Micropayments: The Hot, “New” Way to Pay for Digital Content

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Micropayments are the hot, new way to pay for content – magazines, newspapers, e-books, games, music and more! Actually, micropayments aren’t new; though micropayment is a new buzzword, they’ve been around since the mid 1990s. But companies are finding new ways to use micropayments for consumer purchases like digital media, and the tools we use to make micropayments possible are nothing like we saw in the 1990s.

What is a Micropayment?

What exactly is a micropayment? The definition varies, but a payment is considered a micropayment for purchases under $10. PayPal, for example, defines micropayments as purchases of digital goods under $10, but it offers a discounted transaction fee (5% of the purchase price plus $0.05) for purchases under $4 for individuals and businesses that sign up to accept micropayments.

Micropayment Examples – Music & Media

While the term micropayment is somewhat new, most of us are familiar with one of the most well-known micropayment examples – iTunes which launched in April 2003. In its first week, iTunes sold more than one million songs. By July 2004, Apple’s iTunes had sold more than 100 million songs. With song prices of $0.79 to $0.99 each, that’s $79 to 99 million in just 14 months. While those purchases are “micro,” those pennies add up!

As iTunes gained in popularity, users could buy TV shows, music videos, and eventually full-length movies. Using a post-pay method, users would purchase songs on iTunes using a credit card. Purchases were batch-processed at the end of a business day to include all purchases in one transaction, minimizing transaction fees.

Music is not the only way micropayments are used though. They are also used to purchase e-books, online games, stock photos, smartphone apps, online donations, crowdfunding, and more. More recently, however, micropayments have been used to pay for news content, allowing readers to pay per article rather than for an entire edition of a magazine or newspaper or subscribing to a publication.

In April 2014, the Chicago Sun-Times began accepting Bitcoin as micropayments. During its first week of Bitcoin sales, seven of its 62 subscription orders, or 11%, were paid using Bitcoin, a form of digital micropayment.

Coindesk reported on the story: “The Chicago Sun-Times Bitcoin paywall is significant as it might pave the way for similar solutions from other content providers. A number of small publications are accepting Bitcoin donations and some are experimenting with paywalls. However, few big publishers seem to be interested.”

 

Earlier this year the Winnipeg Free Press and Milwaukee Magazine announced they are moving to micropayment models as well. Milwaukee Magazine, for example, just launched its micropayment system for some of its content. Readers can subscribe for full digital access for $19 per year, or they can pay as little as $0.25 per article, via iMoneza, a cloud-based payment gateway for processing micropayments for digital media. Readers can pre-pay a specific amount to use as a credit for future purchases.

As we reported in April, the Winnipeg Free Press is implementing a “pay as you go” paywall model, where readers are charged $0.27 per article, or they can subscribe for full digital access for $16.99 per month, following a 30-day free trial. According to Nieman Lab, the Winnipeg Free Press is the first newspaper in North America to try this model. What’s interesting about this model is that readers can request a refund if they aren’t pleased with the content.

Blendle – “iTunes for News”

A Dutch start-up has taken the micropayment idea one step further. In April 2014, founders Alexander Klöpping and Marten Blankesteijn launched Blendle in the Netherlands. Blendle is an app that allows users to get all of their favorite publications in one app and to only pay for the articles they read.

Blendle is also a social network, so users can share articles with others, follow celebrities and other high-profile curators to see what they’re reading, and they can read staff-picks as well. The ultimate goal is to provide readers with one source for content and one place to pay.

While critics like Frederic Filloux of Monday Note have criticized the model, Klöpping is touting Blendle’s success. Currently only available in Dutch, Blendle has more than 250,000 users with a vast majority of those users under 35, and they are readers who have not paid for news in the past.

“For publishers, it is a struggle for attention. And because of that, many newspapers and magazines publish their best stories for free. Free stories get you a lot of traffic, and traffic can be monetized through advertising. But more and more publishers realize they can’t build their business on that model,” said Klöpping. “We’re proving that people do want to pay for great journalism.”

The New York Times, the Wall Street Journal and the Washington Post must agree. They’ve signed global licenses to sell their content via Blendle.

“It might actually be so that micropayments will result in better journalism. As a publisher, you have to invest in incredible journalism to be able to sell them on a per-article basis. Luckily, a lot of incredible journalism is being produced every day,” Klöpping added.

Now in its second year, Blendle is planning to expand beyond the Netherlands. The start-up hopes to show that micropayments do work for journalism and that quality journalism is worth paying for. It also provides an additional revenue stream for publishers and other content providers.

Challenges

While micropayments are a convenient way to pay for music and other types of media online, there are obstacles to using them, as Stanford University pointed out in a 2011 study. Here are a few notable challenges:

  • Transaction costs – merchant fees – are high for such small purchases.
  • Payments must be authenticated. If any of the technology fails, security of customer data and risk of fraud are an issue.
  • Micropayment tools and systems like CoinTent, BitWall and Bitcoin must be scalable. In other words, micropayment brokers and merchants must be able to handle large volumes of transactions.
  • To prevent hacking, systems and cryptographic mechanisms which control credit transfers must be reliable 24-7.
  • If hacked, users of micropayment systems lose their anonymity, as we’ve seen in the Ashley Madison data breach.
  • Digital currencies like ChangeTip and PayWord are not interchangeable.
  • In the case of digital journalism, readers have the inability to try-before-they-buy. This is mitigated somewhat by refunds offered by the publisher or content provider (e.g., Winnipeg Free Press and Blendle both offer refunds).
  • Micropayments don’t work for breaking news, which is often available for free. It does, however, work for long form journalism, investigative pieces, commentary, features, etc.
  • There is a mental cost to small, impulse purchases – having to think through if a piece of content or media is really worth the expense.

In an April 2015 article on Digiday, Gene Hoffman, CEO of subscription service company Vindicia, explained the mental cost of micropayments:

“When you meter this stuff, you’re asking readers to think before every article whether it’s important enough for them, whether the writers are good enough and a host of other things,” Hoffman said.

Russell Perkins of InfoCommerce Group sees two primary issues with micropayments: establishing market traction and buying-before-trying.

“A successful micropayments plan needs to not only get a lot of users, it needs to get a lot of publishers, and it needs to grow both sides simultaneously,” Perkins said. “More subtly, and more significantly, is the natural hesitation about buying something that the seller won’t show you in advance. Content is an experience good – you can’t assign a value to it until you’ve seen it.”

Blendle’s Klöpping believes that past challenges of micropayments can be overcome, according to Digiday.

“A lot of previous problems with micropayments have been because of bad implementation,” he said. This is an end product question. But our whole point is that if you implement it well, it can work.”

Advantages

Aside from convenience, Blendle’s experience has yielded positive results. Klöpping shared those on Medium in April:

  1. Micropayments for journalism can work. Though readers won’t pay for news, they will spend money on background pieces, analysis, opinion pieces, features and other forms of long form journalism.
  2. While clickbait may get read, publishers who push those types of stories will get dinged with refund requests. People will only pay for content they find worthwhile.
  3. Micropayments are creating a new metric which promotes quality over quantity. This theory is reinforced by the idea that some publishers are now looking at engagement time on a website versus page views. Blendle’s own data backs this up. So far, an average of 5% of users request a refund.
  4. Micropayments offer an additional revenue stream, attracting a different type of customer than a reader who will subscribe.

Read more about Blendle’s findings.

The Future of Micropayments

What can we expect for the future? Walter Isaacson, CEO at Aspen Institute and author of The Innovators, believes that an easy-to-use micropayment system could help save journalism.

“Digital coins would add another option: people could click and pay a few pennies for an article,” Isaacson said. “It would encourage news sites to produce bitcoincontent that is truly valued by users rather than churn out clickbait that aggregates eyeballs for advertisers.”

Isaacson also believes micropayments can benefit independent artists, bloggers, game-makers, musicians and entrepreneurs in what Isaacson calls the micropayment disruption.

“Easy digital payments will enable a new economy for those who sell such creations online,” Isaacson added.

“Ever since the British parliament passed the Statute of Anne four hundred years ago, people who created cool songs, plays, writings, and art had a right to get paid when copies were made of them. A flourishing cultural economy ensued. Likewise, easy digital payments will enable a new economy for those who sell such creations online.”

Insider Analysis

Micropayments have evolved a lot since the mid 1990s, and they have potential to be successful for certain uses, markets and audiences. We agree with Blendle’s Klöpping that proper implementation is the key from usage and technology viewpoints.

With start-ups, app developers and publishers taking a keen interest in micropayments, we anticipate some exciting new advances in the coming years, and we look forward to seeing how publishers and other content providers leverage micropayments as a viable revenue stream to supplement advertising, sponsorship, membership and subscription revenue.


Dana Neuts is a Reporter-Contributor for Subscription Insider.

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