Trying to figure the optimum pricing model for digital content is just in the infancy phase. Matt Kinsman of FOLIO magazine writes this:
Investors want to see paid content models while publishers express their doubts, and some dotcoms say the advertising model isn’t done yet—provided publishers can tap into marketing and promotion budgets.
Future revenue models for publishers dominated the discussion today at the DeSilva + Phillips Dealmakers Summit 2010, where publishers and investors debated where the revenue growth will come from.
Managing directors of two of the largest investment firms said content-driven businesses—including magazines—remain attractive opportunities, but monetizing that content is a priority.
“We believe in content but we’re struggling to monetize it,” said Jeff Horing, managing director of Insight Venture Partners. “It’s not really an issue for the next five years but it could be a problem five years from now when we try to sell the business and project what it will be worth to a buyer.”
Content that can’t be had elsewhere—either through original reporting or unique ways of aggregating—are attractive investments, said Richard Zannino, managing director of CCMP Capital Advisors (which owns Hanley Wood).
And despite the contraction among both industries, magazines remain a more attractive opportunity than newspapers. “We would not invest in newspapers,” said Zannino. “With magazines, maybe. It depends on the market. Newspapers have a fundamental issue where they don’t deliver as much value as their alternatives. With magazines, that fundamental issue doesn’t exist as long as they’re targeted to an attractive niche market.”
Others said magazines are essential within their broader organization. Washington D.C. insider Politico is a “reverse publisher” in which much of the magazine is created from Web content. “We see about a 50/50 split in print and online revenue,” said editor-in-chief John Harris. “It’s kind of a parlor game to say, ‘well if we have print it’s more expensive.’ Yes we have more costs but it also lets us have more reporters, which helps us draw an attractive audience for advertisers. I’m not fixated on any platform print or online. One of our most successful products is Mike Allen’s Daily Playbook—nobody reads it on the Web site, they read it on e-mail.”
Bloomberg chief content officer Norman Pearlstine explained what BusinessWeek offers. “Think of BusinessWeek as part of the whole Bloomberg ecosystem,” he said. “It starts with a terminal where people pay $20,000 per year, which offers access to news and data. BusinessWeek offers access to the executive suite they don’t get with just the terminal.”
Pay Walls a Non-Starter?
Harris, Pearlstine and Huffington Post CEO Eric Hippeau expressed their doubts about the viability of pay walls.
“I think it’s hard to make it work,” said Pearlstine. “In our experience, you can charge a lot of money for specialized information for an audience with a need for it—it doesn’t have to be business and finance. But for more general interest, the value just isn’t there.”
Politico won’t charge for the content it currently produces, said Harris. “We’re successful with our ad model and putting stuff behind a pay wall would diminish that,” he added. “Our editorial model is about the conversation of the day, and a pay wall runs against that.”
Hippeau said that while the Wall Street Journal was an example of a successful paid model with $100 million in revenue a few years ago, you haven’t heard much about it since. “The history of the pay wall is not a good one,” he added. “With magazines, you promise your advertisers a rate base and then spend a lot of money to acquire that rate base and keep it up. It’s hard to do.”
Making Online Advertising Work
While nearly all conference participants seemed to agree that banner and online display advertising don’t hold much promise, some said it could work if it’s part of a more in-depth package.
“I would be scared to invest in creating content if the only way to get your money back is banner ads,” said Matthew Bromberg, CEO of online startup Major League Gaming, which has a model combining subscriptions and advertising. “However, our players pay to play and we do multi-year sponsorships and branded content.”
Others see online publishing evolving much like traditional publishing. “I think the online publishing model will follow the magazine model by targeting attractive niches” said Tyler Goldman, CEO of BuzzMedia. “Right now, the Internet is still so immature that everything is driven by the product. But ultimately, users don’t want to be their own programmers. People are still going to the same three or four sites every day.”
But that means creating more comprehensive marketing programs. “We can’t think of just creating content for consumers and slapping an ad on it,” said Goldman, who added that marketers need to connect with the market, rather than just pitch to it. “There isn’t really an issue with demarcation between content and advertising,” he said. “It’s not about advertorials; it’s about creating programs around brand message. The publisher who can figure out both sides will have a lot of success.”
According to Bromberg, publishers shouldn’t be afraid to ask more of marketers. “People don’t require enough from buyers,” he said. “An advertiser will come in and say, ‘We want to move the needle.’ OK, to do that, you need to be on our site for a year and build a connection with our audience. Then we can do something.”
Hippeau said Huffington Post is finding opportunity in a merger between classic CPM-based advertising and social media, including a program around the upcoming Olympics where marketers like HBC are sponsoring blogs and Twitter feeds for a fixed fee. “This isn’t advertising but promotion and marketing,” he said. “The money being spent on Facebook is not coming from advertising budgets.”
A Content Commerce/Hybrid?
Others are looking to a combination of commerce and content. “Online content monetization through traditional advertising is tough but content monetization with e-commerce is very interesting,” said Horing. “Today, if I have new content for moms, it’s easier to white brand a store with that than that trying to make money off something like Procter & Gamble advertising—there’s too many middleman trying to get margin on that.”
“I think the traditional media focus should be on commerce,” Pearlstine agreed. “There are a lot of eyeballs and uniques and we’re seeing it in Germany with publishers like Springer.”