It's probably true that it would have started with literature expected to have mass appeal ("Real Books") and only gradually moved downmarket. But let's not exaggerate!

I'm guessing there were more than two people in the drama club, so it's likely that even your first webpage had more than two readers a month, which was the breakeven point I calculated above for extrapolated 01984 storage pricing. By my extrapolated 01990 pricing it would have been economical at three readers per year, and by my extrapolated 01996 pricing at one reader every 3 years. Since you called it a "webpage" and not a "BBS" or "FTP site" I'm guessing that this was more like 01994 than 01984, so you would have been fine.

These numbers are no different for Xanadu and the WWW, it's just that on the WWW they are paid by the publisher (or their friend or university or something), and in Xanadu they would be paid by the users.

All this is assuming the value to the reader is about US$3 per megabyte, a number I based on the idea that a book is about a megabyte, people commonly pay about US$10 for a book, and the edit history for the book might be three times the size of the final book. (Maybe people paid US$2.50 for a paperback, while a hardcover might be US$40. Roughly 01984 dollars.) If you were reading 40 hours a week at 350 words per minute at this speed, that works out to US$15 a week, US$66 a month, or US$789 a year.

A more reasonable path is to figure that by 01994 people might pay US$20 a month for using the Xanadu service 40 hours a week, with half of that (US$10 a month) flowing to the author and hosting costs. That's only 46¢ per megabyte, but by 01994 storing a megabyte only cost about US$30 instead of US$1000, maybe US$5/year, so anything with more than one reader a month would pay for itself.

And if it didn't, well, a play might be 100kB, and maybe the drama club would spend US$3 up front to pay a Xanadu operator to store those 100K for eternity, money they'd get back if people read the play, but if nobody ever read the play on Xanadu then that would just be an expense. I feel like US$3 is not a prohibitive expense for vanity-publishing a play and having it never go out of print. I mean xeroxing it at the library probably cost almost that much. Per copy!

(In 01996, a single Moore's-Law doubling later, I bought my first computer. It had an 800MB hard disk and cost me about US$900, half of which was the monitor, and would have been a perfectly capable fileserver even though it was a cheap IBM PC clone instead of a Sun workstation. So my US$30/MB for 01994 might be too conservative. Maybe it would be more like US$3/MB. And by that time gzip and 14.4kbps modems were mainstream, dropping costs further.)

Now, it's possible that authors (or the Xanadu operating company) would have been too greedy, and charged much higher prices than that, which would have had the result you describe. (There's some evidence that people did shift from things like CompuServe and AOL over to the WWW because publishing on the WWW was cheaper.) Or it's possible that they would have subsidized the initial wide dissemination of their work, as we in fact did with the WWW, so as to build up a customer base.