Tag Archive for 'revenue models'

Can the newspaper industry please stop their damn whining

Google is not a blood sucking vampire. In fact, the newspaper industry is a spoilt little brat.

Search engines such as Google and aggregators (like the constantly criticised techmeme) provide a huge amount of economic value for the newspaper industry. They enable discovery by people that are not regular subscribers to their content. They provide traffic, which drive up the page views, that enable them to sell inflated prices for perceived access to an audience.

Newspapers put their content on the web for free by their own choice. They have plenty of ways of excluding their content from being freely accessible, either through a paid wall or technology conventions like the robots.txt…But they don’t want to completely do that, because they lose the traffic.

Subscription models will be the future revenue model for content. One where people will pay for constant access to a particular information provider (as fresh access – not static objects – is where the real value comes from in information and especially in news). Of course, this means people with established brands can only do this as people will not pay unless they know what to expect. However despite their current lead in this game due to their century-old mastheads, the newspaper industry is refusing to solely go down this route. And the reason for this, is because they still rely on advertising for the majority of their revenue mix – and advertising is driven by traffic.

Newspaper executives want the economic value provided by search engines and aggregators in discovery and traffic – but they whine consistently because these innovative new businesses in the information age have found a way to monetise this function in the value chain.

The solution is simple: cut public access, and put all content behind a paid wall. And only participate in exclusive aggregators. The search engines and free aggregators no longer have your content to add to their mix – and yes, you Mr newspaper executive no longer get as much traffic. But that’s what you get for being a whining little kid.

I am sick and tired of hearing industrial age executives refuse to compromise with information age business models.

Why we should support movie piracy

Across the entire developed world, you will see piracy warnings from the entertainment industry. They usually make some emotive video about piracy costing jobs (because of six billion dollars in lost revenue) and that you as a consumer should join the fight. But is this really the case? I think laziness is what is costing jobs. Executives are clinging onto an old way of doing things in a new world, and instead of exploring alternative mechanisms, they fight for the past. I think if the industry lets go a bit, they might actually improve the status quo.

Let’s have a look at the movie industry and see the difference.

Piracy: it's a crime
Currently
Hollywood studio invests in the production of “The man with a Blog”. They have an all star cast, filled with James Bond action scenes and circus freaks.

Movie theatres around the world premier the movie, after months of publicity. Box office sales smash the predictions in that weekend – millions of dollars are spent by people buying movie tickets. Several months later, a DVD version is distributed, giving a second hit at having consumers spend their cash on experiencing this masterpiece. Television networks several years after that will license the movie and play it on TV.

Money continues to stream in – it’s a model that’s worked for decades.

Pause: two important things to note
Unlike reading a blog, for example – where your attention can wander and not be fully engaged – a movie has the full engagement of the consumer. They’re absorbing every sound and image being presented to them. So engaged are the consumers that people will rewind the movie to rehear a line they missed. They will pause the movie if they need to go to the bathroom, for fear of missing out on a scene.

Another thing to note is that the consumer is having an experience. Even if they “own” a copy of the movie, all they are truly buying is a license to replay the movie in the convenience of their homes. When a consumer buys tickets or a DVD to a movie, what they are really buying is access to an experience that can provoke them intellectually and stimulate them emotionally. Beyond stimulating an individual, it also serves as a cultural tool in our society, allowing people to have shared experiences that can then allow them to relate to each other – like how two strangers laughing over a movie will create a bond.

Replay
So why can’t movies be free? And if they were, who are they hurting? Let’s now replay the blockbuster described above and see the difference.

Hollywood studio invests in the production of “The man with a Blog”. They have an all star cast, filled with James Bond action scenes and circus freaks.

Movie theatres around the world premier the movie, after months of publicity. Box office sales smash the predictions in that weekend – millions of dollars are spent by people buying movie tickets who are paying for the experience of being in a room of people laughing with premium surround sound, a premium screen, and an excuse to snuggle up with their first date. Several months later, a DVD version is distributed, giving a second hit at having consumers spend their cash on experiencing this masterpiece – consumers will pay for the DVD because they like to store their movies on a shelf for reuse. Downloading the movie over the computer eats their bandwidth and storage space, and while some will do it, the value proposition of a physical storage item still exists. Because although they can download a medium-quality movie over their connection – they might want to one night experience a high quality version on their big plasma TV. So they will willingly pay for that DVD, which in bandwidth terms, is a hell of a lot cheaper.

Movie theatre

Television networks several years after that will license the movie and play it on TV. Because at the end of the day, if other people are going to generate revenue on your assets, they should continue to seek licenses to do so. Sharing a movie to other consumers should not be a crime, but showing it to mass audiences where you take the full sales, is.

Money continues to stream in – it’s a tweaked model that honestly don’t affect the world that much. Or jobs in the industry, other than the lawyers.

Fast forward
The movie industry is under-exploiting two essential characteristics I mentioned above: the undivided attention of the consumer and the fact they generate an experience for consumers. In the old world, that’s what advertising agencies were paid for to achieve!

I’ve previously argued that online advertising is a bubble economy, but that’s not to say advertising is dead. If fact, brand advertising is something I expect to thrive, and something like a movie is the best opportunity to take advantage of it.

Movies are replaying our lives, in a real or fantasy way. They are a replication of life, with consumer products filling the screen just like they do in our lives. When I watch my favourite actor talking in a scene, I am taking in the visual experience – and allowing product exposure to my attention. If I see a funky piece of furniture in that room, I should be able to interact with that – like clicking on it for more information and perhaps even create a direct order to buy. Television networks have spent decades monetising movies by showing advertisements in between regularly scheduled breaks (which disrupt the experience). Why not make advertising an embedded experience during the movie? It’s non intrusive and it’s relevant – a much better way of doing it.

Every time someone clicks on a table in a movie, the movie studio gets a cut out of the sale. Indeed, the supply of the table in the movie could also come as a form of premium sponsorship, as the studio is promising the supplier guaranteed exposure to an audience. The exact reason why people advertise: exposure to an audience.

Taking it a step further, we haven’t even got to explaining brand advertising opportunities. Imagine if your favourite actor is wearing a new style of jeans – isn’t that going to influence your thinking? Even if we consciously don’t think much of the jeans, the experience of being in a happy state watching our favourite actor, generates an emotional bond with that consumer product. It’s doing what advertisers have spent decades trying to master: building an emotional connection and a need with a new product.

The scenes that have been cut out
What I’ve just done here, is made you realise that movies can still be sold despite being free – but people will happily pay for it as they are really buying a unique experience. The actual movie itself should be free for consumers and there is untapped opportunity to innovate in this sphere.

There is an Israeli startup that allows you to embed advertising in a movie. What’s the big deal about that? Well every time someone downloads the movie, they will get an updated ad. So the original publisher can actually control the content for an entire lifetime: once an ad has been inserted, it can simply be replaced with the newest advertiser to sign up.

Imagine if movie studios distributed free versions of their movies, with commercial breaks like TV – and an option to pay to remove those ads for those willing to do so. And imagine, if with a bit more research, technology could be evolved so that scenes within a movie showcasing consumer products, could be updated with a new product. The painting on a wall can now be replaced with another painting. It’s already being done for computer games – why not movies, that themselves now rely on computer generated graphics?

When thinking of the opportunity in that way, restricting access to that movie is no longer in the studio’s incentive. With an audience, you monetise more by having a bigger audience. And so making something free, actually could make more money because demand will not be affected by price elasticity.

Illegal movies

La Fine
Once you think about things in this light, you realise the enormous opportunity available. And hopefully, you too also realise that what’s holding us back from this innovative, less-obtrusive, higher-value-generating future – is outdated thinking. Because as long as we cling onto the past, we are preventing bold strides into new models that potentially will make more money, if done right.

It’s a bold statement to say that you should support movie piracy, but it’s actually forcing the industry to adapt to this new world. Piracy has made us reevaluate the value of movies when the distribution line can no longer be fully controlled, and continuing to do it forces our legislators to reconsider public policy on intellectual property that was made for another age.

Using pirated material isn’t costing jobs in the entertainment industry – it’s doing something much better. It’s getting some media company executives in trouble, as they haven’t got the guts to innovate.

Advertising on the Internet needs innovation

On the weekend, I caught up with Cameron Reilly of the Podcast network , and he was telling me about his views on monetising podcasts. It got me thinking again about those things I like to think about: how content can be monetised. Despite the growth in online advertising which is tipped to be $80 billion, I think we still have a lot more innovation to go with revenue models, especially ones that help content creators.

Advertising is a revenue stream that has traditionally enabled content-creators to monetise their products, in the absence of people paying a fee or subscription. With the Internet, content has undergone a radical changing of what it is – digital, abundant, easily copied – whilst the Internet has offered new opportunities for how advertising is done. However, the Internet has identified the fundamental weaknesses of advertising , as consumers can now control their content consumption, which allows them to ignore embedded advertising altogether. Content on the other hand, still remains in demand, but means of monetising it are slipping into a free economy which is not sustainable. I make that point to illustrate not that professional content creation is a sunset industry – but rather there’s a big market opportunity as this massive industry needs better options.

time mag

"Hey man, there’s this new thing called the Internet. Sounds pretty cool"

One of the biggest innovations in advertising (and enabled by the Internet) is of contextual search advertising. This has been popularised by Google, which now makes 98% of its $17 billion revenue from these units. This advertising dominates online advertising (40% of total) because of its pull nature, whereby key-words stated by a consumer in effect state their intention of what they are interested or would like to purchase. Whilst this is a highly efficient form of advertising, it also has its weaknesses – for example, it is not as effective outside of the search engine environment. Google makes 35% of its revenue from the adSense network , where these contextual ads are placed on peoples personal websites. Evidence from high traffic bloggers suggests they barely make enough money through this type of advertising. Another point to consider is that aspects of the Google network include significant partnership agreements like the one with AOL which accounts for 10% of Googles revenue (this is a 2005 figure which has likely changed, but Google does state in their 2007 report "Our agreements with a few of the largest Google Network members account for a significant portion of revenues derived from our AdSense program. If our relationship with one or more large Google Network members were terminated or renegotiated on terms less favorable to us, our business could be adversely affected.". AOL most recently reported for Q1 2008 half a billion dollars largely from search advertising ).

Other attempts at creating more efficient advertising which have existed for over a decade, have come in the form of profiling or behavioural tracking. However, these forms of advertising has also highlighted the growing awareness of consumer privacy being eroded, and is under heavy scrutiny by activist groups and government. Facebook is a company that is best posed to deliver new forms of advertising because of the rich profiling data it has, but it itself has faced massive backlash .

My view is that the majority of online advertising for successful individual publishers at least, has largely come from traditional approaches to advertising – a masthead blog with a sales team that uses display advertising. How effective this display advertising is is debateable with widespread banner blindness and consumer control over their content, but it would appear that this is more a case of advertisers seeing this as the least bad on the overall scale of opportunities. The fact it replicates the mass media approach of number of unique consumers viewing the content, and not the types of users, means this isn’t anything new other than being done in a digital environment.

Digital content is in need of a better monetisation system.
Targeted advertising is the most efficient form, yet consumer privacy is a growing force preventing this. What we need, is not a new advertising technology, but a new way of thinking about advertising – in a way that can help the content economy rather than riding on it without giving benefit. Contextual advertising sounds great in theory as it calculates key-word frequency of words on a website, to match it to a key word ad – but it’s proving in practice these ads are not very relevant. Yet trying to think of a smarter way to advertise, may be the wrong question – perhaps half the problem itself is advertising as a concept?

perspective

Are we running down a tunnel, only to find there is nothing there?

Content which comes in the form of news (historical and breaking), analysis, and entertainment can be monetised via a persons attention or through a transaction (ie, subscription, fee, etc). Both this approaches have different barriers.

– Attention: The key driver is increased dollars per unique person, over a period of time. The barriers to this approach is the challenge of identifying the individual in a way that gives advertising that is highly relevant and will result in a conversion. In other words, privacy privacy privacy.

– Alternative payment: Requiring consumers to pay for content is a barrier due to the paid wall. What is more problematic for digital content, is that the ability to replicate it freely makes it not just easy to do for the masses but has created a culture of if it’s not free, it’s not worth purchasing unless its really necessary. There needs to be a strong value proposition for a consumer to purchase content, and in the absense of a brand and marketing, the restriction of what value the content offers is a barrier for consumer demand as they don’t know what they are missing out on.

So as you see above, content creators are in a difficult position. Charging people reduces their opportunity unless they are really established, but even then, due to the digital environment they don’t have any control over subsequent distribution (with rampant piracy). Yet advertising is fraught with being irrelevant and hence not effective (so advertisers go to other forms) and any attempts to make it more relevant, gets held back by the concerns of privacy advocates (and rightly so). Whilst the Internet parades itself as an advertising growth machine, it’s growing in new areas but not the old areas that have traditionally been the medium for advertisers.

This advertising growth is largely being driven through utility computing products that aim to make information retrieval more efficient (ie, search). However, the growth for the content creators, is not happening. As Cam was telling me, in a market like Australia – small content organisations like TPN and Bronwen Clune ‘s Norgs , don’t have access to the big end of town for a sales team. And he didn’t have to tell me, those Google ads for the smaller guys, are not enough to pay the bills. That small to middle end is not being really catered for.

But before you jump on the phone and create some mid-tier advertising network that caters for a niche, think about the real problem: content creators need a better solution to monetise their content. But advertisers also need a better way of selling, other than some slick-talking sales person who can sell ads on pageviews (a broken model with weak alternatives ) They need advertising that is suited for their product, but the market now includes other products media outlets never had to compete with like marketplaces now happening online and utility computing products. Whilst the technology community obsesses about search , let’s also remember we have yet to see a new way to monetise content that is superior to the old world. Contextual advertising of text is the latest new thing area, but that technique is nearly a decade old. As I prove above, outside of the search environment, it is showing to not be that effective.

Where is the innovation going to come from? Not through technology but with a new paradigm shift like how content creators operate . New ways of thinking about the way we ‘sell’ like what the VRM Project is challenging. But perhaps more fundamentally, is an understanding that the holy grail of targeted advertising has got a speed hump called privacy – and that may actually be a sign of not going faster towards better targeting, but changing the vehicle all together.