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The Content Quality Dilemma in the Media Business July 28, 2014

Posted by Bernard Lunn in Uncategorized.

Software is eating the world….one bite at the time. Are you Softzilla or are you Softzilla’s lunch?

The first bite was the media business. I was there when it happened. It hurt.

Softzilla (my shorthand for software, digitization, mobile, big data, etc etc) first bit into the print business. At the time I was running a startup that saw this coming and was helping traditional media firms to restructure, take out costs and become “online-first” firms.

In the print to online transformation, the mantra was that “$1 of print revenue becomes 10c of online revenue.” So, yes, you had to make the transformation, staying in print only was certain death, but you had to cut costs (translation: fire lots of people) to go online. Everybody had read Innovator’s Dilemma; it was obvious what had to be done. Online, with tose 10c of revenue, you could not afford lots of editors and people doing fact checking and research. So you cut into the muscle and fired the people who ensured that content was high quality, those well-paid journalists and editors, fact checkers etc. The content quality then, predictably, suffered and the audience clicked away.

Cut too slowly and you died fast. Cut too fast and you died slowly. This is what I call the Content Quality Dilemma.

The next startup was smaller but better known; it was ReadWriteWeb (now ReadWrite) where I was COO in 2009.

There was no Innovator’s Dilemma in ReadWrite. This was a pure-play online venture with low overheads (a global team all working remotely). However the dilemma was the same – how do you make enough money to pay for quality content?

In ReadWrite my COO job translated to a simple mission – sell enough advertising so that writers could get paid. That was where I saw the Content Quality Dilemma up close and personal.

The problem is very simple. It is that giant software only media firms like Google and Facebook set the rates for online advertising and with their scale and 100% automation (no messy journalists, editors and fact checkers who want to get paid) they can make huge profits on very low advertising rates. Those ad rates are too low to pay for lots of good journalists, editors and fact checkers.

In the tech blogging space it is easy to run this as an experiment. Take 15 days on a post with serious investigative journalism and analysis. Then take 15 minutes to dash off a post about a celebrity and use some pop-tech angle to make it tech relevant (the story is that the celebrity did something on Twitter or Facebook). The return on investment on that 15-minute post was stratospheric and the quality post was a financial disaster. Rupert Murdoch, when interviewed for this article, remarked, “what’s new buddy?”

This is now well understood. We are at the bottom of the Slough of Despond in the Media Business. Its not just the old pre web firms, its also the early web firms; look at the share price and derision hurled at AOL and Yahoo. They are both run by super-smart, driven CEOs who had big success at Google, but they are “rolling a rock up a hill”.

Most of the entrepreneurs who got early into the blogging game already exited, took the cash and left the owners figuring out how to climb up to the Plateau of Productivity – which some of them will do. There is a demand for Quality Content. The only job is figuring out how to get paid properly for Quality Content.

If you work as a journalist or editor, you have probably seen that Content Marketing is where the jobs are headed. In other words, you work directly for the advertisers, cutting out those intermediaries (aka Media firms) with their old fashioned rules about Church vs State (aka Editorial vs Advertising). However what about the folks who are running Media Firms? How do they create both quality content and quality profits?

I decided to look at who is making quality content as well as quality profits. In those stories might be clues to show how to climb up that tough slope to the Plateau of Productivity (to see which of these are replicable and scalable).

  • Wired. This is one for irony aficionados, a glossy and profitable print magazine for the folks helping Softzilla to eat the world. My takeaway, we all need a pixel break, but I don’t expect many media firms to be able to emulate this. It has to be really, really good (and that costs money) and consumers only want one in their chosen domain. Not easily replicable, could translate to a few other domains.
  • AVC. This is Fred Wilson’s blog (he is a top tier VC). The content is daily and it is great. The takeaway, first make sure you are a good host to your community and then find a way other than advertising to make money. Not easily replicable.
  • Techmeme. Gabe Rivera bootstrapped a profitable online media business by first using Softzilla to find content and then hiring some old fashioned humans to help filter out the junk and float the good stuff to the top. I assume he tweaks his code to learn from what the humans do. This 95% code and 5% human model might be a mainstream model. Possibly replicab
  • Bloggers Selling Expertise. Why do smart people blog/write for free? It is the same reason that smart developers contribute to open source – their fee rate and utilization goes up because customers can see how smart they are. The economics of blogging for attention are simple. This is powering lots of tiny micro-multinationals in lots of niche markets. Replicable but not scalable.
  • Financial Time and Wall Street Journal with Paywalls. It works for them because “time is money” for their readers. I don’t see this as a mainstream strategy, because only the best of the best can get away with a paywall. Not easily replicable.
  • Vice Media. They started as an underground low cost fanzine type of operation and have over time built a valuable business that had Rupert Murdoch swinging by with his checkbook. The model seems to be lots of stringers out where the news is being made plus a few editors back at base. It’s an old model re-enabled by mobile technology (the stringer is no longer waiting in line for the telex machine in the lobby of the hotel). Possibly replicable, but needs skill, style and technology.

There are a few experiments with peer rating rather than popular rating. Popular rating is simple Page Views, the currency of the web that is controlled by Google and Facebook, it’s a game you cannot win. The two experiments with peer rating are Reddit and Hacker News. It is too early to see how these experiments turn out because neither has yet tried seriously to monetize their audience. If they adopt a mass-market page view strategy, their audience will click away and we will be writing Myspace like epitaphs.

However if they can find a way to charge based on influence rather than views they will show the way to lots of other media firms. This could be the yellow brick road for media. Recall that tech blog experiment:

“Take 15 days on a post with serious investigative journalism and analysis. Then take 15 minutes to dash off a post about a celebrity and use some pop-tech angle to make it tech relevant (they did something on Twitter or Facebook). The return on investment on that 15 minute post was stratospheric and the quality post was a financial disaster.”

Let’s say the 15 minute post got 100,000 page views and the 15 day post got 100 views. Case closed? No, not if 10 of those 100 views were partners in VC funds controlling $10 billion in aggregate funds and another 10 were CXO level in enterprises controlling $10 billion in aggregate budgets. How on earth do you monetize that without seriously invading privacy? If you have that one figured out, please contact me so that we can become disgustingly rich.




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