for something, how do you then all of a sudden turn around and charge them for it?

MR. MALONE: That’s really the challenge. You should be asking a psychologist. We did it by tying together something that people are perfectly used to paying for—connectivity, communication—with content. If you can introduce incrementally—now you’re getting this 4G wireless data service and, by the way, part of that are these three very interesting things that only work if you’ve got enough speed to enjoy them. Perhaps that’s a way that it can be introduced, just the intellectual concept of paying incrementally for content.

I suspect that it will evolve over time. People will pay on a per-view or on some kind of subscription basis for content on the Internet if the quality is there and there’s convenience. The question you have to ask yourself is, is there going to be an aggregator doing that? This is the role that HBO traditionally did in movies. They aggregated movies and they sold you in bulk. You got 30 movies a month for seven bucks when they started.

MR. MOSSBERG:Netflix is doing that on the Internet. Amazon is doing that on the Internet. Apple is doing that to some extent on the Internet today.

MR. MALONE: I think that if they can differentiate themselves, have uniqueness, then they would become very big.

The cable industry would love to be the aggregator. Hulu would love to be the aggregator. There’ll be a real competition for that role in the future.

Is there a parallel for newspapers and news Web sites? It all comes down to perceived value.