Micropayments: a new growth opportunity for media and entertainment companies ?

The global research conducted by international organisation Ernst & Young and based on various data sources of consumer spending habits in 12 countries, has revealed that there are major disparities in consumers’ free and transactional online behaviour, with cultural spending habits rather than broadband speed being the key element to the success of paid content models. The report identifies the UK, France, Japan and the US as markets where paid online content is most likely to thrive.

Behaviour patterns vary between countries

According to the report, on average, 54 percent of consumers in the 12 countries under review access free online activities, such as online videos and social networks. But behaviour varies widely between countries. For instance, South Korea ranked highest, with 70 percent of internet users accessing free online content, followed by 61 percent in China, 60 percent in India, and the UK and Japan, with 45 percent and 43 percent respectively. With 57 percent, the US was the only non-emerging country among the top five.

Consumer behaviour differences particularly evident in digital music sales

Companies focused on finding an efficient micropayments model to monetize their digital content should also take in consideration indicators such as sales and downloads of digital music, the report has shown. Findings of the research suggest that internet users in the UK, Japan and the US spend considerably more on digital music than users in the other countries in the study, yet they have among the lowest levels of online music penetration.

In the UK, for instance, internet users spent an average of USD 6.30 (GBP 4) on digital music products in 2009 with18 percent of the population using the internet to access digital music, both paid and free, according to Ofcom, the UK independent telecommunications regulator and competition authority for the communication industries. Across the globe, Japan had a high per user spend (USD 10.12) with a relatively low penetration (25 percent), indicating that Japanese are paying for their music content more than in any other country. China has an extremely high penetration (83 percent) with a very low per user spend (USD 0.20).

According to the report, a state of equilibrium has not been reached yet between internet users accessing music online for free and those paying for it. Nevertheless, a sector that seems to have found the right balance is the online gaming industry, which has already developed various paid content business models for social gaming, generating revenues through microtransactions for virtual goods.

Processing costs still a major challenge

The virtual goods industry presents a significant potential of expansion. Findings of the research have shown that in the US, the market is set to reach USD 1.6 billion in 2010. Of that, the social gaming market alone contributed USD 835 million. China has over 105 million gaming users. Their virtual goods sales in 2009 were estimated at USD 2.2 billion.

Nevertheless, in order for the micropayments system to become widely adopted across the M&E industry, processing costs need to decrease, the report outlines. At present, the cost of clearing and settling a payment still amounts to approximately USD 0.20 (12 pence) per transaction, a figure which is significantly high for a payment of USD 1 or less.