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Plus 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?

- plus :: Learn about 20 possible ways to monetize content, and turn content into a business -

Content is an industry

I have no issues with Chris Brogan running his blog at a loss, because it helps him secure clients for his media business. That's the freemium model, and works great.

But, I have an issue with people demanding that all content should be run at a loss. That's not healthy. It's not even logical.

If you ask people if they think nylons, milk, gas, broadband etc. should be free, many would say yes. That doesn't mean they are right.

Stop giving your away content for free, and start making money. No matter how you look at it, content must have a positive ROI.

There are many ways you can do that:

  1. If you opt for the freemium model (content as a form of marketing, to attract clients), make sure that your content is actually delivering people to you.
  2. Advertising. This works well if you can attract premium advertisers. To do that you need to be unique, targeted, relevant, and have a global audience of about 2,000,000+ readers/month. Anything less than that, and you are in trouble. You can also do it with fewer readers. You can turn your site into a highly targeted niche site, and totally dominate that area.
  3. Plus, premium content for subscribers-but don't turn it into a pay wall.
  4. Subscription, same as plus, but for all your content. And still, forget the pay wall.
  5. Content as services, specialized advice/analysis/insights for a niche market-you can actually sell this at a premium ($100+ for each article), but it needs to be more than just a simple article. There is also a very lucrative market for tutorials, and teaching people generally.
  6. The Seth Godin model (it's not actually called that.) A blog with very short and quick posts for free, monetized by a couple of ebooks per year.
  7. The author appreciation model. Ask people to pay "whatever they want." Only works if you are really good, and really popular, otherwise, you are screwed. Also, the "pay as you want" model will effectively prevent ever getting rich. As soon to earn a lot of money, people revolt by paying less.
  8. The content network model. Group together a bunch of small independent publishers, to create an attractive audience for the premium advertisers.
  9. The content provider model, create unique content for other sites. Basically the Reuters model, but with a twist that you sell only each article once-otherwise, it wouldn't be unique.
  10. Partner with content aggregation services. An example is when people can subscribe to Last.fm, instead of paying each individual artist. At this point, however, no such content aggregation sites exist (they are all non-monetized presently.)
  11. Pay-as-you-go / pay for each article. Only works for comprehensive articles, where you have already become known as an influential author. And only works for express checkout (like PayPal.) It has no chance of success for regular publishers, or news sites generally?

There are also a number of monetization options not linked directly to the content

  1. Clubs / VIP / Membership sites. E.g., you can become a member of the NBA, and the content is just a small part of an overall experience (mixed with LIVE streaming, standings, community etc.)
  2. eCommerce sites, where blogs and magazines brings context to the shop (what Jeff Jarvis talks about.) But editorials go out the window in favor of selling more products. As time passes, you will only focus on content that produces a sale, leaving editorial quality behind.

And, there are a number of models that are doomed to fail

  1. The pay wall. It restricts rather than enables + it neglects to use the internet for what the internet is good for.
  2. The Demand Media model. It is actually exceptionally profitable, and it works (and will continue to do so for many years.) But I would not be able to look myself in the mirror in the morning. It creates a horrible output, wastes everyone's time, and they neglect to pay people a reasonable salary. They are running the digital equivalent of a sweatshop. Underpaying cash-strapped students, and lowering their sense of value.
  3. Pay for mobile, but get web free. Like when several newspapers want you to pay for the iPad version, but still give away the content for free online. That is just a continuation of a traditional mindset, without any understanding of what the internet is about. Sell content, not devices.
  4. Pay for print, get online for free. It never worked, not even 10 years ago.
  5. Destination or packages. Digital publishing is about news, not newspapers.
  6. Reporting what others are reporting. People don't need publishers to republish/rewrite stories; they will just go to the source. Have something to add or write another story?

The bottom line: If you do not have a positive ROI, your content strategy is just a hobby!

The traditional media industry is in the middle of its biggest crisis, but the content industry isn't. The money is still there; people pay more than ever for content. You just need to make the right product.

On the internet, supply is infinite. Once an article is posted, everyone can read it. The traditional model of duplicating and republishing content provides "N times infinite" supply online. That's just waste.

It's like being one person and having a thousand bathrooms in your house. You just need one.

The media industry, as a whole, has to come to terms with that. If you are not unique, you don't have a business. Some newspapers do seem to understand this. The Guardian (which Jeff Jarvis writes for) is one of them, The New York Times is another.

But most doesn't seem to get it-and continue to produce a package of copied news.

- plus :: end -

 
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Thomas Baekdal

Founder, media analyst, author, and publishers. Follow on Twitter

"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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