Boxee’s efforts to try to “rescue” Hulu and introduce them to “the 10-foot experience” reminds me a lot of this skit from Mad TV (incidentally, airing on News Corp.’s FOX, which owns 50% of Hulu):
When Boxee’s dalliance with Hulu began, I wrote “The Techies Don’t Get It“, because technologists think that they are doing media companies a favor by ripping them off and robbing them of their choice to choose where and when consumers should access their media. I mean, I like both of these companies and want both to be wildly successul (not just as a user, our company’s content is on both platforms), but for the love of all things holy, technology companies cannot unilaterally make decisions on behalf of media companies.
Just this morning Paidcontent.org’s CEO Nathan Richardson wrote about how Silicon Valley can help newspapers. Are you freaking kidding me? VCs and technologists essentially plot ways to rip off media. That’s the only challenge they see, the only one they view as potentially lucrative.
Personally, I don’t shed a tear when a traditional media company goes out of business over sheer stupidity, but by the same token, I don’t exactly take pleasure in seeing a technology company act so brazen.
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WatchMojo NewsletterIt’s bad out there.
How bad is it?
It’s so bad that we can’t even afford consumer staples anymore. That says a lot about this current crap market. Usually, you know companies like Coca Cola and Gillette (now part of P&G, of course) will do fine.
Apparently, not this time around. Read more.
According to CNBC reporter Scott Wapner’s interview with the New York Times chairman Arthur Sulzberger (via SAI), the NYT is mulling ways to charge for content:
Here’s how that model works: Everyone gets access to 3 articles a month. Register with the site for free and you can read 10 articles a month. Pay something like three bucks a week and you get access to everything online.
Once the Genie is Out of the Bottle, It’s Impossible to Get It Back In
If any publication should in theory be able to charge for content, it’s a brand such as NYT. The problem, of course, is that while its competitor the Wall Street Journal has always had a paid product - and lucrative one at that - the Times took the free route.
While this strategy seemed wiser in boom times, today’s softer ad climate makes the Times move seem dumb, in hindsight of course.
B2B Maybe. B2C? Not a Chance in Hell
No one argues the rationale of charging for content, but convincing / converting users to do so is pretty hard, nearly impossible in fact. When I was at online men’s magazine AskMen, we considered it all the time but we knew that our content was not unique or valuable enough to command subscriptions. The reality is that it helps if people use the underlying content for their work, so they can at least expense it the way they would expense magazine subscriptions. But when you advice is pick up tips, you can’t exactly charge for that.
Meet Subscriptions, Advertising’s Ugly Step Sister
Of course, that’s half the problem. The paid product idea didn’t stand a chance because as VP of Ad Sales, I was fortunate enough leverage the free content, SEO, demographics and corresponding traffic to build our ad sales into a million dollar business fairly quickly. It then becomes a catch-22: you want more free content to have more inventory to sell to advertisers, but by giving away so much for free, you don’t encourage users to pay for the content.
Is Video Any Different?
When I launched WatchMojo.com to produce, publish and syndicate video content, people asked me two questions:
1- will you go into adult?
2- will you charge for content?
The answer to both questions was no, because
1- once you go adult you can’t go mainstream (and of course, I was not into that industry)
2- as much as our content is great and our library unparalelled, not enough consumers would actually pay for it.
A Palatable Solution for Startups, But Impossible One for Big Media
However, as the ad-supported was slow to take off (because the online video ecosystem is infested with UGC, which is as appealing to marketers as gay Nazi porn is), I decided to change tactics and get other businesses to pay for our content via licensing deals.
In other words, we license our videos to some third party sites who can host it, build an audience around it and profit from it, but in exchange we get paid via guaranteed deals.
Now, I think this option only works if your library
- is large enough,
- the content is of high-enough quality and
- if you publish frequently enough
(which explains why 9 out of 10 video content business will go out of business, too).
But the trade off is other websites will build businesses around and off your content. To a startup and entrepreneur, this is a source of pride. To a big media company like the NYT, this is an impossible scenario.
Long story short: big media has all of the tools necessary to make their online units very valuable and profitable units and enterprises, but they won’t let their egos and near-sightedness make that happen. In other words, the same way that
- the fear of online cannibalization of offline revenue streams has left many big media companies victims of the digital revolution,
- the greed of seeing other companies profit from their assets is too much to bear.
While 2008 finished off with companies doing their best to cling on to anything to avoid from being sucked into the maelstrom, I think - despite the continued stock market meltdown - that many companies are seeing some stabilization in their core business. In other words: yes, 2008 Q4 saw a rapid evaporation of booked business, but 2009 is not looking as dire as some expected.
Online Remains a Beacon of Growth
Let’s face it: online media remains a growth area regardless of the fact that growth targets have been reduced. If you are CBS, News Corp., GE’s NBC, Walt Disney, Viacom or Time Warner, you have to look at ways to spruce up your online assets and acquire new ones. If you are Yahoo!, Microsoft, Google, Amazon, Apple, Cisco, Comcast, or IAC, you are looking at online assets as more reasonably priced relative to the previous couple of years.
A couple of companies that remain wild cards are print-based media firms Conde Nast and Hearst, who unlike their newspaper brethren (Tribune, NYT, etc.) are not on the verge of banktrupcy, but whom might fare a similar fate if they don’t take action soon.
This, I believe, is what explains the latest report by JP Morgan analyst Imran Kahn, who (Via Paid Content) in a new report, says:
“Mergers and acquisitions among internet companies could grow significantly. Since most companies cannot look to the economy for growth (JP Morgan estimates GDP will decline 2.2 percent this), Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.
Small is Beautiful
I’ve mentioned for some time that microdeals are the wave of the future:
- companies just don’t have the financial wherewithal to go for grand slam deals, and
- integration becomes a nightmare.
Lowered Expectations
Where things get interesting for big media companies is that VCs have been blindsided by their own investors inability to meet capital requirements, so many will accept lesser exits… though truthfully, heavily-funded VC companies are going to get sidelined in the M&A song-and-dance because entrepreneurs might be more realistic whereas VCs will never be able to pull their investments “in the money” when they agreed to nosebleed valuations for some of these bubbly Web 2.0 fares (Digg, Slide, Facebook, Ning, etc.).
Kahn seems to agree:
“Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.”
Build vs. Buy
The other variable we’ve touched on Big Media’s Buy vs. Build dilemma for some time:
Large internet companies may re-consider the “build vs. buy” strategy—they’ve been moving recently toward the “build” side of that continuum, which resulted in only 45 acquisitions in 2008 versus 94 in 2007, according to Kahn. While he predicts large internet companies will still increase their R&D spending by 8 percent in 2009, that is much less than the 25 percent increase in 2008. As they spend less on innovation internally, large internet companies will probably be on the hunt for smaller companies.
Balance Sheet vs. Income Statement
This plays into the nuance between balance sheets and income statements. A company’s income statement captures the revenues and costs over a period. Right now: revenues are going down (or at best flat) whereas costs remain high. Yet companies do have cash on their balance sheet, which captures a firm’s assets and liabilities (and shareholder equity) at a given time. In other words, even if companies revenues go down, their cash remains idle. But if revenues are flat or going down, a company cannot justify adding to costs (and thus “building” in house) because this will push the company into a money-losing status, which in a tightening credit market might mean lights out if the company’s financing and credit facilities dry up.
As a result, while cash is king, too much cash on a balance sheet is inefficient.
“Finally, the large internet companies have stockpiled a ton of cash as they grew significantly the past several years, and they will be looking for ways to make a solid return on that money.”
In case you are wondering who is going to be taken out, here are some of Kahn’s picks:
As for which public companies are most likely to be acquired? Kahn evaluated them according to brand strength, product leadership, ease of integrating the smaller company into the larger company, and barriers to entry to determine that Omniture, the online analytics company, and MercadoLibre, the Latin American e-commerce company, are the most likely to be acquired. Shutterfly, The Knot, and Expedia were also attractive candidates, according to the report.
There are a few others I can think of… but we’ll leave that for a separate post.
From DShort, via SAI. Yippie. Let’s plow another trillion into loser companies (US banks) and industries (US auto). You’ll “save” a few jobs in the short term, but in the long term, the only jobs you will have created will be soup kitchen servants.
PLAY
