Viggle + Wetpaint, and a Vision For the Future of Media

Which do consumers want? To tune-in live for their favorite TV shows?  Or to get news about them all day long? The answer, my friends, is both.

Not coincidentally, I have big news: My company Wetpaint has just been acquired by Viggle, the entertainment platform that rewards users for watching their favorite TV shows.

Viggle and Wetpaint make an excellent match — we both bring cutting-edge technology to serving the passionate audience of television fans — and in this partnership there is incredible potential for synergy. But that’s not the only reason I’m excited: By combining forces, Viggle and Wetpaint are creating a media company that has what it takes to become the ultimate digital media company. Together, we have the potential to overcome the problems that the media industry has been struggling with since the dawn of the digital age.

Digital Quarters readers know that all of my waking hours (and probably most of my REM cycles, too) have been spent developing a vision for the future of media. And I know lots of other media CEOs who are losing sleep pondering the same. Everyone’s been dying to know: How do you build a sustainable (let alone wildly successful) media company in the digital age?

If my years in this business have taught me anything, it’s that there are three key things a media company must get right in order to succeed today:

  1. Create an amazing consumer experience
  2. Grow your audience and expand your reach
  3. Give your audience a reason to be loyal

That’s why Viggle and Wetpaint make for such a powerful combination. Viggle is a master at incentivizing audience loyalty — their 4 million registered users earn points toward real-life rewards (gift cards, electronics, vacations) every time they log in to their favorite television shows. Meanwhile, Wetpaint’s expertise lies in rapid and sustained audience expansion — with our original content and social publishing technology, we built an audience of 12 million in less than three years.

Above all, Wetpaint and Viggle are committed to delivering brilliant consumer experiences. We are constantly innovating with the aim of better connecting with our audiences, and better connecting them in turn with the media they’re most passionate about. The future of media will be defined by this kind of transformation in the consumer experience — it will be about bridging the online and offline worlds by taking cues from what’s happening in real life and enhancing the moment, rather than distracting from it.

There’s been a lot of buzz recently around the “second screen” concept, which is supposed to do just that. But the second screen experience of Twitter and Facebook is insufficient, to say the least. When I need to log into my Twitter account and type “watching #RealHousewives!” in order to participate, the burden of weaving social media and television together is falling too heavily on the consumer. But Viggle takes it to the next level and actually meets you in your living room — their audio verification technology can automatically recognize the show you’re watching just by listening.

While in the old days your favorite television show was a once-a-week affair, the future is about extending that experience before and after showtime — it’s there whenever you want it to be. Wetpaint’s original content and sophisticated distribution technology make it easy for fans to check in with their favorite shows and stars 24 hours a day, 7 days a week.

This “always on” entertainment experience is good for consumers, and it’s good for marketers as well. Together, Viggle and Wetpaint provide an unprecedented level of access to the television viewing audience, allowing marketers to send targeted messages across multiple platforms before, during, and after programming. And combining real-time entertainment with great editorial content is a winning formula in all kinds of new areas that our teams have been dreaming about.

We know that consumers want digital technology to supplement and enhance the entertainment that they love. This will be the key going forward — the second screen that doesn’t pull you out of the moment, but makes the moment (and the moments before and after) even better. That’s what Wetpaint and Viggle are doing together. That’s the future of digital media. And much more than TV is in our sights.

The Race to Become the New EPG for Media

This article was published as a guest post in AdAge, and is republished here for Digital Quarters readers. 

I wrote not too long ago about Facebook’s potential to become the new Electronic Programming Guide for our digital world.  People check Facebook an average of 14 times per day to see “what’s on” in their lives, and they spend one in and spend one in four minutes of their small-screen time looking for things to like, click, or comment on.  For hundreds of millions of people, Facebook has become the destination of first resort when they have time to go nowhere in particular.

But when it comes to supplanting the good ol’ TV Guide-style program grid in directing our media diets, there are increasing signs that Twitter could get there first.

While Facebook has been building a content strategy in fits and starts, Twitter has been remarkably determined and consistent in their moves toward becoming a hub for all of our entertainment needs.  Did you know that the 5th season of Modern Family premiers next week?  Have you heard the new Britney single?  Are you up on the latest Silicon Valley deal?  If you logged on to Twitter at all today, the answer is most likely yes.

You might counter that the same could be said for Facebook – but the chatter only goes so far.  Facebook contacts may throw out just as many hot tips; but because of Facebook’s decision not to prioritize third-party content partnerships, those hot tips send users away with a link instead of encouraging media consumption within the Facebook platform itself.  That’s where Twitter pulls ahead:  they are actively making deals with key content providers to build out the media experience for users on the Twitter platform.

Partnerships with iTunes, Rdio, and Spotify are a key component of Twitter #Music, an app launched this spring that plays entire tracks (that you discover via your social graph) instantly on demand.  As for news, Twitter has long maintained a good relationship with journalists; and now that they’re hiring a Head of News and Journalism, we can expect an even bigger build-out of the Twitter news experience in the near future.

But it’s in television that Twitter has made the greatest strides – and sees the greatest potential.  Partnerships with ESPN, NCAA, NBA, NASCAR, and MLB (to name just a few) brought video clips from live sports into your Twitter stream, and a recent deal with Viacom allows certain networks to tweet show highlight clips along with video ads to their followers.  And this is most certainly only the beginning:  this year’s acquisition of Bluefin Labs and the high-profile hiring of Google’s Jennifer Prince signal that Twitter is gearing up to become a much, much stronger force in television going forward.

In fact, we don’t even need to read between the lines:  CEO Dick Costolo has been very vocal about his second-screen ambitions.  He sees Twitter as a natural complement to real-time viewing – and that’s where it gets interesting.

Most new technologies in the last decade (TiVo, Netflix, Hulu) have encouraged the trend toward “off-lining”: watch what you want, when you want it.  But Twitter reverses the flow:  activity on Twitter actually drives real-time television viewer tune-in.  It makes sense; if all of your Twitter friends are quipping about the new episode of Real Housewives as it airs, you’re much more likely to turn on the TV so you can join in the conversation.

The tune-in effect has often been a talking point for Twitter execs in attempts to woo television advertisers, but a recent independent study from Nielsen actually confirms the phenomenon:  an increase in Twitter commentary about a show can cause a statistically significant increase in ratings for that show.

This is a big deal for television in a time of declining ratings, and it’s a very big deal for Twitter.  Twitter is the only one who’s come close to making social TV a reality, and recasting the Internet as friend rather than foe to the television industry.  And that is powerful.

Unlike Facebook, Twitter is building a long-term, symbiotic (the data says!) relationship with the major networks.  And the more Twitter can entwine itself with television, the better for their bottom line:  the biggest advertising spend today still belongs to TV, and no new digital media company has been able to siphon a sizable share.  Twitter just might be the one to bridge that gap.

With hundreds of channels on the cable dial, thousands of news outlets, tens of thousands of films available for streaming, and an almost infinite number of other entertainment options online today, media companies are having a hell of a tough time competing for audience attention – and consumers are similarly challenged with an overabundance of choices.  The more Twitter can direct users to “what’s on” based on their interest graph, the more valuable the platform will be to all parties involved.

The next link in the evolutionary chain of mass media will be a technology that helps us navigate the whole digital media landscape – one that combines the best of TV, books, radio, movies, and news with data about your personal interests and preferences.  Twitter certainly has a ways to go yet, but if they continue to work side-by-side with the most important content providers, they have a strong shot at becoming the new EPG:  our go-to destination for all of our media-hungry moments.

Brands Should Stop Trying to Be Publishers

This article was published as a guest post in AdAge, and is republished here for Digital Quarters readers.

If buzz implies truth, then there is absolutely no doubt about it:  Every brand must be a publisher.  It’s the clear mantra for advertising in this social age.

If you believe that, then every brand should have a newsroom watching for flashes of cultural Zeitgeist and coming up with witty retorts.  Oreo is heralded for telling people to dunk in the dark when the Super Bowl’s lights went out, and I won’t deny that they earned a lot of impressions and a bunch of new Twitter followers from that clever and timely tweet.

But one-in-a-million viral success stories like this one obscure the real truth:  Being a publisher is not for the faint of heart.  It requires a huge investment in content, most of which will yield negative returns; its performance is inconsistent, unpredictable, and often immeasurable; and even your greatest ‘wins’ will inevitably draw jeers from the nay-sayers.  99% of the brands I know wouldn’t even consider taking that kind of a risk.


Good Publishing Alienates

Successful publishers have a strong point of view.  TMZ and Perez Hilton can snarkily tear down celebrities at every turn on the red carpet, but could Chanel and Pantene ever call out even the tiniest flaw in Heidi Klum’s outfit when it’s their turn to comment on the Oscars?  Not a chance.

An authentic point of view draws a line.  It has both praise and punishment to meter out.  Without an edge, it would have nothing to stand for, nothing to relate to.  The social world is one of conversational marketing – but how boring is the conversation where all one party says is, “I’m really great!”?  Get me out of that ego-fest – fast!

Of course, there are exceptions to the rule that brands can’t have a point of view:  companies like Virgin and Red Bull actually built their brand identity on standing out from the crowd.  These are some of the most delightful and engaging brands, but they are few indeed – most brand managers I know would be fired for pulling those sorts of stunts in their own hallowed halls.


Hopelessly Devoted to Me

One of the premises driving the current “brands must be publishers” mania is sound:  Brands do need to earn a spot in consumers’ media plans to stay on the radar.  And to earn that spot, they need content that has a point of view, and is relevant to their audience.  But most importantly, they need to move beyond talking only about themselves.

Try reading Oreo’s current Twitter feed – you’d have to really love Oreo shtick to want to subscribe.  Since the Super Bowl, Oreo’s been tweeting little mini-ads about twice a day, cute and benign and edgeless…and so hopelessly devoted to itself.

But just what else does Oreo have to talk about?

A lot, actually.  They could write about the joy of being a kid, sharing moments with friends, or finding sweetness in life.  What if they could move the cookie out of the spotlight and focus instead on delivering meaningful, exceptional content to their customers’ newsfeeds?  Their audience size, conversational relevance, and impact would improve by tenfold.

Crazy?  Not really.  American Express has devoted tens of millions to supporting small businesses with content, events, tools, and resources.  L’Oreal would be well served by offering consistent beauty help to its audience.  And for a delicious chocolate cookie that begs to be twisted, opened, and licked, it’s not crazy to delight people with lots of other examples of those sweet moments in life.


Content Can Never Be an Afterthought

But to write about sweet moments twice a day with anything of substance would require a whole publishing operation.  And oy, the approval cycles from the marketing department!

It quickly sounds expensive, not to mention hard to pull off reliably.  Most TV show pilots flop.  Over 80% of Hollywood movies earn back less than they cost to make.  And that’s just the tip of the iceberg that the public actually sees – the greatest hidden cost of creation lies on the cutting room floor.

Few marketing departments have even long odds of being able to handle the pace, volume, and risk profile of publishing.  Successful publishers on the web post dozens of times a day, while a single piece of marketing creative can take weeks to be approved in most organizations.


Where Do Publishers and Brands Meet?

Creating all that content in-house is messy and risky – so why not leave the sausage-making to the experts?  But there’s another way to bring great content to your customers:  Be a curator.  Being a curator allows you to:

  • Let other people take the blame.  Brands don’t have to fully “own” the POV of curated content.  As Jason Hirschhorn loves to say in his curated daily news for media execs, he’s “just” the curator.  That means he assembles a collection of great stimulus for his readers every day.  But it doesn’t mean he is agreeing with them all.  Rather, he is just declaring them relevant and thought provoking.
  • Let other people do the work (and pay the bills)!  Creating truly standout content isn’t easy – that’s why ad agencies obsess for months to get each campaign’s worth of creative just right.  And it doesn’t happen every day.  After all, have you seen any other notable Oreo tweets since the Super Bowl?  Creating great content is hard and expensive.  Selecting it, on the other hand, is a skill that can be exercised with daily perfection.
  • Let customers know the real you.  Consumers know that marketers are marketing to them – and for Oreo to say that their purpose in life is to publish moments of sweetness with a journalistic credo would be dubious at best.  But a sponsorship role is accepted – and, frankly, appreciated.  Oreo can say that these sweet moments are brought to you by Oreo, because hey, that’s just what we cookie guys and gals are like.  It’s believable and real.

Don’t buy the hype that every brand must be a publisher.  Remember that your brand is a brand.  You don’t need your customers to know what you think about the latest political scandal – you need them to know why your product is awesome.  You don’t measure success based on engagement the way publishers do – you measure success based on sales.

Connect with your customers on a personal level by becoming the honored convener and even patron of great content.  Relate to your audience via the dreams that you stand for, beyond just your product attributes and flavors.  What do your customers want to hear about, and what have you earned the right to discuss?  Find third-party publishers who have something to say of meaning that you can really put your brand behind…and I mean behind!  Lead with the content, not the cookie.

Be a brand, and use a chorus to back up your own voice.  Let others who are experts spend money filling the cutting room floor.


The Scarcity Index: A Predictor of the Most (and Least) Valuable Content in Media

This article was published in Ben Elowitz’s Media Success newsletter and is republished here for Digital Quarters readers.

As digital modes have transformed media, whole sectors have lost something fundamental and valuable:  scarcity.  With an explosion in new content creation and effortless replication of so much of what is produced, we have gone from scarcity to surplus.

And we all know the economic implications of that.


The Problem With Abundance

With every byte duplicated in nanoseconds and every outstanding original article summarized into so many blog posts, this duplication and substitution has commoditized the media industry’s greatest asset – its content.  And as a result, monetization of digital content is lower and revenue has suffered, without proportional relief on production cost.

Is there no last refuge of scarcity in media anymore?  I’ve been thinking about the elements that can still command a premium in the digital era, by virtue of their ability to make us pay attention with something that can’t be replicated:  live sports, concerts, transformative experiences.  If of no other value to media, Snapchat is proof at least that we still value the ephemeral “right now.”


Finding Scarcity

For a media company, the key to surviving in this age of abundance is finding and capitalizing on those once-in-a-lifetime experiences and not-so-everyday moments in a way that commands audience attention.

With that in mind, here’s a look at various content categories arranged from extreme scarcity (and thus highest value) all the way to extreme abundance (aka the Swamp of Sadness and Devalued Content), via the ever ownable and attention-getting format of the infographic:



Are you sitting pretty at the top, or drowning at the bottom?  How have you been able to capitalize on scarcity in media?

Google May Beat Netflix to Live TV

Just a couple of days ago, I wrote about what will happen when over-the-top video providers start broadcasting live events – and how that will be a large, spreading crack in the dam that holds up the cable TV bundle.   And then yesterday, Peter Kafka at AllThingsD reported that discussions are underway between Google and the NFL to make it happen.

How’s that for timing?

Notably, the biggest objection to my prognostication came (via tweets, of course) from Mark Cuban and others who argued that bandwidth would be a huge obstacle.  Live means millions of people logging on at once, and sending millions of simultaneous yet personalized streams in real-time without glitches is both hard and costly.  How could an Internet connection possibly offer the quality of service to do justice to a brand as tony as the NFL?

Or, as my head of strategy and business development, Chris Kollas, asked aloud yesterday:  “I wonder what Google has to promise to the NFL in order to win an exclusive?”  The answer to that is almost certainly “very high quality service.”

The bandwidth problem is one that Google is in a unique position to overcome – and in that sense, it’s not surprising that Google can and should be more aggressive than its online competitors in pursuing live events.  In particular, Google has at least three advantages over other video companies:

1. Google has the muscle for the job.  When it comes to the advanced computer science and engineering required for outstanding and reliable video delivery, Google has some of the best and most experienced talent on the planet.  Google has the expertise, the resource base, and the DNA to solve problems like this creatively – through zany combinations of hardware, software, infrastructure and imagination that others can’t or wouldn’t even consider.

2. Google has aligned financial incentives.  Unlike anyone else on the planet, Google actually monetizes network performance – and they do so quite handsomely.  Every time Google makes an investment in high-performance infrastructure that reduces response times, they see search revenues climb.  Witness Google DNS, a service designed expressly for the purpose of speeding up the Internet so consumers will search more times per hour, and Google Instant, a search feature that delivers results (and don’t forget the ads!) to users posthaste so they will click sooner.  Not to mention a spendy investment in high speed fiber in Kansas City.  Whereas Netflix gets its flat $7.99/month for any above-threshold performance, Google sees outsized returns whenever they improve their delivery.

3. Google has a stronger motive.  Google has more to gain.  Despite tremendous efforts, YouTube hasn’t yet achieved critical mass as a go-to destination for top-tier programming, the way competitors like Netflix, Hulu, iTunes, and Amazon have.  Instead, it is still capturing the long tail of video – which means it is capturing the long tail of advertising revenues, too.  Google has already indicated its ambitions for both top-tier advertising and subscription revenues; and yet it hasn’t earned broad recognition on either of them.  As I discussed in this week’s post, premium packages like NFL Sunday Ticket can certainly anchor content offerings to consumers – and more importantly, earn a right for YouTube to be the start page in everyone’s living room.

In the long term, Google won’t be the only Internet video provider to be able to serve up live events.  The cost and capability of providing such service could easily become commoditized with a future generation of architecture, infrastructure, and content delivery services – the Akamai’s of the next generation.  It may take years, but in the meantime, those who innovate and have the muscle and talent to apply to this problem have the chance to earn outsized market share before the others catch up.

Cord Cliff Coming: What Happens to TV When Netflix Streams Live Events?

This article was published as a guest post in AllThingsD, and is republished here for Digital Quarters readers.

Netflix has never streamed a live event, and Reed Hastings says they never will.

Now that’s a wise comment for a disruptor to put unambiguously on the record – especially since the TV networks could immediately pull their content from Netflix if they ever heard otherwise.

But we all know that occasionally CEOs change their minds.

So that’s why I decided to imagine what would happen if Netflix took on live events.

And as soon as I played out the scenario, it became obvious:  sooner or later, they will.


Live Is the Lifeline of Television

Television incumbents wouldn’t need to wave off cord cutting if they weren’t genuinely scared of it.  New data shows that 30% of US Internet users would consider cutting their expensive and relatively despised cable subscription to watch TV exclusively online.

But even with as much content as digital pure-plays like Netflix, iTunes, and Hulu now offer, there’s one outsized variable that’s holding the whole cable bundle together:  live events.

Live events are inordinately valuable.  They have ultimate scarcity:  they happen “right now,” they provide a focal point around which hordes of people come together, and they give their viewers an “I was there!” experience beyond just the content itself.  They are one of the few must-haves in consumers’ media diets.  Personally, I can vouch that the Olympics, the Oscars, and the Boston Marathon news are the only television in the last year that drew this cord cutter’s rabbit ears out of the cabinet.

Live events are what cable and broadcast TV have that Netflix doesn’t:  news, talk shows, and – most importantly – sports.  “The biggest question we get from potential cord cutters is how to watch live sports without paying for cable,” reports GigaOm.  There’s still no feasible alternative.

At least, not yet.


Netflix’s Massive Audience for Mass – and Niche – Media

With 29 million streaming subscribers in the US, Netflix has more video subscribers than Comcast.  And not only do they have the reach, but they also command an enviable share of viewers’ daily attention:  according to BTIG analyst Richard Greenfield, if Netflix were a cable network, it would be the most-watched cable network on the air.

Even more powerful than their reach is Netflix’s legendary ability to target niche audiences with a long tail of content.  Netflix won’t need to spend a billion dollars on NFL rights (though, as Peter Kafka notes, one certainly could).  Instead, they could start organically, with a live stream of the White House Correspondents’ Dinner Roast served up to their political documentary fans and comedy buffs.  It wouldn’t surprise anyone if Netflix found that those most likely to watch the Tony Awards are exactly those who have streamed more than their share of Les Misérables.  And voracious consumers of Pelé and Beckham documentaries would certainly be an easy target for a new offering of pro soccer matches.

If live events and movie reruns sound like the Felix and Oscar of television programming, consider this:  the very first two programs aired by HBO when it launched in 1972 were a Paul Newman movie and a New York Rangers game.

Just as HBO started with hockey, bowling, and wrestling, Netflix could insert the thin edge of the wedge under various niche interests – and as the audience expands, so can the programming.  With TV network ratings shrinking these days, at what point does Netflix surpass NBC in viewership and become a credible bidder for streaming rights to the Olympics?  NBC has those rights locked down through 2020, but if the audience continues to shift online, we could be just two more Summer Olympics away from the first completely cordless Games.


Premium Content Means Premium Revenues

Why would a low-priced, all-you-can-eat subscription service add mass media events to the bundle?  Because eventually they’ll need a new revenue stream – and they can’t justify premium pricing without adding new premium content.

Providing exclusive access to must-have programming like House of Cards and Orange Is the New Black is a great way for Netflix to earn a larger subscriber base in the short term.  But in the long term, more (and more varied) exclusive programming will give Netflix the ability to increase their revenue per user, too.

If Netflix can capture an even greater share of viewers’ consumption hours, they’ll be all the more able to justify raising subscription fees in the future.  And not only that, but they’ll be able to leverage the strength of their content into entirely new revenue streams.  A certain segment of the audience would surely pay a few extra dollars per month for a live streaming pass to view all NHL games, and Netflix could use exclusivity to attract more special interests to join their growing audience.  And then someday, once they’ve turned pro at making original productions, Netflix could put some of their best content into a premium package that truly competes with HBO.

The old cable standby of subscription plus advertising isn’t the only way to pull in dual revenue streams.  Selling ads may never make sense for Netflix, but a revenue boost from premium programming is certainly in their DNA.


Netflix Live Will Be the Cord Cutting Catalyst

When Netflix starts streaming live events, the results for incumbent industry players could be catastrophic, as it rips the rebar out of the dam holding back cord cutters.  Consumer behavior has already begun tilting away from TV, and the fragmentation of TV audiences means we’re depending less and less on the major networks for our entertainment.  The tipping point for the mass exodus will be the arrival of better alternatives for viewing live events.

If Netflix listens to their customers (something that cable companies seem to be categorically poor at doing), they’ll realize that Netflix Live would not only bring new “must haves” to its offering, but could potentially convert tens of millions of unhappy cable customers into Netflix subscribers.  It would also give Netflix the edge to charge more for added value down the road.  After all, the economics of cable have proven one thing for certain:  people are willing to pay more for more.

Reed Hastings recently told investors to expect a “redefinition and broadening of what Netflix is.”  With its original programming, we’ve begun to see the power of adding exclusive original content to the package.  The next big step will be live and unplugged.

Facebook’s Chance to Redeem Platform

Facebook squandered their opportunity to become a true platform company, argues Hamish McKenzie in 6,000 words at Pando Daily.  He describes how Facebook raised expectations sky-high at the f8 conference in 2007, only pull the rug out from under the developer ecosystem by repeatedly changing the rules in the years to come.

Hamish is right:  Facebook made a huge mistake with Platform, and it hasn’t achieved anything close to its full potential.  But the biggest obstruction wasn’t the ever-changing developer rules.  Rather, the problem was that developers were able to win eyeballs but not earn revenues.

But Hamish’s eulogy is premature – Facebook could still become the platform company that it set out to be.

All Facebook needs to do is get monetization right – then return to Platform.  And Facebook is now showing signs that they’re at an inflection point in monetization.  Once that monetization matures, Facebook will have a platform of significant interest for app developers.  All they have to do is share the wealth.  No developer would ever have installed Google’s AdSense if the links came without a payment.

Just like Google figured out how to monetize with AdWords before they rolled out AdSense, Facebook needs a credible model with clear economic incentives before app developers will give them a second chance.  But bad feelings notwithstanding, as soon as Facebook comes back to the table with a robust platform that enables apps to generate real profits, even jilted developers will be back – and Facebook will get a second shot at becoming the ultimate platform, the social operating system of the web.

Facebook’s Surprising Dependency on Premium Content Creators

This article was published as a guest post in AdAge, and is republished here for Digital Quarters readers.

My friends in the expensive business of premium content have an economic bone to pick with a certain social network. The story goes that Facebook gets mundane content from its users for free, and then uses that content to draw its audience of more than a billion people, most of them spending hours on end at the site. And somehow, without spending a dime on content, Facebook rakes in the advertising dollars.

It’s not right, is it? The world’s most creative professionals painstakingly toil to create outstanding – and undeniably expensive – content, all while banal photo snapshots of breakfast make billions for Facebook. Oh, the humanity!

But there’s an insidious catch to the myth that Facebook doesn’t need professionally-produced content. The truth is that Facebook not only benefits from third-party content – the network actually wouldn’t survive without it.

Of course, that’s not a message shouted to us out loud from the tops of the Mountain View campus. In solidarity with Google and Twitter (and more recently Yahoo), Facebook claims that they are not a media company. And the way Facebook slammed the door on the Social Reader last year, leaving previously boosted publishers in a sudden traffic free-fall, you’d have to agree that media is not their top priority. It’s easy to understand why: staring down the barrel of the IPO, Facebook was smart to refocus efforts on advertising on their own site and away from non-revenue-generating avenues like publisher partnerships.

In the long run, however, the Facebook equation will be highly dependent on premium content. As the novelty of status updates wears off and a generation of consumers is born immune to its charms, the utility of Facebook will need to increase. Baby pictures sure seem to garner lots of Likes, but people come to Facebook seeking connections that go beyond a simple thumbs-up. The only way to build true connection is through conversation. And what spurs conversation? Meaningful, relevant content.

You don’t have to tell this to LinkedIn. They launched their own – proprietary!! – content program last fall: a mix of trending business news and opinion pieces written by top CEOs and other influencers. Then traffic and engagement went through the roof. And when did YouTube hit its stride? There’s no denying that elephants are cool, but it wasn’t the user-generated content that attracted hordes of internet viewers – YouTube really took off when people realized they could post and watch clips from Saturday Night Live and other expensive-to-produce shows.

We share and post things we feel strongly about: opinions, news, our favorite TV shows. Without that kind of conversational kindling built into the Facebook feed, the social network will inevitably start to lose our attention. In fact, according to Rupert Murdoch, it’s already happening.

Even if they haven’t publically acknowledged it yet, Facebook is well aware of the gaping content hole in their long term survival strategy. In fact, according to a source at The Wall Street Journal, Facebook has been quietly working on their own news reader for over a year now.

It’s too early to say whether they’ll execute it well. But if they do it right, Facebook could become the one-stop shop for news and premium content – all that stuff we’re currently crawling the rest of the web for. Even better, instead of barraging us with whatever random sponsored inventory they need to move, Facebook knows enough about us to become an ultimate trusted curator – of personal updates, media content, and even products that are truly interesting to me. And the more it works, the more valuable it makes Facebook as a critical distributor for media companies themselves.

It’s not far-fetched … not at all. In fact, LinkedIn’s recent moves in more professional circles validate the opportunity; and Facebook could provide a service for consumers both comparable and complementary to its competitor.

The bottom line is that Facebook does need content from publishers in order to succeed: content is the currency of conversation among users. Without good, thought-provoking, emotion-inducing content, it’s all just duck faces and sponsored messaging.

After all, we’ve seen that before – it was called MySpace.

Where Are the Great New Media Empires?

This article was published in Ben Elowitz’s Media Success newsletter and is republished here for Digital Quarters readers.

I think we all have a clear view of who built the most amazing and enduring media empires over the last several decades.  But even after watching the unfolding of the Upfronts and the NewFronts this spring, I was struck that we don’t yet have an earthly clue as to whose creation will become the next one.  Twenty years into digital media, not one new media company has come even close to establishing a content brand worthy of Disney, Murdoch, Hearst, or Newhouse.

And with digital media’s comparatively fragmented audiences and tiny margins, it’s almost hard to imagine achieving such epic proportions today.  Which makes me all the more curious:  When (and if) the next great media empire finally arrives, what will it look like?

The battle to define the next generation is on, and to date we’ve seen three forms of contestants:  the platforms (Facebook, Twitter), the portals (AOL, Yahoo), and the independents (Vox, Say Media).  Where would you place your bets for the next 20 years?


Biggest Winner to Date:  The Platforms

While the last decade has brought challenges (to say the least) to traditional media companies, it has been a golden age for the technology platforms that reach audiences online.  Facebook, Twitter, Netflix, Hulu, iTunes, YouTube, and Amazon have won the lion’s share of our content-surfing attention, and they’ve been rewarded with an influx of ad dollars and subscription revenues to match.

Of course, none of these platforms are media companies – at least in the sense that not one of them built a business on their own original content.  The definitive stance of Twitter’s Dick Costolo – “I don’t need or want to be in the content business” – has been echoed repeatedly by the leadership at Facebook and Google.  Hulu, Netflix, iTunes, and Amazon may claim more of a kinship with media, but at the end of the day they are still (with occasional exceptions) merely conduits for someone else’s content.

True media brands win over the hearts and minds of audiences with a unique point of view.  Platforms, on the other hand, are mostly dumb but useful pipes.  They get the people the content they want, and they’ve won hundreds of millions of users that way.  But they sure aren’t content brands.  Technology can aggregate an audience, but it takes personality, a point of view, and original content to build an empire.


The Original Digital Promise:  The Portals

Back in the v1, the portals were platforms.  They combined three must-haves – a dial-up connection, an email account, and a start page.  They drew a massive audience with these killer apps, and along the way they built content and advertising revenue streams and considered themselves in the media business.

But despite their enviable combined reach of 460 million users monthly, the portals today have an audience problem:  they are no longer genuinely earning their audience.  It’s what Alex Berg calls “the Mazda syndrome”:  you don’t choose a Mazda; you end up with a Mazda.  (Thanks for the 2001 626, mom, I promise to drive it until I can afford something else!)

By and large, users aren’t coming to portals for the content; they are coming to log into the legacy email account that is more cost than benefit to change.  While they’re there, they click on a story.  According to comScore data, almost 70 percent of the visitors to Yahoo’s media properties came from Yahoo Mail.

The portals have both content and audience, but most of their audience isn’t there for the content.  And since portal email use has declined 30 percent in the past four years, that missing link is becoming more and more of a problem.  You can’t build an empire on an unstable foundation.


Honorable Mention for Brand Purity:  The Independents

Portals, platforms, and legacy media companies maintain their extensive reach –their single greatest advantage with advertisers – by providing mass content to mass audiences.  But this broad-not-deep approach left an important gap for new entrants to fill:  independent publishers like Buzzfeed, Mashable, and Vox’s The Verge saw the opportunity and brought tailor-made content to niche audiences on the Internet.  In turn they were rewarded with fierce brand loyalty, viral sharing, and exploding visitor growth.

While the top independents have been huge successes with their audiences, they now occupy a tweener role in digital media:  big enough to be meaningful, but small enough to be of “questionable scale,” as the technology folks would say.  Relative to the portals and the platforms that see hundreds of millions of visitors monthly, the independents are tiny fish in a huge sea of entertainment options.

In fact, it’s impossible to build empire-caliber scale on a single media property.  What a media brand needs is a portfolio of properties – it’s the only way to earn premium pricing from advertisers and to leverage your brand into new revenue streams.

The independents are off to a good (albeit small) start with strong brands and loyal audiences.  After all, before there was the Disney empire, there was a mouse on a sketchpad.  We all start from somewhere.


Combine Ingredients, Mix Well

Chances are that the ultimate next-generation media company won’t be one of the independents we know today.  But it won’t be a portal, either, nor will it be a platform.  The next media empire will almost certainly have attributes of all three.

Advice for aspiring emperors:  Take a cue from the platforms and become masters of distribution.  From the portals, learn to build massive audiences in order to serve advertisers and build a true network effect.  Like the independents, value and exemplify brand purity – the kind of purity and spunk that also, ironically, built the greatest media empires of yesteryear.

Ultimately, a media company’s strength lies in the brands that it builds.  Those great, big, beautiful brands that draw their own audiences at scale are the prize of the industry.  But the road to get there?  It will take amazing content with great distribution and killer technology.  Now that’s a foundation for a new empire.

Advertising’s Reverse Big Bang

This article was published as a guest post in AllThingsD, and is republished here for Digital Quarters readers.

These are exciting times for advertising, as new technology and new forms of media are bringing advertisers new ways to reach audience, with far better targeting and measurement than ever before.  It’s truly a boom time for ad tech, and one might think that means the sky’s the limit for the growth of advertising.  The only bad news is that instead, this explosion of technology is exactly what’s going to make the advertising market go bust.

That’s because ad technology advances are moving in one consistent direction toward commoditization and efficiency, contracting the market as they straighten it out.  Unfortunately, the dark matter of topline can’t be ignored.  But the good news is there is still time to achieve escape velocity, if you plot the right course.  The way to resist the gravity is to think differently about your value proposition.


The Explosion of Ad Tech

Ever since the 18th century handbill, there has been only a fuzzy link between what an advertiser pays and what the advertising is actually worth.  Even today, most ad spend is nearly untraceable – television still gets the lion’s share, and it’s one of the least measurable and most expensive mediums.

The definition of advertising nirvana is meaningful measurement:  knowing not just how much advertising was delivered, but to whom and to what end.  Digital media promised deliverance with its rich data and constant monitoring, and on this promise waves of ad-tech startups have been born.  Want to boost your ROI by programmatically buying the best ads in the best placements at any given moment?  AppNexus has an app for that.  Want to eliminate wasted impressions by targeting your audience with surgical precision?  BlueKai’s got your back.

And there are hundreds of other upstarts vying to fix your inefficient ad spend with their own proprietary software.  While they’re at it, they each hope to bite off a piece of the $500 billion advertising market.


The Black Hole of Commoditization

The problem is that once they get that bite, they’ll find the new pie of advertising-made-efficient to be a comparatively meager meal.

This is the way disruption often works – new improvements don’t always equal bigger profits.  The Open Source movement in the late 90s – which gave rise to a whole generation of new technologies and businesses – actually cost the software market $60 billion per year in lost revenue, in large part because it enabled developers to unbundle expensive enterprise packages and sell the customer only the necessary bits.  In 2001, the decimalization of the US stock market – initiated by the SEC to make the market more investor-friendly and efficient – narrowed spreads and consequently shrank NASDAQ trading floor revenues by 70%.  And let’s not forget about what happened when device manufacturers digitized the music industry.

With the explosion of digital media, ad space inventory is increasing quickly (anyone checked their mobile traffic chart lately?), while at the same time advertisers are making more focused and efficient buys than ever before.  If that efficiency is working, then net fewer dollars need to be spent to drive better results.  Great news for advertisers – but bad news for publishers with inventory to sell.  With CPMs seemingly lower all the time, a continuation of the trend toward efficient ad buys will mean a dramatic contraction of the advertising market.

Software industry disruptor Marten Mickos (former MySQL CEO) once told investors:  “The relational database market is a $9 billion a year market.  I want to shrink it to $3 billion and take a third of the market.”  Make no mistake – today’s ad tech players are plotting the same.

Is there any chance of maintaining the $500 billion advertising market that we know today?  Probably not.  Like Clayton Christensen says, it’s only a matter of time before disruption wins.

But if we can take a lesson from the industries that have gone through disruption before us, it’s that the incumbents should have embraced the new business models much, much earlier.  Publishers have no choice but to act now and get involved in inventing the next wave of advertising.


Gaining Escape Velocity

So how do you compete when your market is collapsing?  Change the way you think about your market.

Yes, publishers sell space to advertisers.  But advertisers want to buy results, not space.   When media companies measure their monetizable assets, they tally up the display inventory they can sell, and the data that can boost an advertiser’s expected returns.  But your assets are actually much more diverse.  Embrace your range – you have a lot more than space for rent.  You have:

  • Brand.  There’s plenty of inventory on the market – just check any ad network or exchange and you’ll find more availability than you could dream of.  But we all know that the same impression is far more valuable to advertisers when they’re buying it with your brand.  Why?  For starters, because your brand offers security and peace of mind to the buyer.  “No one gets fired for buying IBM,” the adage goes, and top brands can charge a similar premium for the low career risk they offer the buying chain.  And when it comes to delivering your message, nearly everyone in advertising still believes that context is important.  Build it right, and your brand represents a premium you can earn to separate yourself from the commodity you sell.
  • Relationships.  You can go even farther by leveraging not just your brand but your relationships – with brand integration.  Your audience comes to you for original content in your signature style, and you know exactly what they love.  Partner with your advertisers to devise creative campaigns that are tailor-made to be knockout hits with your audience.  Play matchmaker and find theme-appropriate advertising sponsors for your best content pieces.  In one fell swoop you’ll improve your audience’s experience and offer brilliant results to advertisers – and earn an additional premium by letting advertisers network through you.
  • Custom Content.  In the past, media created content for the audience’s sake and then relied on advertisers to subsidize it.  Today, advertisers are less willing to subsidize content – but they are more willing to pay for it in other ways.  A few months ago I met with one big media company whose Custom Publishing group had suddenly seen an explosion of opportunity after many years of sluggish demand.  Now that marketers are directly connected with their audiences via Facebook, Twitter, and the like, those advertisers need something to say.  But despite the trendy buzz, very few brands actually have any competence whatsoever at being publishers.  Companies like NewsCred, Percolate, and the one I met with are finding a business putting words in their mouths.
  • Technology.  This doesn’t need to be the sole purview of the ad-tech startups.  You have sophisticated technology already to serve your audience – start using it to help your advertisers buy placements in your feature sets, and then demonstrate the results with quantifiable proof.  Google’s universe-changing innovation was to realize that a simple search keyword (the same one that Yahoo had taken for granted for years) is actually incredibly valuable for targeting.  LinkedIn collects data from its audience and then uses it to surgically target for advertisers – and create results.  Your own new and innovative products can help you succeed and cut out the middleman.
  • Results.  As the universe gravitates toward complete trackability, the one sure-fire thing advertisers will keep paying for is results.  Big, differentiated results – on a big scale.  Brew an alchemy of your particular strengths and differentiators, and then use it to help your advertisers achieve breakthrough success.  It’s harder than selling IAB ad units, that’s for sure.  But ultimately that’s your best chance to drive lasting value for your clients, and ensure robust revenues to come.

A new age of advertising is upon us, and while it may be a golden age in terms of technological advancements, it certainly won’t be one of abundance.  The contraction of the advertising market will force publishers to get creative and add real value with new offerings of our own.  The days of selling space and access to a general audience are over.  But advertisers will always need great media brands to align themselves with – which is why the biggest opportunity for media companies is to combine new technology and new formats with strong brands, and make that alignment more valuable than ever.