Long Tails, Vertical Integration, and the Monetization of ...



Long Tails, Vertical Integration, and the Monetization of ContentThe problems faced by the news industry are not solely due to a decline in audience, and that is a crucial point because blind acceptance of that theory leads to a self-defeating type of circular reasoning. (People don’t want news, therefore we produce less news, therefore profits are lower, therefore verifying that people don’t want news.) There are other myths about the future of news and they will be addressed in Chapter 5, but this one is salient because it reflects an inaccurate interpretation of a very real problem. The problem is not lack of consumption but the reversal of the scarcity principle, which, although it might not have been universally known by that name, has been the prime mover through centuries of media. New media visionary named Jeff Jarvis contends that scarcity was what propelled viability the old media model, and it is difficult to argue with his claim. The Scarcity Factor To illustrate the change in scarcity, let me again return to the radio example, as the model is familiar to most. In the case of traditional radio, the value of the enterprise evolved from these elements: a) radio spectrum space is scarce. Only a few stations could exist in a particular market due to licensing restrictions and the fact that too many stations would interfere with each other and make it impossible for any station to operateb) radio inventory is scarce -- meaning the number of commercial spots available. c) Radio ownership in the traditional sense is clearly a product of scarcity, too, because it is a very expensive business to enter as an owner. Radio owners must pay for breathtakingly expensive antennas, production facilities, real estate, and so forth. But in the new media model, scarcity is hardly an issue. Virtually anyone can start some sort of a web-based radio “station.” The cost of entry can be modest or, if you're creative, near-zero, because you can download free software and even get free space on commercial radio-channel hosting websites. But the problem, at least from a profit standpoint, is the same situation: virtually anyone can start a web-based venture. Here’s what that means: The owner of a traditional media operation typically had a built-in market. For example, if you owned a radio station in a medium-size city and were the only country music format in town, you pretty much "owned" the demographic associated with that format. This is not meant to imply that owning a radio station guaranteed a profit, or that all commercial time can be sold. It simply indicates that in the world of terrestrial radio, supply and demand are relatively standard concepts and are inextricably linked with legacy media economics.The Long Tail as a Solution to ScarcityThere are, however, nascent economic opportunities in the diminution of scarcity as a lever for mass media. One model involves exploiting the "long tail XE "long tail" " and offering a highly specific product that, while it appeals to a limited percentage of people, can:a. Appeal to a reasonable number of people looking for a specific type of mediab. Find a way to sell that audience.Essentially, points a and b are what are involved in what's called “monetizing” content. Monetizing Internet Media ContentConnecting an audience with advertisers who desire that audience is hardly a new practice, but the apparatus to make that connection has mutated -- astonishingly -- in the past decade or so. To continue the radio analogy, the "old" way was expensive: You needed to hire salespeople to call on clients and convince them to buy, let's say, a commercial on your radio station. If your radio station was popular and offered good value, a fair percentage of your customers would call you. Even then, arranging for the ad and producing the commercial and scheduling it and billing for it was a tedious and labor-intensive process.The direct-sale of advertising remains a model in use for many Internet-based businesses, but the connectivity of the Internet has enabled some in the media to exploit the power of search to replace old-school “scarcity’ ad revenue, and the key player in this trend is Google. Google's Role In the Long-Tail EconomyPreeminent in Internet advertising is Google, which makes the lion's share of its income from advertising keyed to search results. Google offers two programs, similarly (and confusingly) named: Adsense and Adwords. They are really opposite ends of the same transaction. Adwords is the service that allows those who want to sell ads to "buy" a keyword or phrase. An example might be "microphones." Search on the word in Google and a series of hyperlinked ads will appear on the right-hand column and a few at the top of the left-hand column. Manufacturers have paid for placement in the ad columns (the search results themselves are not ranked by payment), indicating how much they will pay for each click-through on the ad. (Essentially, the key words and phrases have been auctioned off to the highest bidder. ( While there are other factors that relate to how the results are ordered, the bid on the word or phrase is the primary determinant. Adsense is the flip side of the mechanism. Google pays proprietors of Internet sites to let Google ads appear on those sites, and funnels what Google's computer algorithms consider relevant ads to those sites. Sites then receive a cut of revenues from the clicks on the ads Google placed on their digital territory. Sites that have large numbers of visitors and specific, attractive content are typically the venues that make the most income from the Adsense program. Revenue generated by sale of the keywords on Adwords is used to buy advertising on Adsense.The Effect of the Long Tail on NewsIt doesn’t take much imagination to see how Google’s search capabilities (and digital communication in general) undermined the scarcity-based advertising mechanism for legacy news. To broadly generalize, news organizations typically received their revenue from four main sources: national advertising, spot advertising, local advertising and legal advertising. National advertising is pretty much what the name implies: a broad effort to reach consumers who would buy a product of general interest everywhere, such as soft drinks. Spot advertising, while assuming different names in various types of media, generally involvea broad-based advertising of a product in only certain markets, say, snow tires in the Northeast. (Spot advertising came about because, to cite the classic example of snow tires, national advertisers did not want to waste their money selling snow tires in Miami.) In some cases, spot advertising was engineered through “co-op” advertising, in which national manufacturers would split the cost of the ad with local merchants that carried the manufacturer’s product. Local advertising was a self-evidence affair: Restaurants and movie theaters and car dealers generally had no other way of reaching clients and were essentially held hostage by local newspapers, television, and radio. Such local businesses petty much had to advertise, and the only choice left to them was at which local media outlet to place their ads. Legal advertising was (and still is) a profit center for local newspapers; municipalities are required to post things like proposed ordinances, meeting agendas and the like in the local “newspaper of record.”It doesn’t take much imagination to see how the long-tail economy decimated income streams on all levels. National advertisers now can target their advertising dollars to reach those who searched directly for their product, paying only for those who click through to the site. Local advertisers can now become national advertisers through the same search mechanism, skipping the middleman (the ad agency and the local news outlets). If a manufacturer happens to make something that is easily described in a search, like “cowboy boots,” Google’s ad programs can give that manufacturer and international base and eliminate the need for all legacy advertising, and in the process offer a better deal, because they manufacturer will only pay for hits on the link that result in click-through to the site where sales are transacted. The local movie theater doesn’t see the need to pay for an ad in the paper anymore, and probably doesn’t even feel compelled to post titles and showtimes on its marquee, because a search via computer or cell phone turns up the information instantly. The car dealer still must sell most of its product locally, as it’s hard to ship cars, but now the dealership website (often accessed via search advertising) carries a list of inventory and is equipped with sorting functions (price, color, model, and so forth) that can not only replace the advertising but also many of the functions of the salesperson. Legal advertising still remains largely the bastion of the local paper of record, but various states and municipalities, looking to save money, are proposing troubling (troubling from the newspaper’s standpoint) changes in the law that would allow legal notices to be posted on government websites. Can News Survive the New Economic Models?The easy answer is that there are no easy answers, but the news business may not be as moribund as some assume. First, there are news organizations penetrating and even exploiting the new-media profit system; some are briefly profiled in chapters 10 and 11. Secondly, not all of the news industry’s financial woes are tied to declines in circulation or ratings, as addressed in the next chapter and elsewhere in the book. Many of the other economic problems may eventually self-correct. In the meantime, there is a significant danger imposed by a somewhat incorrect assumption that generates malaise and probably becomes part of a self-fulfilling prophecy. Tom Rosenstiel of the Pew Research Center, one of the sharpest journalism analysts in the business, notes that contrary to popular conception many old media sites are seeing their audiences grow. Print circulation worldwide has actually grown more than 5 percent over the past five years, though not in the U.S.; it’s boom time in places such as India and parts of the Mideast, driven by growing population, spikes in literacy, and low broadband penetration. Clearly it’s simplistic to assume that media myths are the primary cause for the quake that’s rocked journalism’s foundations, but it’s not unreasonable to note that many commonly held beliefs are not completely accurate. Turn the page to see ten of them. ................
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