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September 21, 2005
The next glut
Internet and media companies are increasingly enamored with the idea of getting consumers to pay for what they view. The New York Times' new timesselect service will require Web non-subscribers to pay read the work of its op-ed columnists. eBay is acquiring Internet phone upstart Skype with the idea of getting its millions of customers to start paying for premium levels of service. Yahoo! and other portals want members to pay extra for everything from premium email to music and video services.
The last tech glut was the result of overcapacity on the infrastructure side of the business. The next glut may very well stem from a glut of capacity on the content side. Consumers are going to choose from an increasingly huge array of services. It's not necessarily a zero-sum game. If the selections are good, consumer spending on media could conceivably increase above today's level. But consumers don't have unlimited resources. They can't afford to support every worthwhile media venture (and I use that term in the broadest possible sense, mostly because I hate the term "content"). My feeling is that we're going to see a shakeout in the world of online media and services in the coming years.
I doubt that it will be as devastating as the last bust, which was exacerbated by the sector's buying binge was fueled with debt. Companies have much cleaner balance sheets this time around, so they can afford to write off losses without going into bankruptcy or wiping out their entire market cap.
But it's likely that relatively few players will succeed in charging for content on the Web. The structure may look a bit like cable TV, with consumers paying a flat fee of $40 or $50 a month for access to hundreds of services. There will be plenty of niche players that operate alongside them, but many of them will eventually end up as part of a larger network. That's one reason we're seeing so much Internet M&A right now. It seems the process of consolidation already has started. Paidcontent says News Corp. may be on the verge of two more acquisitions. Summing up News Corp. chairman Rupert Murdoch's comments at the Goldman Sachs conference, PaidContent says Murdoch plans to buy or lease search or VoIP capabilities within weeks.
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