online videoFirst The New York Times (NYT) decided to follow in the footsteps of The Wall Street Journal (NWS) and The Financial Times by putting up a pay wall. Then telecom giant AT&T (T) decided it would stop selling an unlimited data-usage plan for the iPhone, replacing it with a tiered pricing system that charges the heaviest users extra. Other phone companies in Europe quickly followed suit. Then word leaked out the free online video programming site Hulu.com would soon start charging users for access to its back catalog of old shows and movies.

In short order, it seems, two of the basic tenets of the early Internet Era -- free and unlimited -- are waning. For the die-hard pirate movie downloaders and YouTube fanatics, for those who would rather sever a digit than type in a credit card number to pay for online content, this will be bitter medicine. But the plain reality is, free just can't compete with paid, and unlimited can't compete with tiered.

That's a grand oversimplification, of course. Free morning tabloids aren't talking about going paid. And no one plans to install tiered pricing at health clubs. But what's clear is that the boundless growth of the Internet, the implosion of older media business models, and the impending era of hyper-connectivity and high-definition video ubiquity are contributing to massive strains on a finite set of shared resources.

Restrict Access and Put a Price on Time

Hundreds of millions of people use mobile phone networks. With mobile video, mobile TV, and true high-speed mobile broadband arriving within the past year or two, the carriers that operate those networks realized that they faced a stark choice: Reduce usage or sink untold billions of dollars into equipment and bandwidth upgrades even beyond the current and quite expensive improvements now under way.

Those telecoms already knew that users would be unwilling to pay the cost for such upgrades out of pocket. So, the only way to get data usage under control was to restrict access to the shared resource and put a price on time. AT&T's defends the move by contending that only a small percentage of its customers will pay more by switching to the new tiered plans.

The realization has now sunk in that revenues from online advertising will never rise high enough to replicate the profit margins that old media companies enjoyed during the latter half of the 20th century. The chasm is simply too wide. So, the free model for media consumption is now on the wane.

Unprofitable Delivery Costs


Like many other media companies, Hulu has figured out that it will struggle to attain mega-billion-dollar scale as long as its only revenue came from selling online ads, whose rates are far lower than traditional TV ads. The logical decision, then, is to charge for its wares. True, Hulu will still be giving away access to new shows. But its executives saw clearly that the shared resource of back-catalog video was costing more to deliver than it would likely ever earn for the company.

Welcome to the new Internet Era of the great wide paywall. And check your monthly data usage meter before you hit that download button.

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