The Rise Of Dial-Up, Dial-Down Advertising

Ryan Skinner

Advertising as we’ve always known it, online or off, worked a bit like this:

Produce advertising content />> Place advertising content

Here, advertising content had no life independent of its placement. Print ads, TV ads and radio ads lived only on the servers of the ad companies who created them, and then the media who carried them, for however long they carried them.

Now, a new kind of advertising has emerged:

Promote earned or owned content />> Promote more if it works (or less if not)

Here it’s a question of identifying content for promotion that’s already in the wild, on a blog, in a discussion forum, uploaded to YouTube, and then paying to drive more eyeballs to it, because it supports your brand, or it converts interested communities into customers.

It’s particularly attractive for two very good reasons:

  1. It’s already published, and has often already shown potential to create results for the business (in the form of awareness, leads or even sales), and
  2. You can often dial up the eyeballs that go to it, or dial them down, as you see fit, based on performance.
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Content Marketing Fortnight II: Advertising is...unclear

Ryan Skinner

Here’s your fortnightly round-up of the best of the best stuff online for marketers who think about content. (For more information about what the Content Marketing Fortnight is, see my intro from the first one. And, if you want to get this curated newsletter in your inbox every other week, send me a mail.)

Advertising is _______.
The head of the IAB comes late to the party that is advertising’s identity crisis. In all truth, I think he’s done a good job of summarizing some tectonic shifts:

Digital technologies have put the very definition of advertising and marketing up for grabs. Now, when a marketer asks for a new campaign, the response from the team is literally a question mark.

At the forefront of those shifts: An idea that advertising should be more useful and valuable. Content marketing winds are blowing down Madison Avenue.

How do VCs value content marketing
An interesting article in VentureBeat shares compelling analysis of VC investment in the content marketing space. Six investment buckets emerge. It’s worth noting that the top four relate specifically to helping brands get broader distribution for their branded content messages. (NB! I have a report coming out next week about distribution of branded content).

Branding e-singles

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YouTube Wants You To Pay So It Can Have More Of Everything

James McQuivey

YouTube finally announced this week that it would allow channels to charge monthly fees to access content on YouTube. Some have predicted that YouTube’s subscription model would undercut its ad model in an echo of the infamous pay-wall problem that has bedeviled online newspapers as they shifted from ad-supported to paid. Others have suggested that this shows that YouTube is up against an advertising wall of its own making — advertisers will only pay so much to advertise against this amateur and semi-pro content (and to be fair, I am in this camp even though I don’t think this fact is dire). And still others gleefully wait to watch as YouTube learns how hard it is to get people to pay for things online.

In fact, all three of these things are minor asides in YouTube’s decision-making, as I see it. Instead of reacting to these and other constraints, YouTube is proacting on imminent opportunity. YouTube is basically making a grab for more of everything that matters:

  1. More business model options. TV is both ad-supported and subscription-supported, and that works just fine. It gives companies like HBO the creative flexibility to generate content that advertisers may not be ready for, and it gives companies like Scripps the freedom to promise more home-focused entertainment that home-focused advertisers care about. That flexibility is crucial to the ongoing success of those companies, and it will be crucial to YouTube as well. Although in YouTube’s case, I would be surprised if the revenue balance in the one- to two-year time frame exceeded 10% or 15% subscription to advertising.  
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What Amazon Should Do With Its Kindle iPad App

James McQuivey

 

This week, the iPad app world is frantically sorting through some recent changes in its environment. Last Monday, Apple quietly altered its app approval policies in a way that will make publishers much happier. Specifically, Apple has relaxed control over whether apps can access content paid for outside of the App Store’s purchase APIs. The company has also allowed publishers to price however they want, both outside and inside of the app.

In the same week, FT.com released a subscription-based HTML5 web app intended for iPad users that bypasses Apple entirely, giving the publisher its own path to market that does not depend on or enrich Apple directly. The coincidence of these two events is not lost on most of us industry observers and is the topic of a Forrester report issued by my colleague Nick Thomas last Friday. In it, Nick explains why the FT’s move is probably the first of many such moves by the most recognized publishers, even with Apple’s newly announced policy reversal.

But while publishers figure out their next steps for their content apps, there’s one app that no one is talking about but I believe everyone should have their eye on. It’s the Amazon Kindle app. This app violates even Apple’s revised policies and will soon face a day of reckoning when Apple's June 30th deadline for compliance comes up. 

I don’t claim to know Amazon's plans, but I will claim to tell Amazon what it should do:

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Apple’s 30% And Google’s 10% Fees Are Too High

James McQuivey

 

The most important outcome of this week’s emerging tussle between Apple and Google is that we are about to have an intense and financially difficult conversation about what a fair price is for delivering customers to developers, publishers, and producers. Economically, this is one of the most critical issues that has to be resolved for the future of electronic content. Very soon, a majority of consumer experiences (that which we used to refer to as the media) will be digital. But not until the people who will develop those experiences have unambiguous, market-clearing rules for how they can expect to profit from those experiences.

The question comes down to this: Is 30% a fair price for Apple to charge? I must be clear about my intentions here. I do not employ the word “fair” the way my children often do. I am not whining about Apple’s right to charge whatever it wants. Apple may do whatever is best for shareholders in the short- and long-run. I argued yesterday that Apple’s recent decision does not serve its shareholders in the long run. Google announced One Pass yesterday – hastily, I might add – in order to signal to Apple and its shareholders that monopoly power rarely lasts forever. But none of that questions the ultimate morality of Apple’s decision or its rights.

I use the word “fair” to refer to a state of economic efficiency. A fair price is one that maximizes not just individual revenue, but total revenue across all players. Such revenue maximization cannot be achieved without simultaneously satisfying the largest possible number of consumers with the greatest possible amount of innovation.

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Apple's Policy Harms Subscription Providers Today, Apple Tomorrow

James McQuivey

 

Yesterday Apple announced its intention to tighten its hold on the payment for and the delivery of content through its successful iTunes platform. (I’ll leave off the I-told-you-so; oops, too late.) Apple will require that all content experiences that can be paid for in an Apple app must be purchasable inside the app, with Apple collecting its 30% fee. The app can no longer direct you to a browser or some other means for completing a transaction. Crucially, the in-app purchase offer must be extended at the same price as the same offer made elsewhere. Though the announcement of the subscription model was the triggering event, the policy extends to all paid content.

I do not believe this is where Apple will stop – I personally expect them to eventually deny the delivery of content paid for outside of the app without some kind of convenience charge. But my personal expectations are irrelevant here, because what Apple has done already is sufficient to make providers of content aggressively invest in alternative means to reach the market.

Subscription content services are the lifeblood of the content economy. A full 63% of the money consumers spend on content of all types comes through a renewable subscription (I’ll be publishing this data from a survey of 4,000 US online adults as part of a bigger analysis next month, hang tight). Most of that subscription revenue goes to pay-TV providers, but 17% of it goes to newspaper and magazine publishers, including their online or app content experiences.

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Apple Clamps Down On Paid Content Delivered To iPhones And iPads

James McQuivey

Today The New York Times is reporting that Apple is changing its policy for allowing apps to deliver content that was paid for somewhere other than in the app where Apple would get a cut. This came to light when Sony was forced to explain why its iPhone and iPad apps were not being released as promised. This is important to illustrate clearly because this is not just about Sony. In fact, it is expected that Apple will apply this same policy to existing apps over the coming months. The most obvious target is Amazon.com's Kindle store, but we have no reason to believe it will stop with eBook retailers; instead, this policy should also affect magazines, newspapers, even videos and games. 

This represents a shift for Apple. Going back to the iPod days, Apple only sold music because it helped sell iPods. When Apple added the iPhone app store, it allowed Amazon to add a Kindle app because it would only make iPhones more valuable to potential buyers. The same held true for the iPad. But now that the company has built such a powerful ecosystem of devices, content, and consumers, it appears Apple is eager to ensure it can collect any and all tolls along its proprietary highways. I note this with some irony because it was just three weeks ago that I praised Apple's surprising openness in a report explaining the iPad's rapid growth:

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Netflix Is Now Primarily A Digital Video Company

James McQuivey

Netflix announced its Q3 2010 earnings a few weeks back and the numbers were every bit as positive as people have expected. The company added nearly 2 million subscribers in the quarter, almost four times as many subs as they added the same quarter last year. Yeah, four times as many. While Comcast and Time Warner announced net subscriber losses. At the same time, the cost for Netflix to acquire a customer has fallen 26% in the past year. Funny how when you digitize the customer relationship and the product at the same time, all your costs go down.

The number I always wait for from Netflix is the percent of subscribers that used Netflix Watch Instantly in the quarter. It rose to 66% this quarter, up from 64% last quarter. And remember, this was while adding 2 million new subscribers, which means that new subscribers are adopting Watch Instantly at a rapid rate instead of waiting to get used to Netflix; in fact, they're probably joining Netflix just to watch instantly. This is, of course, why Netflix will likely offer a digital-only plan that subscribers can pay for if they don't even want to pretend to put DVDs in their queue. 

Why is this important today? Because it was just now that I finally dug through the summary financial results to find this gem of a quote, something that was briefly reported when Netflix announced it results, but was not fully understood in most of the reports I read. I want to resurface it because this is a big deal: 

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How To Get People To Pay For Content

James McQuivey

It's the most common question I get in my travels: Will people ever pay for content again? See what I had to say about that in a recent interview below (as posted on Paidcontent.org)

Implied in the question is a belief in some yesteryear in which people did pay for content. But the good news is, they never have and never will. That's the good news? Yes, because once we stop imagining that people will someday pay for content again, we can focus on giving them what they will pay for -- access to content.

It's what people have always paid for and it's clearly what they pay for now. Look deeper into the past and you find that people did not underwrite all the pages of content in their daily newspapers. Yes, they paid for the newspaper, but that's just because the newspaper was the only way to get efficient access to that much news and information. Today, instead of paying for newspapers, they pay for high-speed data plans to their homes and on their mobile devices as well as subscriptions to content from Netflix and their cable companies, accounting for 77% of their monthly spend on content. And they will pay even more for that in the future as 4G becomes a reality. 

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Though Miffed, Media Companies See Silver Lining In Apple-Adobe Tiff

James McQuivey

 

The Apple-Adobe tussle is heating up to bizarre proportions, with Steve Jobs yesterday issuing a public defense for Apple's anti-Flash stance. Call it a blog-heard-round-the-world due to how quickly Jobs' comments spread, much appropriate focus has been placed on Jobs' technical arguments, including this write-up in The Wall Street Journal that quotes my colleague Jeffrey Hammond

But there's another big story behind this Flash fiasco that has successfully remained off the radar of most. It's the answer to this question: How do the media companies -- you know, those people who use Flash to put their premium content online everywhere from Wired.com to hulu.com -- feel about having their primary delivery tool cut off at the knees?

Answer: Media companies hope to complain all the way to the bank.

First, a bit of disclosure. I'm the one who went on record explaining that the lack of Flash is one of the reasons I am not buying an iPad. So I'm clearly not a fan of the anti-Flash rhetoric for selfish reasons: I want my Flash content wherever I am. But I've spent the last few weeks discussing the Apple-Adobe problem with major magazine publishers, newspaper publishers, and TV networks. Their responses are at first obvious, and then surprisingly shrewd.

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