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.
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April 11th, 2008 at 5:45 am
Nice post, nowadays print media is following new technologies in circulations as the online readership rate is increasing rapidly all over the world. Most of the publishers are already using the web to circulate their publication in order to increase their revenue and giving the competition to the rising broadcast media. Companies like http://www.pressmart.net helping publishers to circulate their publications through new distributions technologies like web, social media, blogs, pod cast, mobiles, RSS, etc… and this would be good news for publishers.
Thanks for the information and i would look forward to read more similar posts from you!!!