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BREAKING NEWS

Thomson Reuters has today added a news resource for small businesses to its website, the first in a series of niche online launches in the coming months.

Dear Mr. Buffett: About those newspapers …

The Tribune Company has merged its TV stations and daily newspapers in Miami and Hartford, and it already produces a lighthearted morning show in south Florida with the help of the newspaper’s columnists.

Dear friends of the ICSC,

In the last issue, we mentioned that we are in the final stages of outlining how to capitalize on the significant market response we have received as an organization. We have had a great start and now stand at 85 members and growing every day. Part of our plan is to solicit feedback from you, our valued members and advisors, on what sort of organization you’d like to see the ICSC become. We want to provide the best value to you, and we’d like you to guide us as to what that entails.

To that end, we will be sending you all a Word document by June 3 with some questions. Your answers will help us evolve into an organization that better suits your needs. After sending the document, Michael Blumberg, executive director, will follow up with each of you by phone to ensure that we get as much of your feedback as possible.

We look forward to working with each of you to bring the ICSC to the next level. Expect to hear from us soon.

FEATURED CONTENT

Ad Age columnist Bob Garfield has been sounding the alarm for marketers and media execs for the past several years, arguing that the migration of audiences to the Internet from traditional media is creating a crisis, not just for the older media, but for marketers as well.

Under the rubric of "The Chaos Scenario," he argues that traditional media are caught in a deadly downward spiral: Loss of audiences causes loss of ad revenues, requiring publishers and networks to reduce their content/editorial costs. The resultant decline in content quality, in turn, feeds the audience defection, and the cycle worsens.

That is certainly bad news for TV, magazines and newspapers -- including their advertisers and the people who provide their content. But equally critical, Garfield argues, is the fact that the Internet cannot simply replace the older media in marketers’ media plans, because it does not provide them with the mass audiences they need. As we will see, however, he is overlooking syndication.

The Content Crisis in Traditional Media

Among traditional media, audience fragmentation combined with a recession-induced advertising slowdown is wreaking havoc:

• Newspapers and magazines are closing or being forced to cut staff and reduce the content they offer.


• TV networks are replacing expensive scripted dramas with cheaper game, reality and talk shows, including Jay Leno on NBC at 10 p.m. five nights a week. They are even contemplating moving away from their advertising- only model and seeking to tap into cable subscription revenues. As for local stations, an estimated 5 percent are already in bankruptcy, as is Clear Channel, the biggest radio owner.

As a consequence, there have been mass layoffs of talented writers and producers. While many of these media (e.g., the Seattle Post-Intelligencer) have tried to migrate their content to the Internet, in most cases the revenue can't compensate -- because of the disparity in pricing (trading "analog dollars for digital dimes"). And that leads to the second part of the content crisis.

The Content Crisis in Digital Media

Garfield's "The Chaos Scenario" theory is predicated on the idea that while the Internet is contributing to the decline of older media by drawing away its audiences, it can’t replace them in marketers' media plans because it is too fragmented:

"The online space isn't remotely developed enough -- nor will it be anytime soon -- to absorb the advertising budgets of the top 100 marketers, to match the reach of traditional media or to fulfill the content desires of the audience [emphasis added]."¹

Yes, the Internet is also showing signs of a content crisis, despite the fact that it is the only medium whose advertising revenues are growing. There are two factors at work:

• Audience fragmentation: In 2008, Internet ad revenues grew by 10.6 percent, to $23.4 billion (PwC/IAB estimates). However, the number of Web sites grew at double that rate (by 20 percent, to $186.7 million), and the pace has quickened in the first months of 2009.


• Low ad rates: Not all Web sites have to be ad-supported, but so many are that it keeps advertising rates low.

Many hopeful bloggers have found that it’s hard to make a living in this situation. To quote Wired Editor Chris Anderson:

"Running Google's Adsense ads on the side of your blog, no matter how popular it may be, will not pay you even minimum wage for the time you spend writing it. On a good month it might cover your hosting fees. I speak from experience."²

As Internet content syndication professionals, we (and our organizations) own a large part of the responsibility of maintaining the trustworthiness of content on the Web. Accordingly, we need to come up with a standard for distinguishing content from advertising. Here are the ICSC’s proposed standards:

In this situation, even Web sites that obtain their content virtually free -- that is, via user-generated content -- are having difficulty. The biggest example is YouTube. Its wild popularity as a distributor of personal videos belies the fact that it is losing money -- $470 million this year. The reason: While it must pay for bandwidth to support all its videos, it finds that advertisers are willing to pay for ads in only about 10 percent of the videos -- generally, the ones that are professionally produced, like music videos and TV clips. Facebook has the same problem. As an article in Slate states, “User-generated content is proving to be a financial albatross.”³

The Syndication Solution

Fortunately for marketers and content providers, syndication offers a solution because it can accumulate a mass audience within the fragmented world of the Internet -- sufficient to pay for professionally produced content that advertisers value.

Syndication is a proven technique from the old world of television and newspapers that is proving eminently workable on the Web. It involves the controlled placement of the same content on multiple Web sites to maximize distribution and increase the aggregate audience.

The key word here is controlled distribution: In syndication, the content owner strikes an agreement with other Web publishers to carry the owner's content in a revenue-sharing partnership arrangement. The receiving Web sites can pay a cash license fee, carry embedded advertising which the owner has sold, or share their advertising revenues with the content owner. This is what distinguishes Internet syndication from other situations in which content is shown on distant Web sites. In viral distribution, pirated or even many RSS situations, the distribution is not controlled, and the content is carried without the advertising that pays for it. This is why content owners -- most recently The Associated Press⁴ -- are becoming increasingly rigorous in seeking to prevent unauthorized use of their content: By having it appear only on partnering Web sites, it enhances their ability to monetize it.

Hulu, a Web site owned by NBC and Fox, illustrates both the power of professionally produced content and the benefits of syndication. The site offers commercial-supported streaming video of TV shows and movies from NBC, Fox and many other networks and studios. In contrast with YouTube, it is very profitable, despite much lower traffic. The lower traffic means lower overhead, but the important point is that virtually 100 percent of Hulu's videos are advertiser-supported -- and advertisers will pay far more to run ads on Hulu (CPMs are estimated at $30, with 70 percent going to the copyright holder) than on YouTube, because they are professionally produced.

The second point is that Hulu is a syndicator, providing its video streams to other Web sites, including AOL, MSN, MySpace, Facebook, Yahoo and Comcast's Fancast.com. Hulu is able to generate additional profits from this enhanced distribution because the ads it sells are embedded in the TV shows it syndicates. As a result, Hulu's U.S. revenues are said to be closing in on YouTube’s, thanks to this combination of higher CPMs and syndicated distribution.

What works with streaming video works to an even greater degree with print. More and more companies are figuring out how to create successful businesses that offer Web sites professional, copyrighted content with associated ad revenue streams in which they can share. 

Conclusion

Syndication offers an important way to counter the prophecies of media apocalypse:

1. For marketers, it provides an opportunity to associate their advertising with professionally produced and copyrighted content distributed to a wide audience across multiple Web sites.


2. For content owners/producers, syndication enables them to maximize their advertising or licensing revenue by partnering with multiple Web sites.


3. For Web publishers, it gives access to high-value professional content for which they can share ad revenue, and as appropriate, sell high-value adjacencies.

Because it provides a neat solution to the present content crisis, syndication is poised to grow significantly.

1. Garfield, Bob. "Chaos Scenario 2.0." Advertising Age. 26 March 2007.


2. Anderson, Chris. "The Economics of Giving It Away."
   The Wall Street Journal. 2 Feb. 2009 http://online.wsj.com/article/SB123335678420235003.html


3. Manjoo, Farhad. "Do You Think Bandwidth Grows on Trees?" Slate.
   14 April 2009 http://slate.com/id/2216162.


4. Seltzer, Louisa Ada. "AP: We’ve had it with being Ripped Off."
   Media Life. 7 April 2009.