The Internet is a series of tubes... perfect to transfer money!

The market for digital content in South Africa is in a curious place at the moment. With just over 6 million Internet users in this country, and less than half being comfortable with using higher level web services, those who would buy digital content are barely numbered in the hundreds of thousands. At the same time, we watch as digital content is exploding throughout the developed world. As an example of this success, 27% of worldwide legitimate music sales are now online (according to the IFPI). That’s a $4.2 billion industry that has emerged in less than a decade. Apple’s iTunes Online Store is responsible for 70% of these sales (19% of worldwide music sales, through one online store). Online game and movie downloads are also gaining traction over physical sales. There seems little doubt that digital content is not only a growing industry, but one that will continue to grow and consume many other, traditionally physical, media.

So what does this mean for South Africa? Well, despite our small market now, the environment is ripe for tremendous growth. With the laying of new undersea cables, not only Seacom but others planned for 2011 and 2012 (including WACS), access to broadband Internet is set to explode. The current international connectivity of SA is over ten times greater than it was before 2009, and will at least triple again by 2013. World Wide Worx (the South African Internet market research leaders) estimates a possible digital content market in South Africa of 6 million by 2015. With a relatively untapped and rapidly expanding market, there is a massive amount of opportunity here. The interesting thing is that, because of our ability to see what has happened in the technologically developed countries, we are forewarned about what is coming. On the other hand, we have to compete with already established international services. South Africa is in a curious place indeed.

In order to judge what the future holds for digital content in South Africa, we have to look to what has been happening elsewhere. There are a few key factors that have come into play over the last few years concerning online digital content sales.

Piracy.

The effects of piracy on digital content are difficult to discern. Those on the copyright side greatly overestimate the money they lose to piracy, often claiming that every pirated copy represents a lost sale for them. On the other hand, pirates tend to criticise copyright industries for attempting to extort money from customers, yet normally resist and circumvent even the smallest required payments. As usual, the solution lies somewhere in between the two opposing sides. Piracy is a problem for many media, but its rapid proliferation is partially due to massive mismanagement by mainstream digital content copyright industries. Unfortunately, it is difficult to correct for the people already driven to piracy, but there are a few traits have come out that exacerbate the problem.

Firstly, one of the worst ways to fight piracy is to load up your products with anti-piracy adverts, warnings, protection and limitations. This has happened primarily with movies and PC games, where those who pirate now get a better quality experience than those who do not. Game crackers often take a great deal of pride in making their versions simple to use, and usually avoid the user needing to register or have a constant Internet connection. To watch a downloaded movie, one simply needs to double click the .avi and voila, the movie starts playing. Watch a legal DVD and you have to sit through around 10 minutes of warnings, anti-piracy adverts and copyright agreements. Not only is it cheaper to illegally download digital content, but is quicker, simpler, transferable to more platforms and has a wider selection of choices. For digital content to be successful, it needs to be at least as convenient and easy to access as pirated content. Those that have chosen to spend money should not be punished for doing so.

Secondly, copyright law enforcement (and the laws themselves) needs to keep up to date with current technology and its trends. Music and video sharing are a very common and effective way for content to spread. Modern technological culture embraces duplication as part of any conversation about any media. We no longer simply talk about what we like, but can easily copy and share it. Blanket hostility towards this serves to remove your work from the public domain, where it would otherwise gain support. Furthermore, endorsing the view of piracy as straight-up theft is not only an oversimplification, but also simply incorrect. To pirate digital content does more good for the brand than to not engage with it at all. Piracy is more akin to giving a book to a friend after you’re finished with it, albeit on an unprecedented scale. Vilifying it, without the ability to compete with it on any front, will only serve to drive otherwise useful customers away.

For an example of broaching ground against piracy, look at Valve Corporation’s Steam digital communications platform. Valve Corporation is a successful video game manufacturer, and Steam is an online platform they developed to distribute games and related media. Not only does Steam make it particularly easy to purchase games, but also has built a full framework and community for online multiplayer gaming. It constantly runs specials deals, sales on older games and often gives out smaller games for free. Steam is believed to currently account for around 70% of legal digital video game distribution. As an example of how successful it has been at not only capturing the market, but specifically converting pirates: recent data harvesting from Steam’s windows users found and interesting result. 29.41% of Steam users have uTorrent installed on their machines ( uTorrent is a BitTorrent client – used almost exclusively for illegal file sharing). This suggests that, despite access, know-how and inclination to pirate games, these users have chosen to use Steam for the benefits it affords them. As a side note, iTunes was also installed on 30% of Steam users computers.

Micropayments.

One of the web’s greatest struggles has been its commercialisation (or monetisation, depending on what buzzword you like). There are a number of possible reasons for this, from the psychology of web users to the practical limitations of the web itself, but the important point is that even remarkably successful web ventures are often not quite as profitable as one would imagine. A common way for popular websites and services to make money is advertising, but it is often the case that either advertising is not an option or it is not enough. When one wants to charge the users in some way for the content they use, an issue that often raises its ugly head is micropayments. With digital content, specific purchases are often very low cost. Although games and movies are usually reasonably sizable transactions, individual songs, articles, music videos etc. are often priced in single digits. One of the problems with this, for a digital content provider, is that your customers are often restricted to credit card transactions. When dealing with numerous low price transactions, a large portion of your earnings gets eaten by the bank.

Furthermore, it is often difficult to price web content. iTunes has developed standard prices for individual songs and albums, but for other types of content, it is difficult to arrive at a figure. A new industry attempting to deal with this issue is news media. With the web posing, to say the least, a major threat to print media, major newspapers and magazines have been experimenting with web based services. A pay per view method of viewing articles is being considered as a method of commercialising this, but there is no clear cut value for such content.

Aside from these issues, there are other problems that emerge through micropayments. Continuously asking a user to pay consistently prompts the user to refuse. This is not only counter-productive for the content provider, but also frustrating for the user. It interrupts their experience and forces them to repeatedly decide whether they want to spend another however many cents on another article. Furthermore, every transaction will require authorisation. iTunes and Amazon use a process called One-click (patented by Amazon) to make their micropayments require only one click. While this has worked well, it is now a patented process.

A relatively obvious solution to the issue of micropayments is a subscription service. These have been a common way to pay for academic articles online. The subscription model solves many of the problems that otherwise plague micropayments and has also been used successfully in music streaming (through sites like Pandora, Last.fm and Napster). Subscription, however, is only really applicable to certain forms of digital content. Furthermore, subscription virtually writes off those who want to make individual purchases. Although it is possible to incorporate both micropayment and subscription options of payment, allowing once off users to purchase digital content, but allowing regular users to save money and hassle by subscribing.

Mobile

Worldwide, mobile Internet services are taking over. Digital content is by no means an exception. With the proliferation of smartphones and other mobile devices (e.g. iPad) capable of high speed connections, digital content can not only be accessed by mobile, but also paid for. Even with higher, on average, prices, customers seem happier to pay through airtime or mobile billing rather than via credit card. Children from less than 13 upwards already have access to their own mobile device and now also a cashless method of purchasing. Furthermore, the convenience of mobile payments should not be understated. In Africa, especially, mobile is king. Despite landline Internet connectivity being severely limited, mobile connectivity has great penetration. For any digital content provider aiming to capture a large audience on this continent, a mobile solution is key.

So where does leave South Africa? Currently there isn’t much of a market for digital content here. With more South Africans connecting ever day, this market is growing quickly, however. Small production value films and music can find commercial success through an almost free distribution platform. The possibility of the information control acts on the horizon may cause users to turn to online media for news as well. Advertising can only go so far to make these digital content channels commercially viable and with ad-blockers becoming numerous, web services are going to have to form their own supplementary incomes. The downfall of Hayibo.co.za only serves to illustrate this. The move from advertising to user payment has been a much needed adaption for many small and large sites around the web. Of course, with Paypal coming to South Africa via First National Bank, the ability to accept micropayments has already improved. This will likely help facilitate the birth of a respectable South African digital content market place. I only hope that this marketplace is filled with South African entrepreneurs, rather than the established multinational giants.

This article is the base of an article published on Memeburn. You can view this article here.