Helmsley Media

A recent post I read over at Techdirt has gotten me thinking a lot about the “free vs paid content” debate online. Apparently Rupert Murdoch is looking to stop Google from indexing a lot of News Corp’s websites in favour of putting up paywalls that require users to pay a subscription fee from access to his content.

Mark Cuban thinks this is a genius move on Murdoch’s part. The game changer in his opinion is Twitter, Facebook and similar social media sharing tools because they allow a more organic dissemination of news content than search. I agree, that for real time news content receiving something from your friends via Twitter or Facebook is more likely to pull your interest towards reading that content. However, I don’t think Twitter and Facebook are going to be of much value when the site has a paywall. You are less likely to share content that is behind a paywall, and your friends/contacts are less likely to view it once they realize they have to pay for it. Their first instinct is going to be “is this an affiliate link?” and with all the Twitter and Facebook spam that’s getting passed around now I wouldn’t blame them.

More and more I’m starting to think that online media is starting to merge media with direct response marketing concepts. Advertising revenue is hardly enough if you can only generate a CPM of $2-3! There has to be other ways of monetizing, and paid content could be worth looking at. I think paid content is better suited to niche audiences, but it could be done for a larger audience, especially something like the Wall Street Journal which is targeting a more affluent, business oriented audience who need this information quickly. The challenge is protecting that content. What is to stop a blogger or other publication from paraphrasing your content? You can’t copyright news or ideas, just the specific words that you wrote. I know GigaOM for example recently launched GigaOM Pro with an annual price of $79 for access to their content

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Google doesn’t have to be everything online. Of course they are the dominant company for the time being, but keep in mind they are barely 11 years old and things change very rapidly online. I often think about the internet marketing community and how they manage to thrive oftentimes paying for all of their traffic, and not depending on search traffic at all. If you know your conversion rates and other metrics, buying visitors is a valid option if your customer acquisition costs are lower than your prices. There are all sorts of ways to build your own lists of prospects, and all sorts of ways to make money of of them. The idea of not depending so heavily on Google is potentially a good move on Murdoch’s part, and an even better move if he can get other major media companies to follow suit. It is also of course a very risky move, but as they say fortune favours the bold.

Google’s business centers around the flow of information, which is a pretty good business to be in on the internet. Most people are coming online because they are looking for information. Google’s search service is a fantastic, albeit not perfect, tool to do this. For those of you who aren’t familiar with how Google makes money, they place advertisements next to these search results from advertisers that are targeting people interested in those keywords. So if I am selling video games, I will target people searching for “video games” in Google, and I know that my advertising will be very precise. What Google also did is they provided a tool for online publishers like myself to monetize our content by placing their ads on our websites. Anyway, chances are if you’re on this website you already understand all this. Google makes the lions share of their revenue this way, and with a market cap of more than $150 billion, it seems to be a good business model.

Facebook currently generates advertising not by targeting people searching for a particular keyword, but rather based on their demographics and interests. This is a great tool to target people within the Facebook network. At 300 million strong as of September 2009, Facebook can get you exposure to the demographics you want. There has been questions surrounding the effectiveness of ads on social networks, but I can tell from my experience that I have had more success with Facebook ads than Google. That may have more to do with the niche I was promoting, and my skills in developing ad campaigns on Google, but nevertheless Facebook ads have been effective for me.

So how do I propose Facebook is going to dominate Google? Well the company has started providing search results from outside the network, that isn’t likely to hurt Google anytime soon, but it’s definitely a good move. When you use their search feature now they also provide web results, powered by Bing. That could provide some interesting things in the future, but the real killer application I see coming from Facebook is Facebook Connect, and if/when they all online publishers to paste a Google Adsense like advertisement on their website, integrated with Facebook Connect, and therefore serving ads from the Facebook platform. Suddenly Facebook would have the ability to serve ads to billions upon billions more pages, using their demographic data, and they could also integrate contextual ads as well to target the ads even further. I could target viewers within certain demographics, regions, interests and on pages with certain keywords.

Google has their service Orkut, which is apparently still widely popular in places like India and Brazil, but it’s unlikely to be able to unseat Facebook as the North American champion. Although, some would have said the same about MySpace a couple years ago. Google has their Friend Connect which enables publishers to provide some social networking type tools to their users, but it doesn’t currently have the same punch that Facebook Connect can provide. This type of demographic targeting is the type of thing that the traditional media companies would kill for, but would never have the sense to create services that empower their users, instead they restrict them.

As I have studied email newsletter marketing further, and have learned about the concept of taking your time to develop a relationship with your readers, I have also begun to better understand the business models of several new media companies. Yesterday on the Facebook blog, Mark Zuckerberg announced that they have surpassed the 300 million user mark, and that they are now cash flow positive. In this story from Yahoo News, this cash flow positive metric does not include any cash from private investments, which means they are now proving their viability as a business model. For a long time there were criticisms that their business model would never reach this point, and that eventually it would all come crashing down around them. So what is their business model exactly? Are people really buying this many “gifts” for their friends?

A Look At The Facebook Layout

Taking a look at the Facebook home screen (I’ve removed personal information pertaining to my friends) you’ll notice that they actually do nothing that immediately makes them any money here. No advertisements whatsoever. Everything on this page is about making your connections within the site deeper. They want your online social life as it were, to be dominated by your Facebook interactions. The whole page is designed to get you clicking on links pertaining to your friends’ activities, the pictures and videos they post, and their status updates.

Advertising Placements

Further into the site we start seeing ads on the right hand side of the content. The same ad placement applies across most of the site, whether it is on profile pages, or photos/videos that you or your friends have posted on the site. You’ll notice in the image below that some of the ads are not in English, this is because I am currently in Denmark, and as a result I am being targeted as though I were living in Denmark.

Advertising Targeting

Advertising in a newspaper, or on a billboard we can get broad exposure, which is great for branding purposes (I suppose), but it’s not very effective at driving sales immediately. With Facebook and other social networking sites we have the ability to do some very specific targeting that traditional forms of media cannot. Let’s say for example that we ran an ecommerce store selling camping equipment and we wanted to drive more sales to our website. Using Facebook we can target people based on their geographic location, age, gender, and many more characteristics. In the picture below we have made a sample advertisement targeting people living in the United States, over the age of 21, who have listed “camping” as one of their interests. The result of this targeting is a pool of 1,725,280 Facebook users for us to target.

Advertising Pricing

After targeting our prospective customers, and receiving numbers as to how many there are on the network, we can get some approximate price quotes from Facebook. This is automated, and only an approximate. You will never pay more than your max bid, or max daily budget, but if people are clicking on your add more often then your per click cost will go down. You can also target based on number of exposures which is apparently a great way to keep your costs down if you know how to get your click thru rates up.

This model is quite similar to Google’s Adwords advertising service, but instead of targeting based on people’s search terms, you are targeting based on very specific demographics (including interests). In fact if you read up on Google’s development and their history it is strikingly similar to Facebook’s. They took quite some time to build up their Adwords service, and to get to the point where they are now. They are making money through long tail economics. Because it is so simple for them to make money on the narrowest of niche’s at essentially no extra cost, they can become a viable advertising tool for almost any business regardless of scale. What makes Google and Facebook so valuable is that they make other businesses lots of money, even though they don’t directly charge 99.99% of people who use their website and services. Give your users increasingly more reasons to stay on your site, and interact with the different elements within it, and you increase the lifetime value of each visitor/user/customer.

I read about the decline of traditional media forms constantly, and I have spoken about this a number of times on this blog in the past, but that doesn’t mean that the media industry is going to die. In fact I foresee quite the opposite happening. Newspapers are decrying the rise of new media forms, saying that ISPs should be forced to pay a tax for the content that their users are consuming “for free”. The MPAA (Motion Pictures Association of America) and the RIAA (Recording Industry Association of America), are fighting hard to shut down file sharing websites, and are suing file sharers for exorbitant amounts of money as a way of making an example out of these people. Industry executives seem to think the solution is more aggressive policing, and creation of copyright laws to fight something that cannot be contained. Like the boy with his finger in the dam, their efforts are hopeless.

The inevitable cannot be stopped, and by fighting the changes that are happening within the industry all they are doing is falling further behind the new mavericks within this rapidly evolving industry. Previously the way to make money in media was appealing to the lowest common denominator, selling films to the largest possible audience. This still works, but it’s not where the growth is. The advantage with the internet, and new media, is the ability to focus in on the tiniest of niche markets. Either you can focus on a narrow interest with a global market place, or a broader interest in a local market place. The ability to segment your audience with the tools available today is fantastic. On Facebook I can advertise to women between the ages of 30-45 who are interested in yoga and live in my hometown, for mere cents per click. This ability to geo target very narrow markets allows Facebook to provide a much more qualified lead to their advertisers. What the new media companies like Facebook have begun to realize, is that content is no longer king, it’s the medium that matters. Convenience is king, and now how we experience our media is the ultimate deciding factor for users.

I do not have a television, and yet I watch a lot of television programming. I choose the programs that I want to watch, I download them, and I watch them at my leisure. I do not hold myself hostage to television schedules, except for the fact that my favourite show is available after Sundays when it airs. I cannot watch this show on the TV channel’s website, and if I wanted to buy it from iTunes I can only get last season’s episodes. Some of the programs I watch are available on Hulu, but I’m from Canada, and I am currently working in Denmark, so Hulu is not available for me. Here is what I propose for the TV networks:

Turn your websites into social networking websites, or do something where you are collecting user registration information in return for free access to your programs. Finally you will have absolutely detailed demographics of your viewers, who likes what types of programs, and so much more about your viewers. Don’t just broadcast your shows with ads, but rather captivate your audience with a more interactive experience, and by interactive I do not mean they pick the ending, I mean offer more than just a program for them to watch. Offer live chat for people to comment on the shows if they like, or feedback forums where they can comment about what already happened. Your websites should be like the numerous fan sites that are created already. Engage with your viewers like never before.

Of course there are people who will prefer to sit on the couch, and not at a desk, to watch their programs. For these people we’ll have some device to be able to interface the same way they always have, or at least similarly. The issue is media companies need to open up the options and make it convenient for users to consume their product, more convenient than their competitors are, instead of limiting their options. Once you start limiting your users (notice how I say user, not viewer), then they start turning to grey market, or black market offerings like The Pirate Bay (which was recently shut down after losing a legal battle with the MPAA) or other bit torrent websites. They need to start learning how to profit from adding these new options, because whether they are profiting or not, people will start using these options elsewhere regardless. At least if you are offering it in house you can track it and benefit from it.

Part of the problem is that with results based advertising options like affiliate advertising (CPA), and pay per click advertising (PPC), traditional media companies are afraid to be held to the same level of accountability. They are afraid that if they start integrating more mixed media type offerings that their advertisers will start seeing that they have been overcharged for a very long time. The same goes for the motion picture industry, and recording industry, they are worried that people will suddenly begin to undervalue their product if they don’t hold the reigns so tightly. The product should not be the focal point anymore, but rather the relationship with your user, your consumer, that is where the money will be made in the future.

In some ways I get the feeling that the traditional media industry fails to appreciate the long term value of a customer relationship. How did George Lucas to Lucas Arts into the success that it is today? Was it by aggressive litigation against his fans for producing tributes? No, he embraced the relationship with his fans, and gave them more of what the wanted. Sure his movies made a tremendous amount of money, but he extended it so much further than that. Fans became obsessed with the movie, so they bought the toys, the video games, the posters, and of course as they became available they bought the DVDs. If you make it convenient for people to become your fan, to consume your media and to buy your related products, then you are going to start profiting.

I will admit that I have not fully wrapped my head around how movie studios can benefit from their movies being available online for free without totally pimping them out with product placements, or ruining the story telling, but I do believe it could be achieved for musicians. For music it’s a lot easier to convince someone to pay because they are supporting an artist, or at least they think they are in spite of the fact that record companies make so much more. With musicians you can build a community of fans around them very easily, and with a sense of community fans are much more likely to contribute financially. They can buy t-shirts, concert tickets, and even though they could probably find them elsewhere for free, many will still pay for music if it’s available for immediate download from the website. Here in Copenhagen there are a couple of guys who play music the main square almost everyday, and they are amazing. Every time I walk past them I have to stop for at least 2-3 songs, if not more, and I always drop in some money for them. I’m not alone either, these guys do well for buskers. I’m not saying that all musicians should be relegated to busking, but it’s a similar concept. You’re in a square, and you are surrounded by other people who are obviously appreciating these guys’ talents a lot. One person drops in a bit of money, then another, and another. There is a sense of connection there, a community in a way. Now if we apply that type of thing to a website, where you can have fans from around the world simultaneously enjoying your music, the effect can be magnified exponentially. Someone downloads a song, or an album, and it shows up on a newsfeed like feature, just like Facebook. A counter shows people buying the artist’s music in real time while they are performing a live song, streaming through UStream.tv or something similar. Online busking I suppose. Allow fans to connect with you, and you will prosper. It’s about the relationship. If you want to be aloof, fine wear sunglasses on UStream.

The world isn’t ending for media, but certainly it’s evolving much more rapidly than some would like. The one’s who hold to the comfortable, the staid, will be surpassed by the new, and the old who accept the inevitable. Change is here in the media industry, and honestly I don’t know if you can exactly call it the media industry anymore since it’s bringing in so many aspects of technology and communications. Either way, adapt or die.

Facebook recently announced a new Facebook feature for website developers called “Facebook Connect” that enables other websites to allow their users to login using their Facebook account. Essentially you can connect your Facebook account with your account at whatever other website (that is using Facebook Connect) and then certain actions you take at the other website will appear on your news feed on Facebook, exposing your friends to the other website. A great prospect for other sites who want to get exposed to a far broader audience, and it allows Facebook to become your one and only online identity.

While there are the obvious privacy concerns, this is nothing new to Facebook users. If you didn’t want your friends to see that foolish picture of you at the Halloween party, then perhaps you should change your privacy settings, or if you don’t want people to know you’re checking out some elicit adult website, then don’t use your Facebook account to login there.

Not to be outdone Google and MySpace have partnered up on similar project called MySpace ID. Looks like an online format war to me, although it’s not like the High Def DVD wars where only one can win. I can tell you that I am definitely looking at ways of taking advantage of this for my future projects.