07/28/2010 03:32 pm ET Updated May 25, 2011

Direct Monetization of Digital Content: Not if, But How

When it comes to online and digital distribution of goods, I'm often confronted with the question of whether consumers are willing to pay for content. It surprises me, on many fronts, that such a question persists -- yet it does. The reason, I believe, is that we're in a transitional period during which the old view that all content on the internet should be free directly confronts the reality that the internet is now the biggest mainstream medium for content delivery. Consumers are therefore expected pay for the value they enjoy via this channel, just as they have in every other channel through which they've historically accessed content. In fact, I think it's fair to say that if anything, the web has allowed even greater creation of value for content by dramatically enhancing ease of access, simplicity and sharing. Take the recent Netflix Relativity deal and Hulu Plus offering for instance. If anything, the internet has enabled an entirely new class of business models and content distribution methods that help us meet consumer needs more effectively than ever before. It might then be reasonably expected that consumers should be asked to, and be willing to, pay for this added value and the benefits it brings to their lives.

As content of all types migrates into the cloud and moves to digital distribution, I am always struck by the recurring concept that all this content may, or should be, free. The fact is that consumers are already paying for content -- whether in the form of movies, books, premium TV channels, and newspaper and magazine subscriptions -- and they are doing so frequently and happily. Additionally, many in the industry are skeptical of digital goods because they are a zero marginal cost good, however most software models are zero or near-zero marginal costs and have been for awhile. In both cases consumers pay for content, not because it has been monopolized and they are lacking for alternatives, but because they value it. Just because a new form of distribution has emerged in the form of the Internet, does this then imply that consumers' propensity to pay for value will simply evaporate? I think the answer is an emphatic "No!" The real question is not whether consumers will pay for content, but how will creative content providers package and distribute their products to create value in an emerging multi-channel, digital world.

I would argue that, regardless of the type of content (books, news, video, music, gaming, etc.), the internet's ubiquity has actually created more opportunity than threat for creating engaging experiences that can be monetized as effectively, if not more so, than via typical distribution models. Prior to the Internet's emergence, literally every content value chain was characterized by high barriers to entry and the need for massive scale in both the creation of content and its distribution. Now, however, the shift to digital production and ubiquitous digital distribution are allowing content providers to not only much more easily and cost-effectively distribute on the global scale but also to have the liberty to unbundle and repackage content in an infinite variety that allow for much better tailoring to the needs and profiles of content consumers, in turn increasing number of ways that content can and will be monetized.

Yes, there is no doubt this is disruptive to existing providers and value chains. But, with disruption comes the opportunity for innovation, and there are as many liberating aspects of the shift to internet-distribution of content as there are threats. Now, it is up to content providers to embrace the opportunities afforded by the internet and continue experimenting with unique, immersive content experiences. In so doing, content providers can let consumers reveal their preferences for how they will consume content in ways that are best for them and profitable for the provider. The key for all involved will be to take a flexible and agile approach to testing, learning and adapting business models and monetization strategies to better understand consumers' content consumption behaviors and preferences as they themselves learn what works best for them in an emerging digital world.

At PayPal, we believe there is no one solution for how content monetization will occur. Instead, we recognize that there are likely hundreds, if not thousands of answers to this question. Our focus is on providing a single, global payment system that has the flexibility that content providers of any type need to monetize in whatever fashion is most appropriate for their users and profitable for their businesses. Whether this is via subscriptions, micropayments, usage-based billing, one-time purchases or a combination of all of the above, we believe that consumers must be able to pay quickly and easily, and content providers must be able to accept and process payments efficiently in order to operate profitably. The challenge now is for content providers to figure out how exactly that is done for their specific business and users, but we know it can and will be done, and we intend to be there as partners in answering the question "How will content be monetized?"