A few years ago I came across this graph that showed that people spent 47% of their time consuming content:
Today I came across the following on Business Insider that shows that content consumption is more popular than ever:
This is the main reason I started WatchMojo, figuring that the infrastructure for the Web was largely laid down, and the phase we are in now is mainly one of entertainment and information… which content consumption leading the charge.
Of course, one can answer: so what?
1 - Despite my pro-content bias, this doesn’t mean that content is the best investment (though I think on a risk/retur-adjusted ROI basis, it is), seeing how so many content aggregation plays have been massive home runs (MySpace and YouTube, to name a couple).
2 - Search time is minimal, but historically has been the main beneficiary of ad dollars shifting online. I think it was search guru Danny Sullivan who said (or maybe he was quoting another bloke) that people spend a few minutes every few days pumping gas, doesn’t mean it’s not a valuable activity.
Found here:
3. Content Is More Important Than Distribution Channel.
I’ve been engaged in this business long enough to know one thing: content is king. Compelling presentation is important, as is selection of the right distribution channel, but if the audience doesn’t immediately sense value in the content they are seeing, they will move on to the next site. That means a provider of high quality content can virtually come from nowhere to capture the attention of an audience and dethrone an industry leader. Bloomberg versus Dow Jones is an early example. More recently, the simple graphic presentation of Google is more than trumped by the value of the content it provides, and because of that, Google changed the way people use the Internet.
It makes sense therefore for investors to consider which entrenched leaders might not be as entrenched as once thought, especially when smaller, hungrier, more innovative and more aggressive competitors develop new ways of providing high value content.
No arguments from me. In fact, related here:
- Commodization of Distribution and Scalability of Content
- Content vs. Distribution is Secondary to Quality and Scarcity.
I finished reading Kenneth Whyte’s The Uncrowned King on William Randolph Hearst, and I learned a lot about how to be a better businessman and entrepreneur, no doubt. Hearst was the man, for sure.
But I also walk away now realizing that newspapers as (we know them) will die, no matter how much of a fight they put up.
From the last pages of the book:
“The 20th century brought an extended (and ongoing) era of profit-taking and consolidation. Advertising came to dwarf circulation as a source of newspaper revenue, and advertisers found it more cost-effective to reach a whole reading public with one or two ad placements than with many.
The big papers got richer, the smaller ones disappeared, to the point where many metropolitan dailies enjoyed local monopolies. With reduced competition, newspapers lowered their voices and brought in their elbows.
The aggressive, crusading, politically charged, self-promoting, polarizing, audience building antics of the old warrior owner-editors gave way to to the relatively bland consensual habits of the business manager who wanted only as many readers as would keep his advertisers happy.”
What is the problem? There are two.
- The Web has cut into their audiences, and
- advertising is more effective online…
The Web will keep eating away at newspaper audiences and revenues, and if/when newspapers get serious about moving to the Web, then they accelerate their inevitable demise.
In the 1950s, television ushered in even greater reach, so the appeal of placing ads in most newspapers vanished. I think the papers who did not die when the penny presses merged and subsequently closed in the 1950s will probably go out of business by first merging and then selling this time around.
In the 2000s, the Web offered more by way of local tastes. The myth that newspapers “master” local content is a myth. They’re not bad at it, but they took advantage of an inefficiency. The Web leveled the playing field and made marketing more efficient. This fundamentally pierces through any vestige newspapers had.
Newspapers will die, news will go on… News companies have a choice to make.
A theme we’ve covered quite a bit is the balancing act between content and distribution. I came across the following via NewTeeVee, from NYTimes:
For Mr. Bewkes and his team, the core of the strategy is a wager that the media pendulum will swing away from distribution and back toward content. “The last number of years, all you have heard about is new and better ways to distribute content,” says Mr. Meyer, sitting in his office on Warner’s lot in Burbank, Calif. “At some point, I think distribution gets commoditized,” leaving, he says, content as the more valuable component.
Nowadays, distribution is a commodity, and I’d go as far as to say marginal distribution is so easy to obtain that it dilutes the value of content, even though this sounds very counter-intuitive. For the record, I’m not saying less distribution is better than more distribution, but distribution at any cost (unpaid, basically) is not necessarily a wise strategy.
- The Commoditization of Distribution and Scalability of Content.
- The Democratization of Content and the Commoditization of Distribution.
- Content vs. Distribution is Secondary to Quality and Scarcity.
Mojo Supreme owns about 100 or so URL. HipMojo.com is one. Others include WatchMojo.com, ArcadeMojo.com, etc. We house everything under WatchMojo.com for simplicity but one day might hatch a number of verticals… as we did when we launched in 2006 before the unification.
Anyway, separately from the mojo names, I also own some like businessmyths.com or contextisking.com.
I got an offer to sell contextisking.com. I like it, I intended on writing a book with that name but then basically launched Mojo Supreme as a result of my findings / conclusions in the context is king mantra.
My question: should I sell contextisking?
My observation: imagine if M&A was more like buying and selling a URL.
I asked one of my informal de facto advisers if I should make a corporate development sale on price alone or also include the company’s new home, management of the buying party, and other intangibles such as this, along with what the sum of the parts can yield. The outcome of MSFT/Google competitions for acquisition targets hasn’t always been based on price alone… of course. But for most deals, it does boil down to price.
He laughed at me and called me an idealistic little you-know-what… arguing that price and price alone is all that matters… because once you sell you lose control and all is moot.
I am not saying I agree with him… but if I did… then I figure M&A would work better without the song and dance that comes with the process. Imagine an interested party submits a blind offer, you counter, etc., until you agree to a price. When it’s said and done, you realize who it is and what they intend to do with it.
Either way, you look like a freaking genius or a dumb bloke. Which, basically, is what happens with M&A now anyway.
Related:
CBS - who last year made a splash by buying music-oriented social media site Last.fm for $280M today bought uber 1.0 web site CNET.
Earlier this week, a VC told me that “social network” has become a taboo word, even though just last year you saw a herd rushing towards more investments in the space.
Yesterday, eMarketer slashed social media advertising estimates, with Facebook’s downgrading in tandem.
This morning, an executive I know whom had left a quality programmer for a social media network all of a sudden pulled a 180-degree turn and got back into content.
Hmm.
Is it just me, or are you seeing a flight to quality programming and the validation of the “content is king” mantra rising?
Bear in mind, Sumner Redstone coined that term, and he just plunked $1.8B for CNET.
I never understood why some companies like Handheld Entertainment and Go Fish were publicly traded. With easier access to capital comes the fact that your premature business gets nailed by shareholders, especially if your underlying premise - that distribution trumps content - is faulty.
[Disclaimer: both companies were or are distribution partners of WatchMojo.com]
GoFish is now worth $10.61M, ZVUE (formerly known as Handheld Entertainment) is worth $10.16M. Revver, never publicly traded but armed with $13M in VC money sold for less than $5M to Live Universe, Brad Greenspan’s company.
WatchMojo.com is worth more than those three companies combined, not because any stock ticker or term sheet says so, but because if value is ultimately derived by demand and supply, there’s no competition. It’s not even close. With every passing day, the value of content soars whereas distribution fizzles unless you are # 1 or # 2.
GoFish has changed models and is no longer a UGC platform, but rather, a kids’ ad network. Two years ago, UGC was in; last year, it was ad networks. Something tells me GoFish might very well prevail, but it’s hard to focus and execute when your stock price is out there for public consumption and rejection.
ZVUE went on a shopping spree and financed itself via private investments in public equities (PIPEs), which is always a dangerous tool. Maybe that is why the company’s stock is languishing. I thought of buying some shares but there remains downside risk, even though the stock has fallen from $7 to $0.40.
Not a day goes by where you don’t hear about a new roll up fund. Today Austin Ventures launched one, backing former Razorfish CEO Jeffrey Dachis.
For the past few months, I’ve talked to two investment groups about doing a video rollup and the names of such companies always come up as would-be targets. I’m not sure the upside is there, even at distressed prices.
Last year Ross Levinsohn and Jon Miller contemplated doing the roll-up, but the numbers did not add up, partially because online video is very nascent. So Messers Levinsohn and Miller instead merged with ComVentures and began to invest in online video startups.
This year, when Revver was on the auction block, I considered making a run for it, but I could see that there were and would be dozens more of such companies for sale as the market weeded out the second tier aggregation/distribution sites.
The temptation was there, but ultimately I stuck to my guns: I much rather own content instead of distribution. This is counter-intuitive to the Valley mindset but not to big media. Distribution is great, but it’s not exclusive or defensible per se in online media.
Even in traditional media, look at what is happening to ABC, CBS or NBC (even FOX). They lost market share to HBO, MTV, ESPN etc.
Then enter new media where everything is a click away.
Especially online, distribution is a commodity, and ZVUE and GoFish were commodities to shareholders. The public market is more correct in recognizing that than private investors, many of whom who suffer from herd mentality and are a bit, shall we say, behind the times.
Consider recent history:
Lycos, Excite et al. all had massive distribution at one point, now they’re distant runner-ups. Even Yahoo! is seeing erosion in market share to the new wave of distribution outlets, namely vertical publishers and massive social networking sites.
So instead of owning distribution, we at WatchMojo.com instead partner with them: YouTube, Hulu, MySpace TV, Veoh, etc., why compete with these massively funded strong brands when we can tap into their networks and build our business on their platforms?
I think with time and experience, even private investors get this: this morning Web 2.0 uber investor Fred Wilson conceded content might be a better bet than aggregation. That sure sounds like something I’ve been saying for some time. I doubt Fred is giving content businesses a consideration, I surmise nothing will change that… however, online, where everything is a click away, you cannot build defensible positions in distribution or aggregation, but you can with content.
Read Write Web has a post up that says “content is a commodity”. As an admittedly biased content producer, in the past I’ve written many posts on the scalability of content and the commoditization of distribution.
I think that the entire content vs. distribution debate it moot: in a vaccuum, either argument is provocative and attention-grabbing but incomplete and inaccurate.
Everything we know about history of media suggest that the key variables are quality and scarcity.
Indeed, if I lived 24/7 in the world of blogs, then yes, we’re in a downward spiral where text-content is a commodity and generally speaking the quality is not going up, but going down.
Every day someone new signs up to a blog account, enters the conversation which really means they quickly publish a quick post with little additional or original content. At the other end of the spectrum, you have splogs popping up day in, day out.
Video content is not immune, either. Most user-generated video content sites boast plenty of people with opinions, standing on a soapbox, having little to add.
Be it on the blogosphere or most video UGC sites, indeed there’s an insane amount of supply… and in economics, when there is a ton of supply, usually this cuts into the value of a good or service.
When Sumner Redstone said “content is king” it was in the context of relative to distribution mechanisms: There would always exist channels of distribution (albeit in varied forms), but content was always going to be necessary.
Some examples:
When cable (MTV, ESPN, etc.) popped up and increased distribution outlets on television, it cut into the power and value of the networks (ABC, NBC, CBS). This new distribution also created demand for new content. This is why ESPN and MTV are such strong brands. In fact, I’d argue that globally, ESPN and MTV are stronger than NBC, ABC and CBS.
In fact, I’d argue that distribution is even more commoditized, especially if you consider recent web history:
Consider the following development of distribution channels online:
> FIRST LAYER: LAUNCH OF PORTALS
> SECOND LAYERS: BIRTH OF SOCIAL NETWORKING SITES
> THIRD LAYER: RISE OF VERTICAL SITES
You can now tap into millions and millions of people online thanks to the fragmentation of audiences and the commodization of distribution. What’s more, tools like RSS and XML have considerably reduced friction and increased mechanism distribution.
We produce high quality, professional videos (already there, there is a barrier to entry) and then have a Push and Pull distribution mechanism at play. The fact that we’re signing distribution deals at such a torrid pace is proof that the demand vs. supply dynamics of content are far better than those of distribution.
In that context, ask yourself, is the following video on Paris Hilton’s new shoe line - which initially sat on this URL - worth less or more?
- Day 1: Someone (a blogger) grabs the clip and posts it on their blog.
- Day 2: The next day a major media company (in this case, our new distribution partner Glam Media) syndicates it and distributes to their audience of 20M users…
- Day 3: Tomorrow someone grabs it and add is to their social networking site…
- Day 4: Before long, larger portals like AOL or Yahoo! who are always looking for programming opportunities come across it in more and more places and add it to their deck.
Unlike a text-based blog where any author can publish a quick post, in our Paris Hilton Shoe Launch video example, the main variable is neither content nor distribution but quality and scarcity.
- Quality content is hard to come by. That is why that blogger and that media company feature our content and do not recreate it: they can’t! There is some barrier to duplicate the content.
Bloggers these days (especially tech oriented bloggers) can simply recreate the same blog entry. That lack of barrier to entry might partially explain why that kind of content has become commoditized. Read Write Web, Tech Crunch, Mashable etc. are all readable sites, but remove the image, branding and logos and tell me can you really tell one apart from another? I am not so sure you can. That’s not a knock, at all, because they have distribution (they would fall under Layer 3, above).
- In a similar vein, quality traffic is worth so much more than low-quality / fraudulent clicks. If you have a solid audience then your audience is not a commodity.
Putting everything together, I’d say Mr. Redstone is right, and Ms. Perez is wrong: with more distribution mechanisms, the value of content soars exponentially.
But indeed, if we’re talking about a medium like blogs where there are no content creation barriers to entry other than a blogger account and access to press releases, then yeah, sure, content is pretty worthless.
In the meantime, here’s Paris:
Newspaper company McClatchy writes down $1.39B. Magazine company Hearst reloads its digital strategy. You’d almost think that by 2008 (14 years after Netscape’s Navigator browser launched and made consumption of content easy), print companies would be better positioned online, right?
Wrong. In many ways, media companies - be it print, radio or TV-based - seem to be more uncertain about their next steps today than they were in 1998.
Web 1.0: How Print Media Blew It
The Web represented an enormous opportunity - and threat - for print media organizations in the 1990s and they blew it.
They played into their weakness and let the threat overcome their strengths; in non B-School lingo: they did not unleash their premium archived text content online, they either put it behind subscription walls or kept it offline altogether. In all fairness, no one could really predict that consumers would tuck away their wallets and the free, ad-supported ad model would prevail… but prevail it did.
As a result, online magazines and blogs won market share. In parallel, search engines leveraged what content was out there and attracted the lion’s share of online advertising as paid search captured 40% of the online ad pie
Over time, print media organizations realized that unless they embraced the Web, they would go out of business: the marketing dollars were indeed pursuing consumers online. Today online ads capture 7-9% of ad dollars but consumers spend 15-25% of their time online. This is the single greatest inefficiency - thus opportunity - in recent history.
With the dot com bust all of the upside disappeared, what little motivation print firms had to tackle the Web went down the drain. A few companies maintained the investment and charged ahead. The outcome was inevitable: Ziff Davis failed to buy IGN, for example, and Ziff Davis bleeded money and value; IGN, however, went on to be acquired for a cool $650M to News Corp. (disclosure: News Corp. bought IGN, who bought my old company in 2005).
The lesson, again in hindsight, was that the print media companies should have capitalized on the weakness from 2001-03 to invest online. Few of them did. I was a VP of a men’s lifestyle online magazine and we beat out Esquire, Men’s Health, GQ, Playboy and Maxim because they ceased to invest online as of 2001 whereas we continued to publish content and build an audience.
Web 2.0: All About Video
Today, online advertising is steamrolling faster than ever: over $20-25B was spent in the US alone in 2007, global ad sales accounted for $45B, with an $80B global market expected by 2010. While paid search prevailed up to 2007, the next wave of growth remain display advertising and video. When it comes to the former, print companies’ online properties are a natural fit to capture a lot of revenue; but what about the latter: what about video?
Video advertising is definitely the single highest growth opportunity online. I am biased as the founder and CEO of WatchMojo.com, one of the largest producers of original video content. But that bias is not unfounded: 2008 marks the first year that online video ads will cross $1B in the US, and this amount will grow to $7.1B in 2012. What would global video sales be at that time: $15-25B, I forecast, if not more.
I’ve always been conservative: while I said that online ads would surpass TV ads by 2021, Yahoo!’s CEO Jerry Yang turned to be more bullish, arguing that this tipping point would happen in the next five years. Mind you, he’s trying to fend off MSFT and convince shareholders not to accept Redmond’s offer (disclosure: I own shares in YHOO and predict a sale of YHOO to MSFT for $50B).
But five years! Maybe Yang is right. Regardless, online video represents the single biggest opportunity for print media firms. The problem: video is not in their DNA.
I was shocked to find out, however, that many print firms have in fact been investing in online video. NY Times, for example, has been publishing video content. Who knew? I didn’t.
Yet they do. According to Senior VP of Digital Operations Martin Nisenholtz:
Times journalists all create more than 100 pieces a month. We stream five million a month.
“We decided that our mission was to extend the Times journalism, and that mission would depend on Times video. We decided to extend that mission into video.”
Mind you, we do more streams per month, and we produce more than 100 clips per month… and we’re no Times. But we’re a company that focuses on web video content, so it’s like comparing apples with oranges.
I also expect Dow Jones’ WSJ to offer more videos over time (and no, we’re not limiting this to Kara Swisher’s videos on Boomtown!) now that they are part of News Corp., the most diverse media company in the world, who is launching FOX Business News (hold on, someone is handing me a note: oh, FOX Business Network has launched, we regret the error).
How Print Media and TV Media View Online Video
Unlike TV-based media companies (which incidentally, I certainly count News Corp. a member of) such as CBS, NBC, ABC (owned by Walt Disney), print media views online video as incremental.
TV-based media companies view online video as cannibalistic. Yes, all of the players in this category will tackle the space head-on because they have learned from print media’s 1990’s era mistake (which we outlined above), but the problem is: the print media companies who dived deepest in the Web mantra suffered most: the Chronicle laid off 25% of its staff last year even though it “got the Web”.
TV media companies, on their end, will probably look at online video content producers like AOL viewed Weblogs Inc., Jason Calacanis’ professional blog network, which they bought for $25M in October 2005. When that deal happened in 2005, a lot of people wondered: why would AOL buy a “bunch of blogs”?
I recently spoke with a high-ranking executive involved in the acquisition and the rationale is actually quite logical:
- Time Warner’s model of producing text content was outdated and expensive.
- Weblogs Inc., meanwhile, had mastered the art of producing high-quality, low-cost content.
By acquiring Weblogs Inc., AOL got a lot of content, a slew of writers, online audience, but most importantly, a process to produce content for the Web at low cost.
The process alone is key. CBS’s Quincy Smith always talks about startup DNA. Startup and entrepreneurial DNA is what all media giants lack. Few however admit it. Fewer yet do anything about it.
But the last part to AOL’s rationale for buying Weblogs Inc., - and the last three words (”at low cost”) in particular - are very important because the Web shrinks the media, publishing, marketing and advertising business. The Web is all about efficiency and eliminating waste, something that traditional media was synonymous with; just ask NBC’s CEO Jeff Zucker who practically welcomed the writers’ strike as a means to weed off such waste. If you doubt that, ask yourself why NBC’s Peacock investment fund just added $750M to its capital base from $250M to $1B. That’s where the growth - and savings - are.
Buy vs. Build
Ultimately, I think that 2005-2007 marked a period where many media companies - be it print or TV-based - adopted a “build” strategy, be it with regards to content creation, aggregation or distribution. I won’t single any one company in this post because we work with most of them and I do not want to judge their deeds (I do that more than frequently, what I mean is that’s not the point of this post).
Expect 2008 to mark the transition to a “buy” mode with online video. Why? I should probably shut my trap here… but I feel quite comfortable sitting on my perch to be direct and candid about the following.
When you read, for example, that
- despite $7B in revenues per year, Hearst “has about 2,400 videos live on its sites and are on pace to produce another 150 programs across its network. The programs will range from how-to, to episodic shows to user-generated reporting, man-on-the-street”;
- NYT’s About.com has 1,500 videos on its site despite being acquired for $410M by NYT in 2003;
- NYT produces 100 videos per month and has a market cap of $3B.
Then you realize that a pure video content creation company like ours has more content than Hearst and About.com combined and produces more content per month than the NYT does and does so across a larger base of categories then you start to wonder: how much more and how much longer will these companies invest to build?
You want candid and direct? Keep reading.
It’s all about Startup DNA
Big media companies remain just that: big media companies. Such firms have experienced and talented people who are certainly knowledgeable and smart, but they also operate in big companies where everyone is spending a portion of their day justifying their raison d’etre.
After News Corp. bought IGN and IGN bought my company, I knew that I did not want to stick around and justify my worth. So I built WatchMojo.com. I could have built WatchMojo.com with less strain, stress and risk within a company, but no way on earth would it be as big as it is today had I done that.
Why? Because all factors being equal, startups work more efficiently than big companies, and the Web makes that fact even more glaring. When media companies seek to build from within, inadvertently they compete with startups and only showcase just how inefficient they are.
In the initial few months, quarters, even years, big media employees facing the build vs. buy debate cast their votes squarely on “we can do this ourselves, why buy” (I’d do the same thing, frankly… maybe).
But over time, as big media companies pile on the cash on their balance sheets but they see their income statements shrinking at the expense of the Web… you can’t help but think that sooner or later, the internal preference to build will tip in favor of buy, buy, buy. At least if you ask senior management who has to answer to shareholders.
Content is King
Connecting all of the dots, it’s thus very funny to me - a former ad exec. and storyteller - that online aggregation and distribution plays like Joost, Hulu, Tidal TV, Veoh et al. keep raising more money at ever higher valuations while content creator companies remain somewhat off the radar.
Think about it: today Silicon Alley Insider and Valleywag commented on Veoh’s attempt - via Bear Stearns - to add to their existing $40M financing and add $40M more! I want Veoh to succeed: I love their crazy CEO and they are one of our hundreds of distribution points, but at some point, how much leverage do such companies have in exits for their investors?
Revver sold for less than $5M despite raising $13M in funding. Not sure about the math there but that’s not a sound exit strategy. When the dust settles, Veoh and their competitors will ultimately be vying to be # 3 after YouTube and News Corp.’s MySpace (more disclosures: all of these companies are part of our sprawling syndication network).
We in the online video space - be it content producers, aggregators or distributors - all want the same thing ultimately: more dollars flowing to online video advertising… but what will make that happen is better video content and more video content.
Content is king.
Yes, it’s a cliche. But cliches are cliches for a reason.
Enough people have commented on how Yahoo!’s Buzz is basically a knock off of Digg, so I’ll spare that angle… however what I find interesting is that Yahoo! is now echoing the fact that content has basically gone democratic: back in the day, a handful of business development executives and editors chose which links ended up on Yahoo!’s main page. Today, at least in theory, users can drive up links from Average Joe’s. Over time, this - like Digg - will be gamed and forgotten like most of YHOO’s forays these days.
Equally interesting, the other side of the coin is that distribution really has become a commodity. MSN, AOL and YHOO once commanded some 95%+ of the distribution online. I used to be a VP at a content producer that fed articles to MSN and YHOO and you were a made man once they distributed your content… but getting that took a lot of time, energy and money.
These days, Google has replaced AOL in the trifecta… but more importantly, a second layer of distribution and traffic sources have emerged: the social networks, and on top of those (or below, I guess), a third layer includes the vertical sites has emerged.
Long story short: the fact that Yahoo! has in essence opened up its main page shows just how fragmented and commoditized distribution has become.
Sumner Redstone was right: over time, new distribution channels emerge, and the value of content rises… though how the content wins in the end is now a bit more democratic.
As a content owner, you can’t help but smile about that denouement.
PLAY
