Building a case for premium content by Rob O’Regan’s Blog

Posted on January 26, 2012

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Premium content is making a comeback. The signs are appearing with more frequency, across multiple digital channels:

Tablets: Content is experiencing a bit of a renaissance on the iPad and other tablets. Publishers including Condé Nast, Hearst Magazines, and Bonnier have announced significant increases in digital subscriptions. Earlier this week, the UK’s Future Publishing told paidContent that it pulled in $1 million in tablet magazine revenue in one month after launching 65 of its titles on Newsstand last fall.

Long-form “e-singles” and compilations are selling on tablets as well. Byliner sold 100,000 e-singles in 2011. The Atavist also says it sold more than 100,000 copies combined of 10 e-singles last year. Rodale, The Wall Street Journal, ProPublica, Hearst and others have launched a variety of e-singles, with topics ranging from fiction to cookbooks to self-help guides.

Video: Hulu, Netflix and YouTube are creating or investing in original programming for their respective video platforms. Hulu plans to launch its first original series in February; Netflix has its own series in the works for this spring; and YouTube is doling out more than $100 million in advances to celebrities to provide content for its new channels.

Hulu’s investment in original programming has “great meaning for news and magazine companies,” Ken Doctor wrote for Nieman Journalism Lab, adding that consumers are “more ready to pay for digital content than ever before.”

Web: As ad exchanges drive down online CPMs, some publishers are attempting to lift them back up with premium content. Some investments are coming from non-traditional sources: BuzzFeed, known more as an aggregator of viral content, is committed to producing more original content as part of new EIC Ben Smith’s plan to turn the site into “the first true social news organization,” according to American Journalism Review. “Scoops give you credibility," Smith told AJR.

We’re also seeing a resurgence of “throwback” sites featuring long-form journalism, the most notable being Grantland.com. Mediapost’s Ari Rosenberg said Grantland “is exactly what premium branded content sites should look, feel and act like: timely, thought-provoking writing on page views that are not artificially cut short to drive inventory, and a brilliantly simple ad sales strategy of selling a limited number of long-term advertisers exclusive 100% share of voice per page view ad executions.”

The latter example demonstrates that premium content is not just a paid content play – it’s a hopeful sign that good journalism can be sustained by brand advertising. Another example comes from Glam Media, whose founder, Samir Arora, is, as VentureBeat’s Dylan Tweney described in a November profile, betting on “brand advertising displayed against high-quality, premium content.” Tweney writes:

“Does Glam’s approach work? Arora would say yes, pointing to a recent meeting he had with fashion bloggers during New York’s Fashion Week. Both were generating $1 million annually in revenues from Glam. One, however, was the head of a blog with 100 contributors — and the other was a lone blogger.”

Quality plus quantity: The need for scale

The ongoing challenge with premium content is that it’s extremely difficult (and expensive) to produce at scale. Investing in quality content – from original reporting to video production – can drive costs up in a hurry. We all know how this masthead-heavy approach has turned out for the print side of the business (badly). With margins even slimmer online, how can a publisher justify a significant investment in original digital content?

The answer lies in finding the right balance between quality content and, to be blunt, link bait. It’s a necessary evil. Gawker, the popular/infamous gossip site, is embracing this model as only Gawker can. In what EIC A.J. Daulerio calls a “traffic-whoring” experiment, staff writers are assigned one day per week to produce posts they feel will attract the most traffic, providing air (and advertising) cover for the rest of the staff to focus on “more substantive stories.”

“The purpose of this is to make it perfectly clear to the staff of Gawker (and to the readers, hopefully) that just because this is technically a ‘blog,’ there is plenty of room for other pieces that aren’t aggregated and repackaged with block-quotes and snappy snarky snarking snark-snark shit,” Daulerio wrote in announcing the experiment.

A sustainable model

Ken Doctor says media companies can’t afford to invest in the type of branded, promotable talent that creates “signature” content unless they spend less in other areas. Which means they have to rely more heavily on free (user-generated) or low-cost syndicated content from the likes of Demand Media to fill out their web content wells.

Successful and sustainable digital models, therefore, are likely to be a hybrid of high-value content, which drives subscription revenues and/or premium advertising, and low-value content, which drives scale. You can see this strategy at work in Meredith’s just-announced acquisition of Allrecipes.com from Reader’s Digest. From the press release, it’s clear this acquisition is not about premium content, but about volume:

“The acquisition of Allrecipes.com, the market leader in the digital food space, significantly enhances our leading consumer and advertiser proposition,” said Meredith Chairman and CEO Steve Lacy. “It more than doubles the scale of the Meredith Women’s Digital Network, and is expected to drive incremental revenue and profit growth, adding to our already strong free cash flow over time.”

The acquisition of a digital brand of scale aligns well with Meredith’s Total Shareholder Return (TSR) financial strategy, which … includes (1) An increase in its annual stock dividend by 50 percent to $1.53 per share; (2) A new $100 million share repurchase authorization; and (3) Strategic investments to drive incremental revenue and profit growth.

In addition to doubling digital revenues, the acquisition will also double the size of the Meredith Women’s Network audience – to which Meredith can now market print and tablet magazine subscriptions, e-commerce offers and other products. A classic approach to upselling Meredith’s premium content.

Reversing the talent drain

There’s plenty of work required to support this hybrid model. First, publishers will have to reverse the talent drain many have been experiencing and actually start reinvesting in quality writers and editors. Doctor sees “sub-brands” of writers and reporters as a key differentiator:

"News and magazine brands can launch new products, though that’s out-of-their-DNA-tough for many. So they’ve focused primarily on sub-brands, many of which are people. These are the faces of news and magazines; many of these have become hot commodities over the last several years as companies try to distinguish themselves — and give readers and viewers a reason to pick them out of the crowd.”

Systems overhaul

Equally important, publishers will need to update their systems and processes to accommodate more flexible subscription and advertising models. Sawhorse Media’s Gregory Gallant smartly summarizes one of the industry’s main challenges: “In Japan you can buy a coke from a vending machine with your phone,” Gallant wrote in a paidContent post. “The magazine industry’s still mailing invoices?”

The solution, he believes, is clear:

“It’s time for the magazine industry to take a page from companies like Netflix and Spotify: charge by the month, require a credit card, auto-renew payments and let people cancel anytime. Subscriptions in this modern style are fueling impressive revenue growth of companies serving a wide variety of consumers and corporate clients, including Dropbox, GigaOM, Birchbox, 37signals, JibJab and MailChimp.”

Among other benefits, giving subscribers the option to cancel at anytime will give publishers “a huge incentive“ to continuously invest in and improve their products, Gallant added.

Publishers should not need extra incentives to create quality products for their audience. But seeing real business models begin to emerge around digital content can’t hurt the case to increase investments.

Posted in: News-Trend