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Don MacAskill recently ranted on how much of a closed community traditional print media companies impose on their users. While I would agree that some if not most large media groups are seriously lacking the insight necessary to monetize today’s generation of consumers, it is a little too early to say that all traditional media is doomed.

Gannett and Tribune recently invested more capital in MetroMix, the Tribune’s original foray into the hyper-local scene. While the site may not have the best functionality or user interaction, it is a good start. You cannot ride the subway in NYC without seeing their ads plastered all over the inside of the trains. The question is not how traditional media companies will succeed or participate in the web 2.0 space, but when. These companies are sitting on a large regional or national footprint and an executive guard that does not understant how publishing content online can bring in revenue.

Web 2.0 Is Not That Obvious To Most

For most of us it sounds very obvious, we see the online space as unlimited “print” real estate….pages upon pages of space to throw edgy content and targetted advertising. So its obvious right? Not as much as you would think. Do any of you remember trying to teach your parents, mostly successful business men and women, how to use a computer? Even to this day they struggle just doing basic things on the internet. They are definitely not part of the Digg Nation.

Imagine how the executives at Print Company Inc feel when they hear Facebook, created and run by a 20 something Harvard drop-out is going to put them out of business very soon. They will come around because they have to. Zell did not buy the Tribune because he believed in a rejuvination of print media, he has an idea (we assume its a dam good one), of how to leverage this vast media empire in today’s world. I would be very shocked if upon hearing about the Digg mis-functionality on the LA Times website Zell brushed it off his shoulders as if it was nothing.

Tech M&A Is Not Always The Best Strategy

Acquisitions are one way to enter this arena, but once a Media News or a McClatchy acquires a hot up-coming web 2.0 property, then what? You have a sexy sirloin and no one to supervise the grill…that is to say, the staff on hand that understands the technology and how to leverage it across the existing properties is not there. Online ad-sales folks are in high demand right now, and for good reason. Someone inside those companies needs to really understand the power of users, their attraction to content and how to charge advertisers for it. Looking back, it would have made more sense for Double Click to have been purchased by one of the old print companies than Google. Imagine the power of having access to that online-ad sales force!? Perhaps there are something Mastercard can’t buy.

Herd Mentality

I think that a sudden panic attack will happen sooner than later. Just looking at how much better the internet has become in the past year in terms of delivering relevant content, we should expect even more ad dollars to shift online than we saw in 2007. It is at the point the point where a web 2.0 love bug bites the print guys, where they start acquiring as much as they can; headcount, aggregators, bloggers, startups, you name it. You are all marked. I mean at this point it’s either them or Google.

The Lightspeed article about the ways to build a $50m online business is getting some good press, mainly from the NYT, but from other sites as well. These articles raise an interesting point, mainly why is the value for online ads only $1 per thousand page views?

Traditional media has better demographics

I’d like to take the opportunity to point out that traditional media has established demographics for advertisers. Go look at the Washington Post Marketing Book and examine the demographic details they provide to users. Large sites with user generated information can compete, but how can other sites compete with this type of knowledge?

Traditional media has valuable content

In general, online sites do not have the same quality content as traditional media players. Sure, they can aggregate or steal content, but advertisers know that there is a lot of value from being associated with quality content. Online sites should be asking: how do I create valuable content to maximize my traffic in a given demographic space?

To create a $50m online business, companies must maximize mass appeal and niche

I’ve argued that New Media means rapidly increasing customer segments, but in order to maximize value, online sites must play a difficult game, they have to be niche, but also have a majority market share. Let’s say there are 100 sites devoted to New Media news. Initially, these sites are very fragmented because they are owned by 100 people. Today ads on these sites are worth only $1 per thousand page views because the space is fragmented and advertisers don’t know anything about demographics. I believe this best explains the low value per page view.

Creating “niche market monopolies” will maximize ad revenue

In order to increase the value of ads, online companies need to create a monopoly on a niche market. If I could buy 60 of these sites and control 95% of the traffic to New Media news, I would no longer want to use Google to place ads on my site. Instead, I would market my sites as the “exclusive distributor” of New Media news ads on the internet. Suddenly, advertisers will realize they can either buy cheap ads on Google (for the remaining 5% of traffic), or they can go with me, because I am the majority supplier of ads for New Media news on the internet. This should dramatically increase value per page views because there are less options (less supply) for the same demand in a given demographic/target subject.

Does this idea make sense? Please comment.

Update:  Good article from Nicholas Carr exemplifying this trend.

The Washington Post reports that the EPIC is opposed to the Google acquisition of DoubleClick. The complaint is here. The Post reports:

The deal would create a firm with access to more information about consumers’ Internet activities than any other company in the world, the Electronic Privacy Information Center said in its complaint.

Google’s quest to organize the world’s information has created the most visited site in the world. Organizing information is a good idea.

Monetizing your use of the world’s information is a bad idea

I always tell people that Google created a great product. Google search is a great product. The problem is that Google serendipitously realized they could monetize their users with targeted advertisements. There is nothing wrong with making money. In fact, I like it when any company makes money. But let’s use our brains. Does irrational exuberance make people ignore simple rights?

Tracking users means more relevant, thus more valuable ads

In order to make more money, advertisers demand more relevant advertising prospects. Cookies, tracking, behavioral targeting, etc, are a way of online life. I don’t think Google/DoubleClick really means much more than before, but be aware that the more Google (or any agency) knows about your habits , the larger value proposition they can make to advertisers. Google is the leader in the online segment and will increasingly be under pressure to not actively analyze user habits.

Put this in perspective

For all the Google-aid drinkers out there, imagine if Microsoft would submit user information to their web servers every time you entered information into your computer. This certainly wouldn’t be allowed. As the computer world moves from desktop to browser, how would Google doing this on their online properties (and those also inhabited by DoubleClick) be any different?

What do you think?

Update: Matt Cutts writes about Google & privacy

Update2:  Financial Times writes about Google’s quest to organize your “personal life”

MySpace recently added Photobucket to their blacklist (other blacklisted companies include Imeem, Vidilife, Stickam, Revver, Amie Street, Indie911, MOG, and Sonific).

I advise my readers to go read GigaOM’s coverage of the whole event. Om Malik also talks about the five lessons for start-up companies which I can probably summarize in one: diversify your revenue sources.

Although MySpace does not allow other companies to display ads on its site, the issue raises some important questions. I’d wager that a lot of MySpace’s popularity came from the ability of users to customize their pages via various Web 2.0 widgets. Over at the Utility Belt, the opinion is “MySpace is Alienating users.” I believe this is true to some extent, but it begs the question:

Will MySpace Continue to Experience Growth as it Increasingly Controls Monetization of the MySpace Community?

Time will certainly tell. If MySpace can provide users with a similar user experience AND remove widgets, then yes. What do you think?

I’m not surprised to read that Cable TV does not want the auction model to supply advertising to their networks.

The NYT Reports:

Cable networks like Turner Networks, Discovery, Lifetime and ESPN have decided to boycott an online exchange designed by eBay to sell advertising time, the Cabletelevision Advertising Bureau, a trade group in New York, said yesterday.

Google and other technology companies will find an immense amount of difficulty breaking into Cable, Satellite, Newspaper and Radio Networks. These types of media distribution companies have no intention of letting a technology company control ad sales. Why on earth would these companies let Google (or anyone else) control their profit centers?

I’ve written about this several times. Here are my other relevant posts:

Google Has NO Competitive Advantage in Print, Radio or Television

Google’s targeting ability must be worth more than its commission (EchoStar Deal)

This is a major blow to all online auction advertisers. Any comments?

I wrote about how newspapers have an incredible amount of value online. Technology companies largely ignore this. Many a self-proclaimed Web 2.0 evangelist have declared the “death of newspapers.” This post summarizes my initial thoughts on the online newspaper revenue model. I decided to start because Mark Glaser over at MediaShift wrote a recent article entitled “How the Online Newspaper can Become a Community Hub.” I agree with his key points which are focused around incorporating the community in the news creation process and structuring the online site around niche areas.

Community and interactivity are key for local newspapers as they move online

The New Media viewpoint is that local news agencies are no longer gatekeepers of information and that the user is now in control. While I don’t agree that the user is fully in control, newspapers must realize that incorporating an actively participating community is key for online success. The internet benefits content creators because it lets users interact with content. Interacting with content means more personalization and more consumption time. These are the types of things that drive online revenues, assuming the right advertising strategy.

Online Newspapers should create a social network focused on their community

Online social networking features are the tools that will enable community members to interact with news. It won’t be easy at first. The majority of newspaper readers probably haven’t done much more than submit letters to the editor. Newspapers should give readers an online platform to interact, rank and participate in commentary and article submission. The cost of managing comments might be high at first, but as users become more familiar with online social network features, participation becomes more transparent and technology gets better, the community will bear the cost.

Online Newspapers should create a wiki business model

Local newspapers sit on huge repositories of information. Everything from local sports information, to political history, to development history has, at some point, been in a newspaper article. Additionally, local communities look to newspapers as primary news sources for local information. Taking the social network model to the online newspaper means creating wikis that allow users to maintain information about niche community topics that are relevant for them. Think: County High School Soccer team record and history repository; or County Governor Campaign History. Enable users to pick and choose the topics that are most important to them and empower them with information.

Because social networks and wikis create loyal and active users, this business model will drive participation and interaction online-key components for monetization success.

Obviously the advertising model needs to get much more creative than in the past. This will be the focus of my next post. Please comment.

Update 1: “Be the Platform“

First, there was the troubling news about the SF Chronicle. Then Scoble made a ridiculous, uninformed hyperbole claiming “newspapers are dead.” I’ve already written about the inability of “newspapers are dead” (NAD) crowd to intelligently analyze the newspaper industry. Some people are looking at ways to save newspapers. The newspaper industry is facing a transition, not its death.

Let’s look at some FACTS about the industry

Here are the facts (ref, ref2, ref3, ref4):

• Newspapers are a $59 billion industry in North America
• In the US, advertising growth is flat, with online growth (up 35% Y/Y) covering the loss (down 2%) in revenue from print
• Baby boomers have spending power of $2 trillion and 52% read a newspaper on a daily basis
• In 2005, US dailies had a 53 million Weekday circulation and a 55 million Sunday circulation, representing a change from 1960 of -9.4% and +15.9%, respectively
• Newspapers control 19% of the total advertising market in the US
• Larger dailies sell for 10 to 14X EBITDA and we have seen most transactions occur at the high end of this range

Newspapers are NOT dead and will adapt

Sure, print subscription is in slow decline, but niche properties and constantly changing demographics will always provide support. Local newspapers will always be an authority on the news for their given geography. Newspaper reporting contributes to the vast majority of news. Online is another medium and distribution method. It will not kill off newspapers. Newspapers survived Radio, Television and they will survive the Internet. They will adapt with the internet and demonstrate the value of their demographics and advertising relationships.

Newspapers have an incredible amount of value

I’m very glad no one in the NAD crowd is an executive or has enough money to buy newspapers. They would waste our time as advisors. We know for a fact that newspapers are valuable because we’ve sold newspapers to every major company in the industry. When private equity folks call us and tell us they are looking for newspapers at 3 to 5X EBITDA range, we have to laugh and have to tell them the truth.

People who analyze the industry with tunnel-vision and broad sweeping generalizations scream uninformed and demonstrate an inability to correctly understand an industry that HAS value.

Online Video Ads are at least TWICE as likely to be clicked

According to a recent study by DoubleClick, the CTR (Click-Through-Rates) for video ads is twice as high as standard images. Specifically:

Online video ads experience click-through rates ranging from 0.4 percent to 0.74 percent depending on the online video format. By comparison, the click-through rate for plain GIF or JPG image ads ranges between 0.1 and 0.2 percent, based on DoubleClick data.

Behavioral Targeting (BT) already demonstrates 2X CTRs vs Non-BT

Studies have shown that BT more than doubles CTRs when compared with non-behavioral targeted content.

As advertisers fill inventory with video ads, and companies use BT to better target those ads, an increasing percentage of ads will be BT Video Ads. Additionally, the number of ads could decrease. Pretty straightforward, but still important for newspapers as they make the transition online.

Update1: MillwardBrown Study saying the exact same thing.

Stay tuned for an online revenue model for newspapers…

My friend Jeff Maurone recently wrote a post comparing printed word to video. His conclusion is:

The printed word is certainly alive and well but today faces competition from other forms of media that, under some conditions, are more effective social change mechanisms.

Advertising pricing reflects the value of message formats

I’d argue that advertisers are well aware of the value of different formats. Look at the value prescribed to messages per thousand online views: $1 for Text, $20 for Audio, and $40 for Video (word-of-mouth estimates). This is an economic way to measure the value of a message in different contexts (or, maybe points to inefficiencies in the market). Generally, this refers to the “richness” of the ad.

Relevance maximizes the value of a message

I’d like to say the true value of a message is from its relevance to its audience. The value of a targeted text ad can increase 10X. So sure, social change has more value when it can be adapted to a broad audience, but advertisers put more value on direct user-relevant content. In the same way politicians see value in delivering relevant messages to the largest segments of people. Think about “NASCAR Dads” or the “Evangelical Christians.”

Video ads are most valuable online

The nice thing about online video ads, is that video ads are no longer limited to Television. Newspapers, bloggers and any content provider can incorporate video ads on their online sites. Because video ads are 40X as valuable on a CPM basis, traditional media companies should take a good hard look at the economics of online video advertising.

I’m heading to LAX on Sunday for the OMMA Expo. I’ve discussed the lack of profitability for online when compared to print publications. I’m excited to learn about the latest and greatest trends maximizing ROI for advertisers online both in print and online. My readers should expect a meaningful summary when I return.

Until then, here are some of the key trends in the online advertising space:

• Newspapers are undervalued online.
• The fight between aggregators, video sharers, search engines and content creators for online ad dollars.
• New metrics! Page views are out.

If anyone is going to OMMA, shoot me an email at kyle < at > themediaage.com. I’m there for business development and look forward to networking with interesting folks.