Tuesday, May 11, 2010

How content farms are challenging advertising driven media and paywalls

The shakeout of the media business has been happening for a couple of years now, but there is a new business model emerging which may have profound effects on the long term health of traditional, advertising-funded journalism.... Content farms.

First - the bad news: The top 25 newspapers in the U.S. are continuing to lose circulation as people read their news online. From 2003 through the second quarter of 2007, online ad revenue consistently grew by more than 20% a year -- and in 3Q 2009 U.S. newspapers earned 17% less from online advertising than they did a year earlier. And we know that newspapers are losing market share online where advertising is moving from banners and classifieds towards search. Prior to the emergence of the internet, U.S. news publishers took about 20% of all advertising revenue, but that has declined today to 10-12%.

Some of the giants are fighting back with a paywall business model. The Financial Times and the Wall Street Journal have been successful introducing paywalls, but research suggests the transition will be difficult for most newspapers -- you can see interesting results from a PaidContent poll here.

While paywalls might work for the very best papers, they just won't work for the majority - and the new rise of content farms is a foreshadowing of a massive change that is coming.

Check out the new company Demand Media. Because the revenue from advertising or subscriptions may never cover the costs of conventional journalism, Demand Media, and other companies like Associated Content, are pioneering a new, vastly more flexible business model.

In their model, Demand Media uses a combination of "technology and art" to figure out the potential advertising revenue for any topic and then farm the authoring out to a vast network or writers. Demand Media has 72 web sites of content and can quickly route content to the place it will make the most advertising revenue.

And they are clearly investing in growth. So far in 2010, they hired Yahoo’s head of U.S. advertising sales, Joanne Bradford. Also, Erika Nardini, Yahoo’s VP of brand packaging just left her position and most believe it’s for a position with them and there is rumor Demand Media is after more of Yahoo’s management team.

This new business model is an exciting dislocation in the content creation market, taking advantage of a widely dispersed set of authors and technology to monetize their work.

It's easy to follow the development of the dislocation in FirstRain. Just track topics like Content Farms, Newspaper Paywalls, Newspaper Industry, Newspaper Circulations Trends and Ad Dollars Moving Online.

You can also watch the companies impacting, and being impacted: News Corp, New York Times Company, Pearson PLC (the own the FT), Demand Media and Associated Content.

Note - May 18 - Yahoo buys Associated Content... watch this space!

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