Reading time: 6 – 10 minutes

The big discussion in media for a while has been the growth of smaller media companies (especially those that are web based) and the failure (or imminent failure) of large media companies. While some of the larger media companies still do very well (i.e. The Economist) others, like the Tribune and the Boston Globe, are falling on tough times. Of course part of the problem for larger media companies (really, all media companies) is the current state of the economy but there are more systematic reasons for the failings of larger media businesses.

To understand why large media companies are failing we need to look back into the past and utilize an economics lens when we do so. Let’s think about how the large media companies we know today got to where they were at their height.

Barriers to Entry

As media businesses were beginning to grow they established some solid barriers to entry. The two clear barriers to entry were:

• Printing Presses (i.e. expensive capital equipment)
• Distribution Channels (i.e. very expensive/hard to establish logistics)

Printing presses were expensive and therefore hard for new entrants to acquire. Distributions channels were also expensive (trucks, people, etc.) and hard to build (e.g. look at Amazon today – they have and extensive distribution channel and a slew of servers and they “rent” both to upstart businesses who can’t afford to, nor want to, build their own systems).

Supply and Demand

Barriers to entry led to a favorable supply and demand situation for publishers. They were able to gain a large audience since there were few suppliers and much demand. Publishers were also able to charge high ad rates since they were one of the few games in town. Publishers were also able to get away with not having very solid metrics to tie ad spending to ROI due to there being few media producers. These (potentially) inflated ad rates (relative to ROI – still need data on this) led to very large news organizations with sizable staffs that would not be able to be supported if a large premium could not be charged for advertising.

Where was this headed?

What Microeconomics would have said, if consulted, is that any time there are large economic profits being earned competitors will enter the market and eventually economic profits, on average, will be pulled down to zero. This situation manifests itself in what economists refer to as perfect competition – a situation in which many small firms produce a homogeneous product and choose their level of production based on a price set by the market. Perfect competition also entails low entry and exit barriers.

In reality the news business wasn’t perfectly competitive in its heyday. It had high barriers to entry which lead to a few large firms instead of many small firms. The news business also had differentiated products (as opposed to homogeneous products). Due to these factors publishing firms were able to earn large economic profits for a long time. However, microeconomics is also concerned with the role of technology in the economy and economists know that technology has the power to make things faster, better and cheaper and can therefore lead existing markets closer to being perfectly competitive.

Enter the Internet

As the internet began to come of age the newspapers and the publishing business a whole were not afraid. Why would they be? Internet speeds were too low and penetration amongst consumers was minuscule for a long time. However, as time moved forward more people started using the web and internet speeds became faster and faster. Those facts combined with the fact that the internet was originally conceived to share content, albeit scientific information, made it a perfect vehicle for media and a media revolution.

As the web became more prevalent digital media sites began to spring up at a more rapid pace. Now anyone* could publish. There was no need for an expensive printing press and distribution was digital. The costs (the large barriers to entry for publishing) were exponentially becoming smaller. Then came blog platforms that allowed anyone, and this time I really mean anyone (even people without any knowledge of code), to publish on the web. This lead to an explosion of content on the web that is continuing to this day.

As technology and ease of use increased the amount of content, and ad space, continued to rise at a rapid pace. In economic terms, we could say that the supply of ad space went up and demand did not keep pace driving ad prices lower. Combining that with technology that allowed advertising on the web to be tightly linked to an ROI (e.g. Google’s AdSense/AdWords business) left very little room in the business for advertising that was over priced and not easily measured. Now the print publishers were in trouble.

Today it seems like large print publishers still haven’t figured out that they can still exist but they need to be much smaller organizations since they can’t command the ad rates they once could. There is probably a role for the large players to become aggregators and editors of content from other sources and perhaps specialize in certain things (where they would have reporters producing original work). For example, the Tribune still has a differentiator and that is its brand. People trust the Tribune and a lot can be said for that. Perhaps the Tribune can use that trust to become an aggregator/curator/editor of the news while still producing local Chicago focused news since no one else can do that as well as the Tribune.

The bottom line is that publishing no longer has the barriers to entry it once did and advertising on the web is much more quantifiable and efficient when compared to print advertising. Economic profits have, with the help of technology, been whittled down in a manner that microeconomics essentially predicts. Now it is time to figure out the next model for publishing since news is incredibly important and producing and distributing news is something that needs to continue.

As I expressed above, I believe the new model may simply be smaller, leaner, more focused publishing businesses. However, there are other interesting models out there including Adrian Holovaty’s model. Adrian’s model focuses on parsing and visualizing data to some extent. Adrian can compile and visualize a large amount of local data efficiently (i.e. with few people) and he does so at EveryBlock. His team is lean and the information is very useful. He is clearly beginning to show all of us one way news can thrive inside of the new economic structure it resides in.

Another option could be not-for-profit papers. Since news and good reporting are central to our society we may need to use this type of structure to keep them alive. For example, the St. Petersburg Times is a for-profit business but it is owned by the Poynter Institute, a non-profit organization. This frees the St. Petersburg times up and lets the focus on the news that people need rather than just focusing on the bottom line.

I am very interested in see where we end up when the dust settles. I am not sure where things will ultimately go but there are a couple things that are certain. News and its dissemination must continue for our society to function and microeconomics explains, in some sense, how the publishing industry got to where it. Perhaps some basic economic principles will also help news publishing survive in this new environment.

Related Articles:

• Who will pay for the news?: Olson’s Observations
• Olson’s Observations on Media
• Olson’s Observations on the Future of Content

* People who could do some coding at minimum.

Reading time: 3 – 4 minutes

After reading the last post I put together on this subject you may have found yourself wondering how companies could make any money with LBS and Hyperlocal info based products. I have been thinking of the same thing and here are a handful of ideas that came to mind.

Advertising:

I know, I know… that’s a given and it can be pretty unstable so relying on it as the companies sole source of revenue may not be a perfect solution. However, I think that advertising is only a piece of the puzzle and that it cane work together with the other models I’ll talk about in a minute.

Anyhow, back to advertising. There are a couple components to advertising in hyperlocal content based sites in my mind and if used together they have the potential to work well.

First, you have the basic ad model where you can do deals across all of your content with national advertisers like McDonalds who simply want to be everywhere.

However, you can get interesting with these ad buys by having the ad that comes up dynamically pull in the location of the closest McDonalds (to stay with the example) to the user. This type of advertising would also be a great match for companies like Coldwell Banker. Since they know the users are looking at info and news on a very specific area they can market their agents and properties in that area to the user.

Second, you have the ability to offer a self-serve system that will allow local businesses like pizza places to advertise only in their area. I know people have thought of this and that it does have some issues (i.e. the local pizza joint isn’t thinking about internet ads) but I think you can allow the self-serve system to build via word of mouth and think of it, at least in the beginning, as a nice incremental revenue stream.

Content Resyndication Marketplace:

This is simply what it says – a marketplace to allow for content resyndication. Since the big guys (i.e. papers like the Chicago Tribune) want more distribution of their news you could possibly work with them to include their news headlines into the specific local areas that make sense. The Tribune may then be willing to pay you $0.10 per click on their headlines since they know the make $0.20 per visitor to their site.

It is basically an arbitrage situation that provides a revenue stream to the hyperlocal/LBS business, provides top content to the hyperlocal/LBS business and drives more pageviews to the big news organizations. Seems like a win win to me. (The genesis of this idea came from the talented Mr. Rick Klau.)

Licensing/White Label Solution:

Working on the thesis that hyperlocal content will be a big part of the news business going forward I arrived at the conclusion that a hyperlocal content company could provide an “out-of-the-box” (aka white label) solution to companies like the Tribune that will instantly give them a wealth of hyperlocal data and content.

The hyperlocal info company could get paid in a few different ways for this type of service including:

- Monthly/yearly fees
- Ad revenue share (company sells, Tribune sells or a combo of both)
- Combo of the two models

I am sure there are many other ideas to monetize these types of businesses (like booking fees, convenience fees, etc. that would work well with LBS companies) as well but these were a few that came to mind quickly. There is definitely a future here and I can’t wait to see the space emerge in a big way.

Reading time: 2 – 4 minutes

What do these things have in common you ask? They are all things I am excited about. Shouldn’t that be enough to include them in the same post? This is my blog after all. Anyway… on with the post.

Human Computer Interaction

Human Computer Interaction and advances in that space are always going to be something that gets us computer geeks going. The latest interesting innovation in that area is Microsoft’s new Surface Computing initiative. The initiative was announced and shown off at the D conference the other day. Check out the demo video on on10 to see this thing in action.

When can I get one? I am sure that question is on your mind and it surely is on mine. Larry Larsen tells us via the on10 blog post that these surface computers will first show up in the hands of Microsoft Partners (i.e. Las Vegas Casinos, etc.) but they will roll out to consumers in short order especially when they can hit the right price points for the average Joe.

Location Based Services and Hyperlocal Information:

While my friend Brad Feld is super excited about Human Computer Interaction as an investment theme (and he should be – Harmonix Music Systems (makers of Guitar Hero) was an investment made on that theme and he did pretty well on that one and you know more of these interesting innovations will break into the mainstream over time) if I were an investor I’d also be excited about companies built around Location Based Services and Hyperlocal Information.

It seems that the evolution of the internet is heading toward a system where you can find hyperlocal information of interest to you and others in your area and location based services that will tell you where things are around you at any given time. These two things will most likely work hand in hand to get you hyperlocal information based on where you are currently located.

A good example of a location based service is ParkWhiz based right here in Chicago. They inform drivers of where parking is near where they are going. They also give you all the pricing information and are even working to allow you to reserve your spot before you even leave the house.

A couple more great examples are hyperlocal content sites Outside.In and EveryBlock (still in development). Outside.In shows you stories/blog posts from folks around you and EveryBlock, Adrian Holovaty’s new project (another Chicagoan), will bring an unprecedented level of hyperlocal information right to your fingertips.

Location based services like ParkWhiz and sites that provide hyperlocal info like Outside.In and EveryBlock seem to be the future. Keep an eye out for new start-ups in the hyperlocal and location based services arenas. As things start to progress further into the mainstream (like cell phone technology, GPS technology and the mobile web for example) these services will become increasingly more valuable.

Reading time: 3 – 4 minutes

As you may have noticed I have started to work more pieces on media into Olson’s Observations as of late. This is of course due to the fact that I work at FeedBurner on the publisher services team and, thus, spend a lot of time thinking about online media metrics, distribution, promotion and monetization. That said, I am now going to start putting fingers to keyboard on more of those thoughts and more of what we’re thinking about at FeedBurner. Without further adieu here is the first post in the Future of Online Content series.

Where the Heck is My Content?

Content is becoming more and more distributed as time moves forward and the engine that is providing the backbone for all of the new distribution methods is, you guessed it, feeds! Whether it’s people consuming content in a newsreader, on a personalized homepage, or in a widget that appears on their desktop it’s all powered by feeds.

While the newsreader is not ubiquitous as of yet I think it is safe to say that a lot of people are using one and a lot more will be using feeds as they get into Internet Explorer 7. It is now time to start thinking about the future and the future is widgets (Couldn’t we have thought of a more fun name than that? Where are the marketing guys?).

Widgets are the next big thing and for good reason. They allow content to go almost anywhere and, for the most part, they are easy to implement and to use. We at FeedBurner saw the emergence of widgets coming which is why we have made it easy for FeedBurner users to create a widget of their feed content through Fox Interactive’s SpringWidgets platform. This widget can be easily placed on a desktop, MySpace page, Facebook page, website, e-mail, etc. and it’s all powered by the feed (watch for more widget options to come). Check my widget out.

So, that’s great and all but how do publishers know what the consumption of their widgets looks like? Right now there are some people building widget metrics packages but I think the real value comes in seeing your site stats, feed stats, widget stats, kooble stats (well, that last one was made up but it stands for whatever is next in the world of content distribution – koobles are gonna be big ya know!) in one place.

The total content distribution picture is what we at FeedBurner are working hard to provide you. Next up is widget stats and tighter integration between site and feed stats. This combination of stats will get publishers closer than ever before to a view of overall audience engagement. Sahhhhhweeeeeet!

Audience engagement will be key for publishers going forward. Whatever comes next, whether it is koobles or something else, we’re thinking of it now and we’ll have stats and products to help publishers take advantage of and track the new medium. I am very excited for 2007 since it will no doubt be a breakthrough year for distributed media, widgets and FeedBurner. Publish on!