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Executive Report - By Thomas Baekdal - July 2010

Content is not a Loss Leader

As much as I like the views of Jeff Jarvis, I do not like his views on monetization. He basically says that content has to operated at a loss.

Jeff Jarvis recently wrote (in relation to Conde Nast monetization plans):

[Conde Nast] They're not wrong that they need to get money from consumers but they're not going to get it for content. Sorry guys.
Instead, I suggest they have to get new revenue through commerce through selling the things they once advertised now that advertisers are deserting them to sell direct.

We hear the same from many other sources. Chris Brogan recently wrote about blogs being operated as at loss. And he compared it to how store creates special discounts, to get people into the stores:

Stores use loss leaders all the time. Sell nylons to ladies at cost and get them to buy the high markup stuff, too. That's how Sam Walton (Wal-Mart fame) made all his money, by the way.

This is where it all starts to go wrong.

Wal-Mart does not operate a certain category of products at a loss. Sure they have promotions. "Buy a Maybelline box, and get a pair of Nylons for free." but that is a limited offer for a limited time. Next week, they do the same thing with other products, but they never operate an entire product category at a loss.

You don't expect nylons to be free forever. You don't expect that all nylons, from any manufacturer should be free. Nor do you go to other department stores and demand to get their nylons for nothing.

If we did, the result would be disastrous. If everyone suddenly expected nylons to be free, the nylon industry would practically go out of business. The quality disintegrates into the cheapest nylons China can make

No industry can survive on being run at a loss.

But this is what is happening to content. We are now close to a point where it is impossible to operate as a content industry.

If content merely becomes a freebie attached to other things, the content industry is reduced to companies like Demand Media, which produces a massive amount of content, at very low quality, and at a very low price.

What's next? TV Shows? Should TV networks operate TV shows at a loss, and instead make their money of online web shops selling products featured in the shows? No. If they did, TV would turn into the Demand Media model too. Low quality crappy TV, but good enough to be used to sell products in associated web shops.

What about books? Should authors write books at a loss too?

Where does it stop?

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Thomas Baekdal

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"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
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