Leadership Strategies in Magazine & Digital Publishing:  

The economics of content: converting “Viewers” into “Doers”

May 30, 2012 - On July 15, Yale University will kick off its Leadership Strategies in Magazine & Digital Publishing program, a training course targeting mid to senior-level managers on topics ranging from management best practices to understanding and utilizing the latest advances in technology. Joe Galarneau, head of product development at NewsRight and former COO of Newsweek / Daily Beast, will present on The Economics of Content. Galarneau spoke with ABM about how audience understanding is vital for monetizing digital content and why b-to-b publishers are “light years ahead” of their consumer counterparts in at least one aspect of the digital game. 

ABM: Joe, your presentation is on the Economics of Content. Please offer an overview of how this has changed with the shift to digital channels. What do editors and executives need to understand about content economics in the digital age? Where should investments be made and how does a company make that determination?

Joe Galarneau: There's been a lot of discussion about how publishers can monetize content through their own channels, but less discussion about how to do this in the broader digital landscape. The amazing thing is if you lump together all American media companies (excluding entertainment) and look at their investment in producing editorial content, it's in the tens of billions of dollars. Publishers are capturing some of the value there, but there's a whole ecosystem of companies on the Internet that are also making billions, whether it's in revenue or in market value. Aggregators, media monitoring firms, search engines, social media, and a whole range of start-ups -- the list goes on and on. The days of old, publishers had fairly tight control on their content through syndication deals, but now, once they put it on their websites, it roams wild. My talk will take this wider view and include some data from a toolset (built originally by the Associated Press and spun off into a standalone company) that shows the extent of this migration. It's really important for content creators to establish a new legal paradigm that counters the "Content wants to be free" camp, because most content isn't free and if this migration continues, much of it will disappear.

I think one fundamental thing that publishers need to understand about content economics is the constant interplay between content and audience. Magazines historically have been all about creating or servicing communities that are bound by common interests, and this has translated well to digital platforms. Successful magazine executives simply don't play the hand that's dealt them -- i.e., accept the audience that consumes their content and tries to monetize them the best way possibly. They determine the optimal targets, shape the audience -- both in print and online -- through acquisition and retention strategies, and program their content against that audience, which is not monolithic. There's a lot more data that can be applied to this problem to hone the approach, particularly in the digital realm -- many publishers I've spoken don't really have rigorous ways of quantifying the value of audience segments (let alone identifying segments with any specificity), which in turn can drive investment decisions. Once you have good valuation models, then you start to see content in a different way. I would say that b-to-b publishers are years ahead of their consumer magazine brethren in this respect. It also requires closer collaboration between editorial and business executives, which seems to be easier in a b-to-b environment.

ABM: Media was built on its content, but free, quality, ad-supported content can be a challenge on digital platforms. Where does this work? How do companies balance the need for original content and aggregated content?

Galarneau: There have been tremendous changes afoot in the digital ad space during the past several years. New York is awash with dozens, if not hundreds, of ad-tech start-ups -- it's hard to keep track of who's who. Many of those are focused on commoditizing and automating the ad buying process, of helping advertising to reach smaller and smaller segments that are more tightly defined around demographics, psychographics, geographies and intent. Magazines have succeeded in the past by promising advertisers access to their monolithic audience bases that could be roughly defined by some descriptive statistics. Advertisers paid for a lot of coverage they didn't need, but the rationale was that it averaged out in the end (e.g., the old Wanamaker adage of "I know I waste half the money I spend on advertising. The problem is, I don't know which half."). This still works for some types of advertising (luxury, for instance) and some media (TV still captures a lot of dollars), but the efficiency of digital advertising has rapidly undercut this. The fact that Google takes something like 60 cents of every digital ad dollar in the U.S. is a testament. And now, if advertisers can find your audience elsewhere for a lower price -- under the rubric of "retargeting" -- they'll take it. There has been a "race to the bottom" in the digital ad space that has depressed CPMs.

So where does this leave digital publishers? It goes back to audience. You don't just sell space, you sell solutions that tie audience to desired advertiser actions. Some agency types are even shying away from using the word advertiser, instead preferring "marketing partner." Again, b-to-b publishers caught on to this years ago, but the recent marketing emphasis among the big consumer publishers shows that they're catching up quickly. Slapping content on your site and selling adjacencies is so 2002. The more you know about your audience, the better they're worth to advertisers. Multiplatform campaigns -- web, mobile, video, social, print, F2F -- help to decommoditize the process and establish stronger ties to your audience. We're also seeing more digital custom publishing -- completely immersive content experiences surrounding a single brand. Understanding the outcomes desired by your advertisers, measuring them and proactively showing results can be powerful. Instead of some hand-wavy advertising ROI on an RFP response, deploy real-time dashboards that show audience conversion against these goals. The "Big Data" revolution has brought many tools and vendors to fulfill these functions.

And with regard to content, your audience is already aggregating on their own, be it through social media or third-party aggregators. No single source of content will ever completely satisfy them. Understand where your editorial team can add distinct value in terms of original content and invest there. In other areas, partner to pull in syndicated content from third-party sources. Editors are the original social curators -- they're trusted "friends" who can filter the signal from the noise. And find ways to help your audience act on the content -- what are the next steps someone should take after reading an article? Converting people from "viewers" to "doers" drives them up the value chain in terms of advertisers. 

ABM: There is a shift toward paid digital content, particularly on the b-to-b side. B-to-B is unlikely to achieve scale with paid content, while consumer media has priced itself lower and lower both in print and digital channels. What does it take to succeed with a paid content model for both consumer and b-to-b media?

Galarneau: We're still in the early days of paid content. On the consumer side, there's been lots of trumpeting about The New York Times metered paywall, which used data to understand where the dividing line was between infrequent visitors who drove a bulk of the traffic and brand loyalists who would likely pay for content. But people ignore that the Wall Street Journal (a blended consumer/B2B play) has been doing this for more than a decade. WSJ is quite successful, with a digital ARPU (average revenue per user) of 50 percent of the print levels. So instead of digital pennies to analog dollars, we're now seeing digital 50-cent pieces. Consumer Reports, whose charter prohibits accepting advertising, is another success story, with nearly equal print and digital revenues.

I think WSJ and The Financial Times are probably most instructive for b-to-b publishers. They create unique content that has definite economic value and their readers pay for it (mainly through their employers). The scale is definitely different than most if not all b-to-b publishers, but the principles are sound. At the end of the day, if your readers can't monetize your content through actions, then you're doing something wrong. And just like with advertisers, you may need to connect the dots to prove your value. Another strategy may be pay passes that unify a portfolio of vital information sources. Most b-to-b publishers employ a cluster approach, but you may have to reach outside your company to find other partners. You can look at the enterprise licensing model employed by a number of archive and media monitoring firms -- one bill per company with unlimited internal access. Or you can ask for data in lieu of content payment -- AdWeek uses the Google Consumer Survey product to do this.

ABM: How do the economics of content vary by channel (website versus smartphone versus tablet, etc.)? What do media companies need to understand about investing in those platforms and monetizing them? 

Galarneau: I think that publishers are still figuring out mobile -- both smartphones and tablets. There's no doubt they need to be on these platforms, but what's the best way to make money and what's the best content and development strategy? I don't think we've seen a clear winning paradigm yet, although third-party mobile aggregators like Pulse and Flipboard are making an increasingly strong play that could marginalize publishers' own mobile products. And with regard to tablets vs smartphones, I'm not sure even consumers have settled into well-established patterns.

I'm one of those people who think that dedicated apps are a short-term thing and the ultimate solution will be webapps (HTML5/CSS3 apps) that will service all platforms. It's like the Flash-heavy websites you saw a decade ago when HTML and JavaScript weren't as advanced as they are today. While the technology does have some limitations in terms of recognizing particular mobile gestures, a vast majority of the functionality of publisher apps can be approximated via webapps -- the FT is proof of that. And while designing your digital presence in this manner (also called "responsive design") is more costly, it ultimately will save money now spent on customizing apps for a variety of platforms, although there are tools that can help in this department. Mobile app discovery is a mess and doesn't promise to get better anytime soon despite the large number of start-ups working on this problem, so this is another area where webapps can excel.

Mobile, via the use of apps, does offer an easier way to monetize as well as boost audited circulation. Advertising on mobile can be problematic given formatting issues, but it's a problem that's in the process of being solved. Smartphone and tablet sales are exploding, and mobile Internet usage will surpass desktop sometime in the next few years.

By Matt Kinsman