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New media revenue streams

April 21, 2010

Every now and then I blog on topics other than running and racing. This is one of those moments. What follows after the jump is a brief – and probably cynical – look at the current crisis in new media of generating revenue. For revenue, of course, since we know nowt about the outgoings of the various businesses mentioned, read ‘making cash dosh’.

For the uninitiated, the world of the media is split into two camps. On the one hand, you have the rather dusty, fusty ‘old media’ – newspapers, books, television, magazines, etc. – sat in its battered leather chair in its library, swilling a cracked crystal glass of port. On the other hand you have the ‘new media’ – internet-enabled, back-room start-ups run by funky kids in jeans that are either too baggy or too tight – getting ready to throw a brick through the library window.

Life in the library

Back in the good ol’ days, people paid for stuff. Fancy a newspaper? That’ll be some of your hard-earned cash. Fancy a recipe book? Money please. Publishers, while operating a business model that allowed pretty much 80 per cent of everything they did to either fail spectacularly or do m’kay, benefitted further by the good ol’ net book agreement. Under this agreement, a book was to be sold at its cover price, and no lower. Now, in these PC days, you might call that price fixing, but everyone was happy – the publisher could dictate the discount they gave to a wholesaler, who could dictate the discount they passed on to a bookstore, and the bookstore knew precisely what they (and everyone else) would charge for said book.

Look at it another way, though, and basically the customer is footing the bill for an over-long supply chain.

Anyway, life was good. Until, in 1997, the net book agreement was deemed illegal. Discounting of books proliferated, t’Internet started to get its arse into gear and Amazon started to sell a shed load of books far cheaper than anyone else could afford to stock them. Price wars started on all the big titles (y’know, the big titles that formed the 20 per cent of a publisher’s list that they used to subsidise the 80 per cent of their failing dross), and quicker than a QuickFit fitter, Harry Potter’s in the bargain bin for a fiver next to the Heinz beans.

That brick…

Magazines, meanwhile, were doing okay. Sure, subscriptions were dwindling a little, but printing costs were going down. And besides, most of the magazine’s money came from advertising rather than sales of the physical unit. In fact, the same went for newspapers.

And so, gradually, the backbone of the magazines and newspapers started to sag. Fewer journalists were employed to write more editorial. Frantic writers scrabbled around for stories they could validate, while advertising sales teams whirred into overdrive. Meanwhile, advertisers realised that it was more effective and cheaper to sub advertorials – stories about the products they were trying to sell – to the journalists (who were grateful for a ready-written bit of copy) and bypass the advertising sales team.

And, in amongst all of this, some whippersnapper upstart was starting to put free content at the hands of the masses. Google was making information freely available in a fraction of a second. Why go to the newsagent to get some news that was written yesterday, when you can get something that was updated five minutes ago?

The web was suddenly big and important, and old media wanted some of that action. Magazines set up glossy websites, often making their paid-for published content available freely, but with extra advertising. The newspapers went for it big style, updating published content, posting new stories endlessly, allowing comments and feedback and moderating. Even book publishers went online, but they didn’t really get it for a long old while (many a publisher’s website is literally an online version of their catalogue).

The broken glass

And here’s the problem: advertising revenues were shrinking. An opening spread in a niche magazine wasn’t reaching as many people as were reading content online, and even those reading content online were segmented further into different communities. Similarly, adversiters now had more detailed information on the success of their tactics – click-through rates provided tangible statistics to negotiate advertising rates with publishers.

Advertising here, advertising there… It all blends into a bit of a wash, doesn’t it? When was the last time you clicked on a banner advert? When was the last time you clicked on an AdWord advert on a blog? We’ve become desensitised to advertising messages, actively blocking them out, so is it any wonder revenues are dropping?

Where old media was the domain of ‘paid for’, new media stuck it to the man and just gave away stuff for free. ‘It’s what people want, we’ll work out how to make money later’ was the motto. Advertising was the tonic for making money, and – fair play – in some instances it has worked. Facebook, for example (although let’s not forget that it allows micropayments for virtual items – each one of which is effectively pure profit), or Google (although let’s not forget that Google’s flambuoyant ‘opt out’ interpretation of copyright has destroyed a number of other businesses).

It’s not all sunshine for new media, though. Some of the kids have worn their jeans so baggy they’ve tripped themselves over. Ning, according to recent leaked reports, is dropping its free service and concentrating (with 40% fewer staff) on their premium service. Spotify now requires an invite in order to set up a new account because despite phenomenal popularity it’s just not able to make the required money just yet. Various newspapers, including all those owned by Rupert Murdoch, are planning to investigate paywalls and opting out of Google in order to build online revenues.

Picking up the pieces

Paying online, it seems, is the inevitable conclusion for something that’s worth paying for. Newspapers are taking the gamble that you will pay to read their content – perhaps even on a per article basis – and other web services are gambling that you will pay for what they offer. Only time will tell if this pays off (pun intended).

As a final note, do you remember Friends Reunited? Set up in 2000, it rode the back of the dot com bubble, becoming phenomenally popular. The business model was to allow anyone to set up a profile, but they would then need to pay to contact anyone from their past. Money rolled in, as did cross-pollenation opportunities (such as dodgy compilation CDs), and ITV, in their wisdom, purchased the company for £120 million.

Then services like MySpace, Bebo and – most importantly – Facebook became massively popular, and – most importantly – didn’t charge anyone to contact anyone else. Suddenly everyone buggered off the party Titanic that was Friends Reunited, and ITV’s investment was sunk. (Oh, by the way, AOL spent £417 million on Bebo in 2008 and announced in 2010 they would either try to sell the service at a loss or shut it down because it was costing them too much to run.)

Part of the problem, it seems to me, is that the cost of entry has become so low. (Hi, here I am, blogging my opinion for nothing other than the cost of my electricity, thank you WordPress.) With the cost of competing at the top end so wildly different from the cost of establishing a start-up, it’s only those with deep pockets that can afford to maintain a competitive advantage. In the meantime, for those of us with a few hours to spare and the will to do so, the opportunity cost of not taking advantage of all these free services and trying our luck with the big boys is just too great to bear.

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