Wetpaint CEO Ben Elowitz on the Future of Digital Media
As you know, I’m obsessed with figuring out the future of digital media. And to do that, there’s nothing better than putting stakes in the ground – based on the best available information and sharpest analysis I can muster – and then checking back to see how they held up.
In the last couple of weeks, two of the calls I made have come true; and that offers us a great opportunity to re-visit them, and see what we can learn from them.
Hulu Plus: Great Experiences Worth Paying For
First, Hulu Plus, which is thriving with over 1 million consumer subscriptions.
A year ago, when success seemed far from likely, I went out on a limb and estimated that Hulu Plus would have huge traction with consumers, surpassing $100 million in revenue in 2011. As it turns out, Hulu’s growth with its subscription product has been even faster than I expected – albeit with lower revenue per customer, given to CEO Jason Kilar’s smartly aggressive pricing, and the resulting much higher consumer adoption. The result has been substantial corporate revenues that have helped make Hulu market itself, enticing suitors to break it free of its complicated parent-company structure.
Content licensing agreements may still represent the greatest complexity of Hulu’s business under any ownership scenario, but what’s been a fascinating expectation exceeder is that by delivering the most desirable content and consumer experience, Hulu has gotten consumers to open their wallets in droves. That’s something that we can all learn from.
PayPal Acquires Zong: Making Payments Easier
And second, EBay’s PayPal, which recently bought mobile payment company Zong for $240 million.
Back in June 2010, I strongly recommended this deal and pointed out its many advantages. Indeed, Zong’s payment system makes it easy for consumers to pay – leveraging the addictive relationships people have with their mobile phones.
As my newsletter readers know, I recently updated my formula for consumer spending on digital media.
The Consumer Media Spending Formula:
(Desire + Relationship + Ease) X Scarcity = Spend
Now both of these transactions are reinforcing it for me.
The Future of Consumer Paid Media
Beyond that, these two announcements also tell us something important about the rapidly approaching future of digital media: increasingly, the industry will be relying on consumers to contribute toward its profitability.
Now it’s up to us to create great content and meaningful experiences that are worthy.
A Bonus Prediction: Apple Versus Facebook in 2012
And that’s why I’ll take this opportunity to make a bonus prediction.
By this time next year, we will be in the early stages of what will later become an all-out war over who will be the master payment and currency provider for digital media. Even as Paypal has made significant upgrades with the Zong acquisition, they won’t be enough to ignite Paypal as the leader in the key venues: on the social networks and in mobile applications. Instead, this online conflagration will, I believe, be waged primarily between Apple and Facebook Credits.
What do you think? And what’s your favorite digital media prediction for 2012?
One of the supreme ironies in digital publishing today is that there’s infinite online space, and a desire to read rich and substantive content on mobile devices such as the iPhone or iPad; and yet, there’s still limited long-form multimedia journalism available on the Web.
That’s the subject of a fascinating feature in The New York Times by David Carr.
Always incisive, David focuses on The Atavist, which he describes as “a tiny curio of a business that looks for new ways to present long-form content for the digital age. All the richness of the Web — links to more information, videos, casts of characters — is right there in an app displaying an article, but with a swipe of the finger, the presentation reverts to clean text that can be scrolled by merely tilting the device.”
Since January, The Atavist has had over 40,000 downloads of its app; and it’s also begun conversations with publishers about the possibility of adding nonfiction books to the eclectic mix of stories it now presents.
This nascent success reinforces what I’ve been saying for a long time – give people an enhanced digital content experience, something that’s very special, and they’ll be willing to pay for it.
Good luck to The Atavist, which has the right business model, and the best of reading to all of us.
I’m not the Amazing Kreskin, and I hardly consider myself a visionary prophet. I’m just Ben. But I happen to live and breathe the digital publishing business because it’s my professional passion.
So, I was quietly surprised to read this week that Hulu’s subscription video service will surpass one million subscribers in 2011.
I was taken aback by Jason’s announcement – not because I doubted Hulu, but because I somehow managed to predict the Hulu Plus subscriber number exactly a year ago.
Indeed, a year ago, in April 2010, I said: “I expect that the service will reach or exceed a million subscribers by the end of 2011.” (See my April 23, 2010 prediction here.)
In life, like baseball, sometimes you win; sometimes you lose; and sometimes you’re rained out.
But the W’s always feel best.
Good job, Jason!
And for the record: I continue to be bullish on Hulu. As long as it can keep its content license agreements humming, it will have a killer collection of content, plus killer experience, to offer consumers; it also has killer context to offer advertisers. And that’s a formula for great success.
Tim Armstrong, AOL’s CEO, has rebooted AOL with a talk-track of branded destinations, A-level journalism and sizzling original content; and early Monday morning, a full week before Valentine’s Day, his romantic media vision was considerably enhanced, when Arianna Huffington announced that she was selling Huffington Post to AOL for $300 million in cash and $15 million in stock.
For the record, that’s quite a premium price – 10 x Huffington Post’s $31 million in revenues.
Despite the cost, however, Armstrong is a very lucky man, and he received a wonderful gift from Huffington, whose hugely successful and much-talked-about Web site is a perfect match that helps “complete” AOL.
Indeed, the relationship between Armstrong and Huffington comes not a minute too soon for AOL, which is finally bringing on real creative assets and talent – including Arianna Huffington, herself, as chief editorial taste-maker.
To be honest, the media industry has been wondering whether Armstrong could actually pull off a deal like this. (True Confession: I’ve been among the doubters.)
And there’s good reason for the skepticism.
The problem, in large part, has been strategic. Since he assumed the CEO’s post, Armstrong has talked with clarity about his vision for an AOL made up of destination media brands, the way Time Inc. and Conde Nast have built their portfolios. But to date, his build-out of this city on a hill has fallen short. Instead of buildings gilded with leading journalism that attracts fame and eyeballs, his properties have largely been constructed by plumbers and mechanics laying a foundation for search engine rankings.
That’s why AOL’s recently leaked master plan, “The AOL Way,” is heavily oriented toward users’ search queries. The playbook emphasizes volume of content, page-views per post, and production cost per-piece. And, while “The AOL Way” is punctuated by periodic reminders like “quality content at scale,” the reader of the plan is left with the distinct impression that quality is a guardrail, not a compass direction for the journey to ROI nirvana.
Indeed, without a voice or a purpose other than page-views, “The AOL Way” comes off as soulless. Instead of emphasizing audience interests, an editorial point of view, or premium differentiation, it’s a volume strategy: the plan calls for the number of stories to jump from 33,000 to 55,000 a month; with median performance to go from 1,512 page-views per article to 7,000 within the quarter; all while gross margins rocket from 35 percent to 50 percent.
This Google-ingratiating strategy, at least from my perspective, is wrong-headed and short-sighted. It doesn’t do anything to help build a unique and long-lasting brand that is meaningful for audiences. And, as a result, it does very little to encourage people to eagerly and voluntarily type “AOL.com” into their browser’s destination bar. With this playbook, consumers don’t go to AOL; they merely end up there.
There’s a solid lesson here for all of us.
AOL – like everybody else in the media business – is clearly jealous of Facebook’s gravity-defying results. But it takes time for a proper media brand to achieve such stratospheric numbers. The great brands – The New York Times, ESPN, CNN, Wall Street Journal – have shown us that you build audience loyalty one positive interaction, one ambitious story, and one rich consumer experience at a time. To be sure, Huffington Post has shown us that, building its audience to a reported 25 million uniques over a well-paced five years.
So, it doesn’t happen overnight, and it certainly doesn’t happen if you’re just playing for quick search engine results.
Looking forward, it will be interesting to see whether Huffington – a savvy and independent thought leader who has always leaned forward – chooses to embrace “The AOL Way.”
My sense is that she will continue to follow her well-honed consumer-focused instincts instead. She brings a strong point of view, a decidedly human nose for news, and a variety of social strategies for distribution – not to mention her considerable star power. And that’s a good thing for AOL.
It’s important to recognize Armstrong’s considerable achievements. He saw that AOL’s subscription model was a non-starter; he chose areas of core content concentration for AOL; and, unlike Yahoo!, for example, he pared AOL’s portfolio quite dramatically.
But the pre-Valentine’s Day courtship and consummation with Huffington will mean very little in the consumer marketplace if Armstrong doesn’t get rid of his seemingly unshakable Google obsession – and very soon.
Here’s hoping that Arianna can help nurture Tim’s AOL, and turn it into a true media destination.
Earlier this month, John Donahoe, CEO of eBay (NSDQ: EBAY) and its subsidiary Paypal, was interviewed at the D8 conference. It was a flashback to see him speak: I had worked under him 15 years ago when I was a freshly minted undergrad just hired into the San Francisco office he ran for Bain & Company. A strapping and charismatic up-and-comer, John was known for his bold visionary talks and his strident walk.
But at D8, I didn’t see that confidence. He spoke of eBay’s connections between buyers and sellers as though he hoped we’d believe it was a new trend; meanwhile far from his Santa Clara headquarters, Gilt Groupe and Groupon are reinventing e-commerce. On Paypal, he looked backwards to the innovation of getting financial services online, rather than forward to the app revolution. Overall he looked staid, the way eBay and Paypal now look to me – entangled by their legacy, unable to cut the cords to freely enjoy the new boom around them.
With that in mind, I’d like to offer Paypal the chance to get ahead in an area that still has room for wild success. Media desperately needs help to become financially viable – and consumers will need to foot part of the bill to make it so. It’s clear that others see the opportunity here: Facebook surely wants to spread its Facebook Credits currency to take over the world the way ‘Like’ has; and now word comes that Google (NSDQ: GOOG) is readying Newspass in its bid to capture consumer payments for media. But more than these other companies, Paypal, with its huge footprint of consumer accounts and years of web experience, is in the catbird seat to be media’s savior.
I wrote recently that there is an easy formula for consumer spend on media:
Desire + Relationship + Ease = Spend
With ad revenues going less far to foot the bill for published content, making media profitable will increasingly mean turning to consumers to pay for content and experiences. And consumers open their wallets in proportion to how badly they want it (desire); how well they know the other parties (relationship); and how little work it takes (ease). This is why there is such a strong future in bite-size media consumption: for all the talk about paywalls and subscriptions, it is far easier to get payments of a buck or two. Apple (NSDQ: AAPL) demonstrates the value of bite-size with hundreds of millions of dollars of revenues from apps alone, far exceeding any leading online publisher’s subscription programs.
But while Apple is the king of creating platforms for desirable experience, its eminence is limited to its domain of devices, just as Facebook is confined to the social network. And publishers need to up the desire, relationship and ease for their whole online audience. Enter Paypal. Paypal works across the wide open web. With 219 million registered accounts and trust among users and merchants alike, Paypal has an outstanding position to work from. And so Paypal’s great opportunity is to enable quick consumer payments for media with fast, easy, lightweight universal payments.
What Will It Take: The Impulse Click
Media doesn’t rank highly in terms of the necessities on Mazlov’s pyramid. And so the essence of consumer-paid media is impulse, and the critical enabler of paid digital media is the “impulse click.” That click starts the brief moments/long window of consumer intent. For Paypal that means, it needs a button that completes the sale before the impulse fades – and needs to spread that button throughout media. If it delivers on that, Paypal can play as critical a role in the fast-growing digital media economy as it did in the person-to-person commerce revolution of Web 1.0.
To do so, it will take five key upgrades in ease and structure. Here’s what they are:
1) Lighter authentication: For a $50 e-commerce transaction (from which the merchant earns just a few dollars of gross margin), a transfer to the Paypal website and fresh login and password entry may be called for, but that won’t do for a $0.99 purchase of media bits, where the lack of ease would be a deal-killer. Recognize the user automatically for most bite-size purchases, as Facebook does for sites using its new open graph technologies. For a transaction of less than a buck, and considering Paypal’s preeminent capability in fraud prevention, it should be able to manage risk to make this effective.
2) One-step confirmation: Apple has set the bar for how easy it is to transact: on my iPad, I tap the “buy” price and then supply my password. That’s all that’s needed or appropriate for this transaction. And no one has done this on the web at large. If Paypal does, it will lead the industry in ease – and help media publishers in the process. The current process usually requires three or more pages and requires not only login with password, but confirmation of accounts to fund the transaction with; backup funding options; and often classifying the transaction. The interface is slow and kludgy, vintage 1990s, while the web (and user’s expectations) have had massive upgrades since then. It’s time for an experience overhaul, Paypal!
3) Simple billing: Offer fewer options to make it simple. Instead of bank cards, credit cards and different guarantees, keep one default payment method on file and just bill to it without asking for anything less than $5. For impulse purchases, the consumer needs to complete the transaction before the impulse fades.
4) Use the phone: For universal payments and quick setup, bank and credit cards are too cumbersome. But consumers young and old with good credit and poor alike have one thing in common: mobile phones. Paypal should acquire Zong, which would contribute an instant way to bill cellphones with minimal hassle that smart sites like Facebook are already taking advantage of. With this simplified experience, Paypal then is ready to offer its payment system on every device possible. As consumers are increasingly consuming content from their mobile phones, Paypal needs to be where the consumer is – available to apps on every platform possible.
5) Offer attractive revenue share: Platforms like Apple’s require that publishers give up 30% of revenues or more; Paypal’s heritage in banking and payment processing comes at it from a much lower pricing level of 5% plus $0.05 per transaction. For its bite-size payment system, Paypal should get adoption from every major publisher by holding to this structure for its most profitable transactions, and taking no more than 15% of other transactions; while using its massive scale to negotiate fees with credit/debit and cellphone providers on the back end. By competing on price to win adoption by publishers, Paypal will be expand its footprint to get more cost leverage.
If Paypal does these five things, it can supply a payment system that is so good that it will enable digital-media companies to charge and collect frequently for premium experiences and content. For Paypal, this will enhance its offering and help it win a huge share of the emerging paid digital media category. But more importantly, this will hasten our progress toward a profitable future for the digital-media industry. And I think that sort of change-the-world accomplishment is exactly what is missing to get John Donahoe as charged up again as I remember him.
Recently I’ve written about why I think the Hulu Plus subscription model will be successful. Yesterday, Peter Kafka (@pkafka) wrote in AllThingsD that Hulu’s price point is both too high for consumers and too low to satisfy media companies. I respectfully disagree.
My prediction is that Hulu Plus will be driving more than $100 million in incremental revenue for the company in 2011. If Hulu grows modestly from its current 19.5 million monthly uniques in the U.S. according to comScore*, and they’re able to convert a small fraction of that audience at $9.95, the numbers are compelling even accounting for the likely double-digit monthly churn. I expect that the service will reach or exceed a million subscribers by the end of 2011. Meanwhile, 30% margin or $30+ million would be welcome for a company that only recently announced profitability, particularly if they’re able to avoid traffic cannibalization on their existing free, ad-sponsored streams.
Granted, most media companies are making more on their own sites, but this is largely upside to their existing online revenue. Meanwhile, a paid model preserves the “premium” value of the majority of their catalog.
Beyond the financial benefit, offering a paid subscription also provides several strategic benefits to Hulu:
Is $9.95 monthly too much for consumers to pay? When your content is exclusive, and more importantly, the experience is this compelling, I think a small but meaningful segment of customers will open up their wallets. Of course, that is assuming that Hulu’s subscription offer and experience demonstrate the same outstanding execution as their free service (and marketing) to date. Many services have failed at charging for video online, but Hulu is in a unique position to finally succeed.
* Footnote: Interestingly this is substantially less than the 43 million uniques announced by Hulu CEO Jason Kilar back in December, perhaps due to the comScore hybrid measurement debacle; I’m using the lower numbers to be conservative
Dawn Chmielewski and Meg James reported tonight that Hulu will begin testing a $9.95 “Hulu Plus” subscription offering as soon as May 24. According to their LA Times article, the Hulu Plus offering will open access for viewers to watch many more shows than are currently offered. (Hulu’s content license restrictions currently allow viewers access to only the five most recent episodes for most shows.)
Last month, I wrote that for Hulu, advertising won’t be enough. Tonight, I predict Hulu’s subscription program will be successful with consumers, and will be a business success for Hulu.
First, here’s why — unlike many other subscription programs — Hulu’s will work:
Net, this is an impressive combination. Unlike many of the subscription offerings being floated by others, which move information that can be found in many places behind a paywall, Hulu’s offering is unique enough and compelling enough that it’s worth consumers paying for.
As for the business benefit to Hulu, they are already receiving high monetization. At reported $100MM annualized revenues over comScore-reported 695MM pageviews per month, Hulu already monetizes at $12 per 1,000 pageviews. Even if subscribers view 10 times as many pages per month as average users, Hulu will still more than double its revenues from those customers.
With an outstanding value proposition and great monetization potential, this subscription program is a win-win for Hulu and its audience.