Content Is No Longer King

This article was selected from Ben Elowitz’s Media Success newsletter as a special feature for AllThingsD’s Voices column.

“Content is king” has been a long-lived mantra of media. And in the 1990s and early 2000s, it was true.

But over the last several years, the Internet has upheaved the aphorism.

It used to be that media was linear. And in that world, content and distribution were married. The HBO channel had HBO content. A New York Times subscription bought you New York Times content. And Vogue and Cosmopolitan each month delivered exclusive and proprietary content from … Vogue and Cosmopolitan.

Until the Internet came along. In every single one of the varied businesses the Internet has touched — from commerce to media to communications to payments — there has been one common impact: disaggregation.

Content and distribution have parted

In the case of the hundreds-of-years-old media business, the Internet has fundamentally separated content from distribution. Today I can watch hundreds of South Park and Jon Stewart clips, all without a cable box — on my Apple TV, my Android phone, or YouTube on my desktop.

But wait, South Park and Jon Stewart? Content is king, you say. It’s now even more free to reign, unfettered by distribution channels!

No; because content is no longer enough. Content has always been a means to an end. And the end has always been audience.

Content isn’t the goal. Audience is.

When it comes to the business of media, there’s no question: advertisers don’t pay to reach content. They pay to reach an audience.

What’s the first item in every brief from every advertiser? It’s not Target Content, it’s Target Audience.

Media has been slow to adjust to this new dynamic. Companies have sunk billions into content management systems — using CMS as the cornerstone of their modernization — under the impression that they traffic in content.

But they don’t. They traffic in audience. And how much have they spent on audience development systems? Not much, if any at all.

Now that distribution of content to audience is no longer linear, distribution decisions are suddenly more complicated. And, at the same time, they are immensely more important — and more dynamic — to create the impact media companies are looking for: drawing an audience! Social distribution can outperform search, if you use it wisely. Day-parting your postings can boost post performance by 100 percent or more. Packaging can triple the effectiveness of content in reaching an audience.

And yet, few in media have even begun to optimize these decisions.

Who’s your Chief Audience Officer?

Distribution decisions are just as important as content decisions in building and serving an audience, and yet they are being largely ignored. Everyone has an Editor-In-Chief or a Chief Creative Officer. But how many have a Distributor-In-Chief? Or a Chief Audience Officer? A Head of Digital Programming?

The myopic focus on content over distribution is widespread, and it’s a bad business decision. It ignores a critical access of leverage, and one of competitive advantage.

The smartest media companies will do three things to take control of their digital opportunity:

1. Put someone in charge of audience development.
Give them latitude to think about the interplay between distribution and content, so that they can marry the two. Like a head of programming for a cable network, they should be tasked to realize the full potential of your digital channels. They should support the delivery of your content, and they should also provide back pressure to your content creators. Don’t merge it into your editorial jobs — that’s too precarious. Make it its own discipline.

2. Adopt an audience development strategy.
There are three basic components you have to master: insights (know your audience segments, and what each one will like); channel selection (identify the highest value distribution outlets for your brand, whether it’s search, social, YouTube, Hulu, or your own channels); and optimization (use data to create a feedback loop and tune your content, packaging, and timing to what works for your audience).

3. Systematize it.
You have sunk millions into content management systems. But how much have you spent on your most monetizable asset, your audience? You should be as systematic in audience development as you are in content creation, if not more so. Whether it’s with established processes or dedicated algorithms, make audience development a competitive advantage. Get so good at it that you truly know how to maximize every piece of content you create — and multiply your ROI. Use technology for what it does best: Systematize your advantages over your competitors.

With the rise of new distribution platforms like Facebook, YouTube and Hulu, there’s no question that the next generation of digital media is as much about distribution as it is about content. Media companies that orient their organizations to prize audience development above all (with distribution as a key component) will catch the upside of these tectonic shifts. And they will be the ones that survive and thrive in the digital age. After all, audience is the ruler of media companies’ fortunes.

Sometimes, You Get Lucky and Just Nail It!

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.

This forecast comes from Hulu CEO Jason Kilar, and was reported in the Wall Street Journal; it was also analyzed by Peter Kafka in All Things Digital.

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.

Online Experience for Publishers: Innovate or Die

We need an experience revolution.Revolution Fist

Each week, we hear of major publications and traditional broadcasters who are struggling to stay afloat in a digital age with new economics and new expectations.  Despite the promise of interactivity made with the internet revolution over the last 15 years, most publishers have done little more than replicate dead trees online, with zero innovation beyond the hyperlink, the slideshow, and an embedded video now and then.

And yet we can see from the rising successes of the last decade like Facebook, Google, Zynga, YouTube, and others that what catches audience attention is interactivity.

To earn loyal audiences today, publishers need to go beyond content creation:  they need to produce compelling experiences that distinguish them and get the consumer coming back for more.  The Pew Internet & American Life Project concluded that “when asked whether they have a favorite online news source, the majority of online news users (65%) say they do not.”  In an era where the consumer’s cost to switch is the flick of a click, publishers must offer compelling, differentiated experiences to earn loyalty.  Choices abound consumers:  there are scads of publishers online in every category; content suggestions offered constantly via social networks; and blue links proffered by search engines dozens of times per day per reader.  In an environment of choice, as brand experts have known for years, nothing builds loyalty like a great experience.

And now is the perfect time to create those breakthrough experiences.  The enabling technologies for the digital customer experience have improved considerably in recent years: we now have ubiquitous broadband, flash and other streaming video, plus HTML5 and maturing mobile application platforms.   Add to that personalization, targeting and social graph access, and there are some amazing opportunities to innovate.

It’s not just consumers that are thirsty for upgraded experiences.  Advertisers are showing that they will pay more for immersive interaction over basic display ads next to text.   Video ads during full TV episodes on ABC.com, Hulu, and others, or mid-day live sporting broadcasts command many times the CPM of typical display ads. Indeed, according to Michael Learmonth at AdAge, The Wall Street Journal’s online video content is bringing in envy-inspiring CPMs at $75 – $100.

But video is not the only way to create an immersive customer experience online.  Online sites of traditional publishers like Better Homes and Gardens are experience train wrecks (to be fair, they’re not alone in that regard).   Contrast that with the much more successful (certainly from an ad rate perspective) MarthaStewart.com which has many of the same elements – a top stories slideshow, cross-promotions for the print magazine, etc., and it’s a substantially better experience due to the focus on design and usability that is expected of the Martha Stewart Omnimedia (MSO) brand.

Even still, much more can be done with today’s technology to put the consumer’s needs and interests first.  The latest example I’ve seen of true creativity in user experience design is Microsoft’s (MSFT) Glo.    There are additional signs of greatness in the tablet demo that Time Warner (TWX) built for its Sports Illustrated brand.   And The New York Times (NYT) continues to excel in their applications and interactive graphics which enjoy significant pass around (bit.ly shows over 5,000 social media clicks to a recent budget infographic and today’s “A Moment in Time” project has already generated over 100 tweets in the first 15 hours).  But too few companies are making similar efforts to distinguish themselves.  The opportunities are there, and we need to step up.

Consumers will decide which brands deserve their loyalty and content alone won’t cut it.  We are on the brink of a total revolution of experience.  For publishers, it’s reinvent or fail.

Do you know additional examples of publishers innovating?

Hulu Plus Will Be Worth $100 Million in Revenue in 2011

Hulu Plus SubscriptionRecently 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:

  • Gives them a path to move off the desktop and onto mobile and the TV.   The media companies are adamant that consumers not be trained that video content is “free” on mobile as they’ve become accustomed to online.
  • Opens up the service to new content providers including cable, and a much larger catalog of content from their existing partners

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

‘Hulu Plus': Hulu Is Readying $9.95 Subscriptions, And They Will Work

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:

  • Outstanding experience: Hulu has nailed the consumer experience. From their innovative video player to their Hulu Desktop application, they have an experience that is worth paying for.
  • Shows people desire: Hulu has the  TV shows that every household knows and wants to watch.  These are among the most popular entertainment brands around.
  • Exclusive access: The vast majority of consumers (i.e. those who won’t use BitTorrent) simply can’t get this content anywhere else, thanks to Hulu’s exclusive agreements with content providers.
  • A great value proposition: Compared to typical cable TV, on-demand packages, and Netflix, Hulu offers outstanding variety at a modest monthly fee.

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.

Hulu vs. The Networks – The Networks Would Be Foolish To Isolate Themselves

HuluVentureBeat featured a guest-post from Transpond’s CEO Peter Yared yesterday, and editor Matt Marshall asked me to offer a comment for inclusion.

Peter presents an argument and five predictions as to the balance of power and profits between Hulu vs. its corporate constituents tilting back further towards the content owners:

Hulu sells ads on the video it streams, meaning that Hulu’s ad sales team competes with the networks’ own ad sales teams. Hulu’s sales pitch to the networks was, “let us compete with you on your new content and we will help you monetize your older assets”. But Hulu hasn’t been able to monetize the older TV shows it runs. Pull up any TV show over two years old on Hulu, and all of the ads are public service announcements.

But the original reason for Hulu was not that the networks thought they couldn’t monetize their inventory, but because they believed in the power of a single consumer destination with major network effects.  And that is by and large working.

As I responded in the VentureBeat post, Hulu is working and it’s because they nail their consumer experience.

It is inevitable that in the digital future, consumers will watch what they want, when and where they want it.
Read the rest of the the post, including my featured response about how the networks would be foolish to isolate themselves, at VentureBeat.

For Hulu Too, Ads Won’t Be Enough

Michael Learmonth at AdAge published an analysis today of Hulu’s financial conundrum:  while Hulu wants to remain purely ad-supported in order to grow its audience, it is struggling with the economic realities that make its current advertising-only model lackluster.

But while Learnmonth’s article portrays “an ideological battle over its future” of whether to stay solely ad-supported vs. consumer supported, I can’t help but read his analysis and take away that it is inevitable:  for Hulu too, just like for the rest of the media industry, a healthy and sustainable model will only be reached when consumers pay for content.

Hulu has attained remarkable success.  It’s the #2 video site by audience, and has created a true breakthrough consumer experience for video that is best in class — and miraculously not only survived the minefield of investor and content provider relationships but prospered with them.  But with the hefty 70% revenue split paid to content providers, Hulu is still challenged to make money on a standalone basis.  Just as the TV networks themselves have seen, the dual (consumer+advertiser) revenue streams of the cable and satellite systems create a much healthier model.

Hulu’s struggles are just another case of how — almost no matter how large the publisher is — advertising revenues are no longer enough for a healthy publishing model.  With an explosion of content created and the huge dispersion of where consumer eyeballs land, the advertising dollars can’t be piled on the way they used to be for the top publishers of content.

It is time for Hulu to — creatively — start offering premium consumer services.

The good news is that Hulu is in pole position to succeed at getting consumers to pay part of the bill.  Under CEO Jason Kilar’s leadership, Hulu has demonstrated that they are extraordinarily strong at product development and partner relationships in a way that lets them make a surprisingly great experience for consumers even with the myriad license restrictions that they need to deal with on the back end.  On top of which, their proprietary content library is worth billions and has earned them destination value for consumers.  They’ve got advertiser relationships and track records, and have even established a strong premium pricing precedent at reasonable fill rates on the ad side so they can keep their appeal broad with a free basic offering.

With those great assets, Hulu has the opportunity to build new applications, content packages, features, and other enhancements that are compelling enough to earn consumer payment.  All of which will put them in a healthier position to not only make profits for themselves, but for their partners.  In fact, for Hulu, it’s not only for the good of themselves and their partners that they should add paid offerings, but for the good of the industry in pioneering the best ways to offer experiences the consumer will pay for.

Viacom Takes Its Toys and Goes Home

Tug of WarViacom this week told Hulu that it is pulling its content out of the video site because they couldn’t reach economic terms that value The Daily Show and Steven Colbert to Viacom’s satisfaction.  Brian Stelter reported the story for the New York Times this week, quoting me with reference to the ‘game of chicken’ that Viacom has been playing with Hulu.  This game plays to chairman Sumner Redstone’s strengths, as he’s already presided over the protracted “off-again, off-again” conversations by which Viacom’s sister-company CBS has held out from Hulu.

But these negotiations over how to divide the pie miss the opportunity altogether.  Against all odds, Hulu has surprisingly created  a successful consumer destination.  With a great consumer experience, Hulu has become *the* destination for “official” TV video.  While media executives fret the impending decline of television, the future has already begun to gel at the site with an audience of 30 million,  advertiser demand, and premium monetization.

The shame is that Hulu CEO Jason Kilar and his team have their efforts drained by brinkmanship negotiations with the industry.  What a waste of time!   Instead, what would benefit all parties — Hulu, its equity partners, and  the industry at large —  is for Hulu to spend time on improving the consumer experience, enticing audiences, and monetizing.  Further, Hulu may be in the best position of any media venture to command premium and subscription pricing from consumers — so additional content and scale could help make digital video more profitable. Unlike the drain of the power games that Viacom is playing, these constructive investments would have the prospect of lifting the fortunes of the media industry for everyone’s benefit.

While Hulu offers hope for the industry, Viacom crushes it.