Creeping Costs of Connectivity Could Confound Pay Wall Strategies

How much media could you buy for $1,189? That’s the first-year cost to own the top-of-line 3G iPad before buying any content to view on it.

That’s 60 books or DVDs (at an average of $20 apiece), 119 movie tickets ($10), 238 magazines at the newsstand ($5 apiece), or 24 AAA games for the Xbox 360 or a similar console (at an average of $50 apiece). Sure, you could economize by going for the lowest model at $499 with just Wi-Fi, or by buying the $15-a-month data plan, but wouldn’t it be nicer if you could simply tether your iPhone data connection and get more value for that expensive service?

With each new device, and each new connection to the grid, the consumers are coming to the marketplace with less money in their pocket, because the cost of simply being on the grid has skyrocketed in the past 10 years. This should be a concern for all content publishers, whether The New York Times, MediaNews or any one of thousands of local news operations, that think each new device is a silver bullet that will make a magic pay wall strategy work.

We all know a lot has changed since the ’90s, as Howard Kurtz documented in a year-ender on the evolution of media in the “aughts.” Angry Journalists are coming to grips with a new media environment and are bantering about business models.

But there is one change over the past decade that I haven’t seen anyone address adequately: Personal and household connectivity charges have quietly and steadily increased by as much as 4.3 times over the past 10 years. There is one notable exception to this lack of reporting: those who have noted the costs of the iPhone to consumers and profits for the players.) And I think this has a major impact on any chance of success for paid content strategy.

The New York Times recently picked up on the high cost of data and entertainment subscriptions. Here’s my own personal accounting: In 1999, I paid $19.99 a month for dial-up Internet access, about the same for a land line, and my analog cell phone — though picked up by my employer — cost $19.99 a month. My extended analog cable package was $12.95.

Flash forward to 2010. My high-speed home connection is valued at $54.99 a month, my land line is priced at $39.99 a month, my extended digital cable package is $89.99 (not including premium channels) and my cell phone, with an unlimited data cell phone and the lowest available voice package, is a whopping $129 (though I pay a bundled rate, not the sticker prices).

The monthly connectivity charge in 1999: $72.92. In 2010, the comparable service level now is priced at $313.97, an increase of about 430 percent.

Yes, I am a hypercommunicator and an early adopter, but my story is not at all unique. A GigaOM report puts the average cost of the networked household now at $2,942 a year. That’s a pretty big chunk of the median U.S. household income of $50,233 in 2007.

Granted, since 1999 our data and communications services have improved greatly, with widespread broadband penetration and mobile functionality. But the basic cost for a consumer to be connected — the customer’s barrier to entry — is a major consideration for an organization considering a pay wall or membership plan for its content.

Ten years ago, I offset the high cost of long-distance calls (billed by the minute) by communicating with faraway friends via the Internet. Today, how much media could I buy with $240 a month? That’s a lot of books, movies, CDs, MP3s, newspapers, magazines and iPad apps, folks.

I asked TechTalk columnist Michael Berman for his thoughts on this: “Consumers are already demanding a lot more for their hard-earned bucks by dropping additional services they don’t need,” he told me via e-mail. “We’re especially seeing this in the so-called smart phone category, where providers are forcing folks to purchase data plans for $30 or $40 extra per month. This is forcing the average consumer to rethink whether he really needs that BlackBerry, iPhone or Droid.”

User surveys show that most people don’t want to pay for news online. (It’s not really a surprise that people want something for free.) But people will pay for service.

They paid for delivery of the newspaper or a magazine. They paid for the convenience and freedom of buying a single copy at the newsstand. They paid for better television reception when cable emerged. They paid for faster Internet performance when broadband was introduced. They paid for more functionality with smart phones. But they only pay for content when it is exclusive and of a certain quality.

Steve Safran, editor of LostRemote.com and hyperlocal media expert at AR&D, told me that the disconnect between service and content signals big trouble for media companies who are failing to connect the connectivity dots.

“The expectation that people will pay for The New York Times online is shortsighted and looks at the concept of local news the wrong way. People are spending plenty for connectivity,” he said. “Yes, they’ll pay a little more for a premium brand of entertainment, but this is news. The New York Times plan is akin to local newscast deciding it wants to charge me each time I watch it on cable. If anything, its play should be in the mobile and hyperlocal spaces, where business models are still evolving.”

Have no doubt, the mobile marketplace is huge. Some analysts expect that mobile data revenues will surpass $1 trillion by 2013, and the next 10 years are going see a lot of changes. Savvy insiders knew the value and potential of the the mobile app marketplace, but many more have seen the light after the outpouring of SMS donations for Haiti. And it has been shown that broadband expands local economies, which is critical for hyperlocal startups and Main Street mom-and-pops.

Since wages have struggled to keep up with the cost of living and we have been financing lifestyles on consumer debt for years, we must recognize that consumers consider value of service as the critical component in the content equation. If they are paying connectors for service, they will expect savings elsewhere. But connectivity companies are fighting tooth and nail to stop efforts like Broadband for America that would bring consumers to the digital marketplace at a lower or no cost, with more money in their pockets for product.

The primary mission of journalism is to empower the public. As Bill Moyers — who for the past decade has been the champion of independent journalism and David to the Golliath of corporate media and telco providers cozying up with government — retires, we need to fend for ourselves and remain ever vigilant to the truth.

Increasing numbers of citizen journalists, both as passionate storytellers and skeptical readers, offer great promise to play an important role in the future of news and newsgathering. But only as long as they can afford to be on the platform — both as consumers and creators.

Maybe those overall cost increase numbers are hard to find because the companies who profit from them don’t want us to realize just how deep into our pockets we’ve gone in the past decade just to get on the grid and stay there?

How interesting that we started the decade with concerns about the digital divide, and we end them with few even considering the critical importance of the Net neutrality debate or the creeping costs of consumer connectivity that create an even wider gulf of haves and have-nots — or informed and uninformed — and take money off the table for content creators everywhere.

Connectivity providers know what side they’re on. Do the people? And as we watch mergers and acquisitions like Comcast and NBC, do we really know where the news media business needs to be?

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