Crazy that a few years ago, Rupert Murdoch was toying with the idea of setting the WSJ.com website totally free… and now with ad revenues plummeting, it’s all about subscription sales.
Advertising? WTF is that? Read more. I wrote about how this sudden aversion to positioning their companies for ad revenues will come back to haunt them by the time they implement these subscription initiatives.
Esquire profiles Ryan Kavanaugh, Relatively Media’s CEO, in its Best & Brightest feature. I had heard about Relativity but didn’t know much about the people or story behind it. Esquire does a great job of diving into the company that finances movies for the likes of Sony, MGM, Universal, Time Warner, etc.:
“What separates Kavanaugh from most producers is not just that he’s making movies, it’s how he’s making movies.”
(…)
It’s All About the Numbers
People sometimes criticize me for taking a very analytical approach to content creation for the Web, but I don’t make apologies. Reading the profile on Kavanaugh, I won’t lie, I almost feel vindicated:
“What I first see is a bunch of numbers,” says Ramon Wilson, Relativity’s thirty-year-old executive vice-president of business development.
(…)
Before Relativity commits to financing a particular movie — either through its slate deals with Sony and Universal or on its own — it’s fed into an elaborate Monte Carlo simulation, a risk-assessment algorithm normally used to evaluate financial instruments based on the past performance of similar products.
Enough variables are included in the Monte Carlo for Wilson and his team to have reached the limits of their Excel’s sixty-five thousand rows of data: principal actor, director, genre, budget, release date, rating, and so on. After running the movie through ten thousand combinations of variables (in marathon overnight sessions), the computers will churn out a few hundred pages that culminate in two critical numbers: the percentage of time the movie will be profitable, and the average profit for each profitable run. The computers will also calculate the best weekend for the movie to be released, whether Russell Crowe will earn his salary or Sam Worthington will be good enough, and the box-office effect of an R rating versus PG-13. But for Kavanaugh, those are secondary considerations: Unless the movie shows the distinct probability of a return — no one at Relativity will reveal the precise green-light figure, but it’s something like 70 percent — the script gets shredded. “Everything has to run on the principle of profit,” Kavanaugh says. “We’ll never let creative decisions rule our business decisions. If it doesn’t fit the model, it doesn’t get done.”
Ok, we don’t quite have that system. In fact, so much of it is straight from the gut. But the approach, or rather, the belief that you cannot be self-indulgent when it comes to producing things is paramount at WatchMojo.
If You Create It, Will They Watch? (It Depends.)
Yet today, we’re the only company that is in a position to adopt and maintain a ”Field of Dreams” approach to creating entertaining and informative content. Of course, we do so based on a set of criteria and editorial and marketing guidelines. It’s not a free-for-all where I green light every idea. Or rather, while I am willing to entertain any idea from anyone, it has to fall within the parameters that have proven successful.
We create content people watch; the results speak themselves: nearly 100,000,000 streams since launching in 2006.
The definition and measure of success is of itself debatable and subjective, I am well aware of that. But we’re the only new media company that gets paid guaranteed licensing revenue from other media companies… that is not a grey matter and explains why unlike many video companies (not just content companies) we actually experience the odd month where we’re in the black.
You Want People to Think You’re Crazy
Another thing I particularly like reading about Kavanaugh is proving the naysayers wrong. In Malibu Mag’s Ryan Kavanaugh: The Fall and Rise:
“I was told every day by the biggest people in the industry that I would never make it; they were laughing at me,” Kavanaugh said. “They don’t want to believe that someone can do something different. But I put my blinders on, fought hard, stuck to my plan and never gave up.”
(…)
Kavanaugh couldn’t afford the rent initially posted at the office he wanted, so he struck a deal with the landlord to pay half the rate in the first year and double it the second year. Relativity now has multiple floors in the same building with 65 employees, all of whom Kavanaugh calls his greatest strength. He took a mortgage out on his house at the time for $300,000 and put all of it into the company. There were times, he said, when he didn’t know if he could make payroll.
I know the feeling. Continues Malibu Mag:
That was 2004. Today, Relativity has major dealings with almost every key studio in Hollywood.
I also know the feeling. Back in 2006, people thought:
- I was crazy for investing in premium video content, they felt that I was at risk from both the bottom (UGC) and the top (super premium). Nearly four years into the venture, UGC has fallen flat on its face as marketers reject the medium, and super premium producers see a lack of ad dollars on the Web (relative to offline and traditional outlets) so they shun to publish on the Internet.
- I was insane for producing everything from automotive, to business, entertainment, lifestyle, music, sports, travel and video games. Today, we’re ubiquituous. Who else, do you know of, that supplies content to both mass market aggregators (such as Hulu and YouTube) as well as vertical content producers (such as Thomson Reuters and IGN).
I don’t frequently publicize my plans to venture in super premium content. I won’t today either. But all I will say is that once you have enough data on what kind of content works and you have built a distribution network across multiple platforms, it becomes almost too easy to move from producing premium content to super premium content.
As a small aside, the Esquire article refers to his favorite movie. I actually recall watching it and to this day, the last scene from the movie haunts me:
But there’s a poster on the wall of Kavanaugh’s office, a tattered one-sheet from what he says is his favorite movie, a movie so unpopular that he could find the poster only in Spanish: En algún lugar del tiempo — Somewhere in Time. It’s a 1980 tearjerker starring Christopher Reeve and Jane Seymour as unlikely lovers separated by a half dozen decades, until Reeve learns to close his eyes and open his mind and convince himself that he can travel through time. It was a critical and commercial failure, and yet something about it worked for Kavanaugh. Maybe it was the physics behind it. Maybe it had something to do with where he was when he first watched it or the lens he saw it through. Whatever it was, even he can’t explain why, exactly, Somewhere in Time caught hold of him. “It’s just an insane love story,” he says, his hands held out at his sides. “Titanic was an insane love story, too.”
It is insane, I won’t give the ending away… all I will say is after watching that movie, you never see a penny on the street(or any coin for that matter) the same way.
After posting pictures of herself having fun on facebook, Nathalie Blanchard, 29, is fighting to have her benefits reinstated after her employer’s insurance company cut them.
Nathalie Blanchard, 29, has been on leave from her job at IBM in Bromont, Que., for the last year and a half after she was diagnosed with major depression.
The Eastern Townships woman was receiving monthly sick-leave benefits from Manulife, her insurance company, but the payments dried up this fall.
When Blanchard called Manulife, the company said that “I’m available to work, because of Facebook,” she told CBC News this week.
According to CBC News
Financial writer Felix Salmon doesn’t think it’s fair or right for Henry Blodget to be writing about finance and investments. Read Blodget’s reply here.
I don’t know about this one, Henry actually seems to go all out to disclose everything, in a humorous manner to boot.
Salmon doesn’t think it’s fair that a bunch of journalists are out of work while Blodget ruminates and pontificates about tech, media and investing… but Salmon is missing a key element: in this instance, Blodget wasn’t given a job. He basically turned his InternetOutsider.com blog (a one-man operation) and built a business that now hires other journalists.
One example I can think of is when Nicholas Carlson was downsized from Nick Denton’/Gawker Media’s Valleywag, Blodget recruited Carlson pretty much immediately.
Honestly, it’s hard to think this is anything but Salmon being jealous of what Blodget has been able to pull off in a couple of years which is launch a blog that did to Tech Crunch what Tech Crunch did to Paid Content, in other words, force the latter to step it up… which in the end is a positive for the reader.
If it’s not jealousy, then Salmon is demonstrating the very kind of behavior that gives journalists a bad name.
Sir Martin Sorrell, WPP’s head honcho, was talking at the 13th annual WWD Apparel / Retail CEO Summit at the St. Regis hotel in NYC last week:
“New Media is 25% of our business already, but our clients only spend 12 to 13% of their budgets online. We know people spend 20 to 25% of their time online. There’s a natural gravitation pull for online to be 20 to 25% of clients’ budgets.”
From WDD.com (subscription required). Now for what happens when online becomes 25% of total budgets, look at this:
Compelling stuff. It does make you feel good to be a web media entrepreneur.
Unfriend” beat out a terms like “netbook,” “hashtag” and “sexting” to take the annual honor of dictionary word of the year.
Oxford defines “unfriend,” a verb, thusly: “To remove someone as a ‘friend’ on a social networking site such as Facebook.”
Every year, Oxford tracks how the English language is changing. Researchers debate the merits of newly birthed terms and choose their word of the year “to reflect the ethos of the year and its lasting potential as a word of cultural significance and use.”
Quincy Smith of CBS Interactive chats with Om Malik at New Tee Vee Live:
Hulu’s growing pains are emblematic of old media’s challenges and symptomatic of its pedigree.
Hulu is the free premium video site that was launched by News Corp. and NBC and today also includes Disney/ABC as a third parent. A bit of a disclaimer: WatchMojo supplies Hulu with a plethora of videos across multiple categories.
Let’s first look at Hulu’s pedigree to understand why this script ending should not have come as a surprise to anyone.
Too Many Cooks in the Kitchen?
According to Mediaweek: “Observers predict that the already complicated arrangement is likely to become more so, particularly given the prospect that NBC Universal may be sold to Comcast—which already operates its own online video site (Fancast) and has a markedly different philosophy regarding just how free TV content should be on the Internet.”
I’ve always feared that what led to Hulu’s quick ascent - access to great content - would in turn mean that its media owners would eventually bicker and have divergent opinions on strategy. After all, while Google’s YouTube is Big Media’s frienemy, over time, Big Media’s biggest enemies are one another as they vie for market share.
That is half of the equation.
Market Timing Never Works, You Have to Stick to Your Guns
Old Media makes decisions based on today’s conditions, which ensure that in a few years time, when the project has taken off, the conditions might no longer be conducive to their strategy and execution.
Case in point: Hulu decided from Day 1 to go free, this helped the company’s traffic take off: Hulu has soared from 12.5 million unique users in September 2008 to 38.7 million this past September, per comScore.
When the site launched, the decision to go free was smart. After all, the challenge was to change consumer behavior and thwart piracy.
To put things into context, in the summer of 2007, Rupert Murdoch’s News Corp. was seeking to acquire Dow Jones and there was talk of making Dow Jones’ Wall Street Journal website - the most successful paid content website in the world - go free to capture more advertising dollars.
At about the same time, Hulu was moving from an idea to beta to launch. Never was there talk of making consumer play, not because Hulu’s media owners (which included Murdoch’s News Corp.) cared about user preference, but because it was an advertising play.
The Economic Meltdown Changed the Script
With the 2008 economic meltdown came a slowdown in advertising. This slowdown affected traditional media and advertising more than online. As a result, the downward pressure on media companies’ share prices accelerated and this forced them to reconsider the free, ad-supported content model.
Incidentally, there is no more talk of converting WSJ.com into a free site, in fact, Mr. Murdoch today talks of serving less users on his web properties but charging them to access the content.
Yes, times they change.
Hulu is a great partner of ours. We really wish them well. The CPMs they command are so much higher than the industry standard that we wish that they grow as a site so we grow with them. But the story twists we read in the press should come as no surprise because media companies are impatient and desperate.
Have We Seen This Movie?
What they fail to realize, ironically, is that no matter what plan they hatch today to get users to pay, by the time these plans are implemented, the advertising market will return and they will find themselves on the inside of the pay wall looking out, once again finding themselves going against the grain.
Here is the Sky News interview with David Speers in which Rupert Murdoch talks about removing his content from Google’s spiders:
On March 12 2009, AOL replaced Randy Falco with Tim Armstrong, who previously ran Google’s North American sales operations. I attended the Media & Money conference yesterday at the Roosevelt Hotel in Midtown Manhattan and heard Tim talk about AOL’s future and past.
First 100 Days: Strategy vs. Cost Structure
Before even accepting the Chairman and CEO role at AOL, Armstrong got a ton of advice from experts and monday morning QBs alike.
Once he joined, his first 100 days were highlighted with an assessment of the company’s assets and position in the marketplace. He received thousands of employees’ suggestions. Subsequently, Armstrong decided to wipe the slate clean and formulate a new company strategy that fit on a single page.
The Strategy: Content, Ads and Communications
On this one-pager, Armstrong formulated AOL’s three pillars:
1 - Content
2 - Ads
3 - Communications.
AOL Time Warner: 50% of Marriages End in Divorce
Of course, to talk about AOL’s future, one must put the January 2000 merger with Time Warner in context:
AOL/Time Warner will be 55 percent owned by AOL and 45 percent owned by Time Warner. The combination will immediately boast a market capitalization of $350 billion and an annual revenue stream topping $30 billion.
That’s right, buoyed by the Nasdaq’s gains and AOL’s growth in the 1990s, AOL acquired Time Warner.
The Nasdaq peaked in March 2000 at over 5,000 and crashed down to 1,200 by the next year. To be fair, while there were macro-level causes for the result, there were also some unique factors at play.
From a 2009 article in TheDeal:
The new economy was never realized, and neither was AOL’s potential as the driver and distributor of Time Warner’s unmatched inventory of content. Not that AOL Time Warner, which dropped the scarlet letters A-O-L from its corporate name in 2003, didn’t keep trying. The efforts have already added two successive AOL heads — Jon Miller and Randy Falco — to the list of those the original deal beheaded.
It didn’t help that, as an Internet service provider, AOL has never been more than dial-up. That meant the transaction in which it figured so prominently (its shareholders received 55% of the combined entity’s equity) had built-in obsolescence. It also meant, arguably, that the promise misplaced in AOL kept its parent company from pursuing the potential of its much faster and technologically advanced cable-driven ISP, Time Warner Road Runner.
Throughout that decline and the increased obsolescence of dial-up technology, Time Warner’s size relative to AOL grew considerably and the AOL/Time Warner merger cost shareholders billions of dollars and after less than a decade, the powers that be at Time Warner decided that AOL had to go.
As a result, the Time Warner brass needed to sell AOL - the new stock - to institutional investors and few have the presence and track record of Tim Armstrong, Google’s former North American VP.
The Story Starts: Use of Funds is Main Divergent Issue
According to Armstrong, the main driver for the spin-off is how differently AOL and Time Warner would use cash. Oddly enough, while merger was doomed due to culture clashes and bad timing, in theory, the case for the merger is as sound today - on paper - as it was then:
“Together, they represent an unprecedented powerhouse,” said Scott Ehrens, a media analyst with Bear Stearns. “If their mantra is content, this alliance is unbeatable. Now they have this great platform they can cross-fertilize with content and redistribute.”
The problem, of course, is that big “transformative” mergers and acquisitions are transformative in good or bad ways. They can radically help grow a company (look at how much revenue eBay generates from Paypal from example) but they can also kill a company.
Let Bygones be Bygones
If content, ads and communications are the focus of the company, then the company’s objectives are:
Objective # 1 - To Become The Largest Producer of Content Online
Armstrong has talked a lot about AOL being the Time of the 21st century with regards to producing content, lots of it.
It’s worth noting that Time.com’s own Managing Editor Josh Tyrangiel admits that “long form journalism, a staple of magazines like Time, is not working online”. As such, maybe emulating Time too well won’t serve Armstrong either. Of course, time will tell.
”You are seeing more and more talk of content and scaling it.” AOL has hired hundreds of reports and is investing in systems to scale the production and distribution thereof. Armstrong said he wanted to bring “Silicon Valley’s platforms and mentality to content,” and echoing something I’ve been saying for a while, he added that “while there has been a lot of investment into technology, not much investment has been made in content.”
He’s right. But AOL’s not alone in investing in content, though companies are going about it differently.
Should be stated that we at WatchMojo are now one of the biggest supplier of premium video content online. We not only supply the usual suspects (YouTube, Hulu, etc.) but also vertical sites. Who else, do you know of, for example, supplies both business videos to Thomson Reuters and video game content to IGN.com?
As I also like to say, unlike technology, content isn’t a zero sum game, and in fact, as a content entrepreneur and executive, I love seeing more and more focus being put on content.
The heavily-funded startup Demand Media is also into producing hoardes of content. What sets AOL apart from Demand Media is that while Demand is intent to play the SEO/Google Ad Sense text advertisement arbitrate card, AOL’s second objective is to leverage the strong display advertisement business Armstrong inherits from previous executives such as Mike Kelly (who encouraged the Advertising.com deal, which we ranked as one of the best Internet M&A deals of all-time in our 2006 list here), Jon Miller and to some extent Randy Falco.
Objective # 2 - To Become the Biggest Seller of Display Advertising
AOL owns Advertising.com, the largest ad network in the world. Of course, AOL also owns Tacoda, Quigo and a barrage of other ad networks that were bundled and branded Platform A but have now been - shocking I know - separated as well.
The problem with AOL’s strategy under Falco was that it became a strictly quantitative approach to sell reach and networks, whereas advertising - and brand advertising in particular - is a different beast.
What is really shocking about Armstrong is that despite his pedigree at Google (a joint run by a bunch of quants, basically) is just how much he thinks like a media / content / advertising guy, which makes sense given his role and success at Google, but still, it’s refreshing to see.
Web’s phases
If Armstrong is singing the “contest is king” mantra, it’s because history suggests the next boom will be in content. Yes, this is also a theme in my ruminations, as the Web now shifts to an era of consumption of information and entertainment.
He broke down the Web’s phases as such:
1) Access: ISP, portals, search engines, etc.
2) Platforms: Facebook, MySpace, Twitter, etc.
3) Content: speaks for itself.
Across all new distribution platforms (TV, radio, print), over time, it’s content that becomes most valuable.
AOL isn’t merely interested in producing the right type of content, it’s also looking at scaling quality content, building systems and platforms to help content creators.
SMO Replaces SEO?
When asked about social media, Armstrong views it as a great way to distribute content.
I agree, I think in video at least, because search engines do a crappy job of indexing videos, SEO has been replaced to some extent by SMO, or social media optimization (I’ve called this SNO, or social networks optimization, in the past). This has been accentuated by the “deportalization of the Web”.
He touched on Bebo, which he suggests is being repositioned on what it did best: sharing media and entertainment amongst friends.
Display and Video to Outperform Search?
The next $50 billion that shift online probably won’t respect the same ratio between search and display. He’s right, here’s a graph to demonstrate that:
Related: can online video advertising can surpass online search advertising; can online advertising outright surpass television advertising?
It’s no secret that Armstrong is repositioning AOL’s ad network business, suggesting that AOL’s extreme focus on Platform A might have been misguided.
To become the #1 in display banner ads, he added: “Display cannot be about ad networks and reach alone, brand advertising could be done differently, it’s about the ‘brand story’”.
Multi Brand Strategy
AOL has 70 properties, ranging from men’s blog Asylum to Spinner, but AOL sells mainly by audience. As Asylum’s quick ascent has shown, AOL doesn’t merely have the traffic and eyeballs to build large properties, but it has data.
As a VP for men’s lifestyle site AskMen, I worked with both MSN.com and AOL.com in the early 2000s, and one thing that AOL had was a lot of information on user’s interests, click through data and what not. As a result, if it decides to focus on an audience, it can move fast… and efficiently.
Of course, that is theory; in practice, it boils down to execution and having the right content.
“More and more advertisers see themselves as content producers,” continues Armstrong. I agree, but we’re also seeing a more sober stance occasionally when marketers decide to stick to what they do best.
He touched on local and video, too.
Local
“All about living lives better locally”, he stressed. He invested in Patch due to a personal frustration over a lack of information at the local level. AOL acquired Patch, who has since expanded into 30 cities and tends to partner with local media, as is the case in New Jersey.
Video
AOL is producing six times more videos than it was a mere 4-5 months ago. The content can be broken down into two main genres:
- very high quality (Beyonce comes in the studio)
- original videos based on their media properties.
I personally break professional videos into two: super premium and premium. Here is my not-so-complicated view of content online:
- At the top, you have ”super premium” representing Hollywood, studios etc. You can command extremely high CPMs but the inventory is usually low etc.
- In the middle, you have “premium” content, basically being where WatchMojo now has built a nice position. If you’re keeping track, CPMs are healthy and inventory is decent, so the overall revenue is highest here.
- At the bottom, you have UGC, which totally changes the rules of engagement of media, news and publishing, but which will fail in ad-supported model.
Echoing by bearishness on scripted entertainment, Armstrong believes that there is an “opportunity” in scripted entertainment, but can’t take a Hollywood approach online. This is why many companies have failed, in fact, in the video content business.
AOL’s Future
The Verdict is obviously still out. Yesterday’s chat is largely about getting the story right and out, as institutional investors will have to buy into the story and the stock once Time Warner completes the divorce less than a decade after the marriage.
Will the Street buy in? Who knows. After all, the Street applauded the TWX/AOL merger when it happened, and then evaporated 90% of the value of the combined entity.
But I do know that Armstrong is saying all of the right things to position AOL as the home of great content and as a home for content producers. And, if content is king and in the end content prevails, then AOL might prove to be a nice long term bet amongst media stocks.
You can read more about Armstrong’s chat yesterday at the Media & Money conference on Business Insider. You can also read my previous posts on AOL and their content initiatives here:
- Mediaglow: Silver Lining in AOL Empire?
- Did Armstrong Leave Google Because Content is King?
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