broadstuff

Yesterday about 60 people spent 3 hours workshopping the Future of Online Video at the Amplifed 09 session. A few people have already blogged their sessions, and the Twitterfeed is available here.

There is a strong temptation to say that because X happened in industry A, it will by extension happen in industry B. Nowhere is this more tempting than in the evolution of online media, to say that because user generated content (in its widest sense) it is disembowelling newsprint and music, the same will happen in online video.

Readers of earlier posts of ours on this blog will know we are a bit pessimistic about how User Generated Video will survive - by and large its low quality, hard to find, has poor metadata - and the infinite sea of it means finding anything is very hard. As Sarah Lacy notes in a recent post, YouTube has a problem:

.....so many of the videos are user generated content in which I don't have any interest. They're like the thousand of listings for "Buy It Now!" socks on eBay. But Hulu isn't just better because it can have professional content: It's the technology. The last three times I've looked for a video clip, I've spent half an hour scouring Google and YouTube only to get a flood of inaccurate results. Each time, I've tried Hulu as a last result, and found the clips within minutes. Hulu has better fields, parameters and user interface for searching videos than Google, which still appears to search for video the way it would for text.

.

Research we have undertaken on the future of online video implies that User Generated Video has 3 major issues vs higher quality content:

(i) The economics of video is different, and favours the large players more than text and audio based media does

(ii) The user dynamic is different - the customer has a higher preference for high quality video than audio or text (ie tolerance for poor quality UGC is lower)

(iii) Advertising works differently in video - text and audio models are not directly transferable

Video Economics is different


In a nutshell, it costs much more to create, curate, and distribute a piece of high quality video media:

Creation - a 30 min TV show, or a movie, or especially a 13 episode series is a very resource intensive thing to do. This requires more organisation and structure in the industry - finding the the single blogger or brilliant MySpace musician is nearly impossible to imagine in long form online Video. A 5 minute good quality Web TV show requires many hours behind the scene even for "head and shoulders" sets like Rocketboom etc - 30 minutes is exponentially more, there are few scale benefits to be had.

Curation - this incorporates functions such as editing, making the right content findable etc - automated systems such as Google search work well for text, less well for video - especially long form video. Tagging etc has not proven to be a scalable approach to date, and the Semantic approach is still always available "in the near future"

Distribution - A 4 minute blog post is c 1 Mb give or take, 4 minutes of a song is about N Mb give or take, 4 minutes of TV quality video is about X Mb - and a 30 minute show is Y Mb - this costs a lot more to distribute to an audience - at say $1 per Gb its $A vs $B per 1000 downloads - this totally changes the burn rate economics for any startup spooling video rather than text or audio

The User Dynamic is different

Despite continual claims to the contrary by media 2.0 flagwavers, all the emerging evidence is that most people, most of the time, like linear stories that are told well, and preferably in high quality formats. In fact, as this analysis below shows, although UGC video will fill the tubes, there will be very little money in it.



Note YouTube's rush to offer better programming content recently, and note the rapid growth of Hulu, despite it being lambasted at startup by many of the "Web 2.0" leading lights

Advertising Works Differently on Video

The web staples that have driven great wealth for Google et al in "traditional" webpage media (Adwords etc) just don't translate into Video. Nor does trying to make much money from advertising on 3 minute clips of poor grade content, as YouTube has found over the last 2 years.

In a nutshell, the "long tail" advertising revenue that drove text / picture based webpage monetisation apply far less for video. What does provably work so far is:

- Sponsorship of higher quality short form media on shows that repeat
- "Traditional" Ads (the 30 second shot and similar) on Long Form media
- To a lesser extent, product placement (it ages fast)

So, given this, the opportunity to discuss how to solve some of these problems at Amplied was very useful. In the first session We discussed 3 key areas that UGC video needs to solve:

How do you find stuff?

As noted above, its a problem. So - how to solve? The "Folksonomy" has by and large proved to be a chimera as millions of people tag videos in all sorts of ways, the variety just gets too hard to parse easily. James Whatley, blogging in the Spinvox blog post, notes:

There is one question you might be asking yourself right now and that is:

“Why would SpinVox attend ‘The Future of Online Video’?”. That’s a very good question, that requires a very good answer. All will be revealed very soon.

Very mysterious - but one thing we discussed was to turn the audio stream into text (which Spinvox does) and make that searchable. Seems like quite a good plan.

Even if you've found the Video, how do you find the bit you want?

One of the major issues we discussed was that its not just searchability of video that counts, you need to be able to scan it fast to find wat you want. Few people have the time to sit through video in a linear listening mode, and the view is some form of easy, rapid navigation through the video is required. The common view is that "video search" per se is a way away, so "good enoughs" could emerge in the interim. For example, simple videoscanning (eg a good slider system) and some form of transcript would be useful (even something as simple as this TED video system below helps navigation hugely)



Clearly to do this manually for every video is hard. However, it is not impossible to imagine that, is some form of metadata like the above was made common, people would be motivated to use it because it will make their video more attractive.

In future, making User Generated Video may thereforel require the addition of User Generated Metadata - and lack of it would be picked up by a playout system, which, if for example it asked "show only videos with transcript metadata" would kill videos without it.

What other data can you pick up to help video search

Given that tagging/folksonomies/semantic webs are not really fit for purpose right now, what other options are there? One of the issues discussed was how to cull cr*p video using data like the bit sampling rate, as many people do with music, and that led to discussions about what other metadata could be deduced automatically.

Who is organising say all the great videos on TED, MIT, Oxford etc and curating the "Interesting" channel. Even making it easy to organise YouTube videos into some form of user chosen channels would be ahuge step forward

The "big picture" realisation was that "traditional" video media formats have had 60 years of evolution of the best ways to organise it - just agreeing what the "Electronic Program Guide" (EPG) should have in it is hard enough. never mind what it may look like and how it would work.

The future of Seesmic, Social Video Objects and Copyright

The second session was a discussion on the "videotwitters" like Seesmic - general view is that they were not as yet compelling at all due to all the metadata issues, and the "shorter the better" - like 12secondTV - was seen to be the best way. How will they make money - the view is that they are not sandalone and naturally belong as adjuncts to Telco type services, paid for as part of a connectivity bundle

The discussion sort of sideswayed off to talk about how low the interactivity of conventional media was, and the view that a "use it or lose it" culture may emerge - ie if a piece of MSM is put out but doesn't join the conversation, the conversation may well appropriate the medium (not so much piracy as squatting if you like). thsi of course led to discussions about teh future of copyright, especially for these nuggets of social object content. No conclusions, except at present the mountain of new usage and the Mohammed of traditional copyright dogma will have to come together in the next few years.

So how do we use video socially then?

The last discussion tackled social video - the key observations were that:

- Joost didn't get to define how we socialise while watching video - a horizontal app, Twitter, is now the chat system of choice while people watch TV.

- When it come to enjoying content we are not so much social as tribal - we cleave to people who liek what we like (we duscussed the difficulty if dealing with social text net friends who had lousy taste in music and video - do you have different friends for different mediums?)

- Social Media works best when people react to smaller nuggets of content - its not really great for essay clinics - so video will need to be broken into smaller chunks anyway.

Another aside on this - we noted that a lot of us would fire up say a TED video, and then just listen to it rather than actually watch it. Why was this? Well, to make a video takes a lot more care, the presenters are more structured in general compared to audio (also, as one person noted, you tend to eyeball the video's presenter to take a view about listening more) for so the bang per buck per minute is higher.

A hope full article on Smashing Magazine about the zen-u-like aesthetic design rules we all would like to believe websites should have:

1. Out-of-the-box layouts
2. One-page layouts
3. Multi-column layouts
4. Huge illustrations and vibrant graphics
5. More white space than ever
6. Social design elements
7. “Speaking” navigation
8. Dynamic tabs
9. Still large search boxes
10. Category visuals
11. Author icons
12. Icons and visual clues
13. Tag index (instead of tag clouds)
14. Illustrations in blog posts
15. Watercolor
16. Handwriting
17. Retro and vintage
18. Organic textures, tiles and photographic backgrounds
19. Badges
20. Price tags
21. Ribbons

All very nice (excellent actually), but it misses The Big One, which is......

Retro-Portalisation - The stuffing of the website with as many adverts as you can fit on without actually hiding all the content all the time - as we showed with this morph of TechCrunch below! To be fair, we are talking abot commercial consumer media and the article is more general, and its a really great article to read for design ideas, (as is the first in the series) - but you get our drift....

A fascinating session today at Amplified 09, discussing the Future of Online Video - huge amount of stuff learned, lots to blog, but later - needs to ferment a bit in the old backbrain.

There was however one interesting end conversation about an unrelated topic, notably the shi(f)ting usage of Twitter. About a year ago we noted that Twitter shifted from being a service for social media airheads to exchange brief nothings to something that started to be quite useful - driven I think by a new cadre of joiners who used it to tell each other about interesting things they were reading, doing or thinking.

The discussion this morning was about how it was changing again, with Slebs, PR sharks and marketing drones, and (gasp) common people increasingly trying to cancerously colonise it and play silly spam games, reducing its utility to collaborative users. Funnily enough, today one of the funniest rants I have ever seen covered exactly this topic (hat tip Tom Morriss, who pinged us on Twitter). Here goes, in full rant-o-colour. It starts with those ex blogging A listers who become social media experts and relentlessly ply twitter like possessed zombies to try and collect as many followers as they can:

The zombies then seek each other: You’ll always notice that of the 5,000 followers that a social media expert has that all 5,000 of them are also social media “experts”. Their only form of conversation is to quote each other and live tweet conferences where they gather. Like any good Ponzi scheme the lead zombies can make a good living feeding the hopes and aspirations of the worker level drones who parrot their every blog entry.

But that’s where the problem starts with us civilians: The drone level zombies then start to stalk any innocent Twitter user they can find. They don’t care who it is or what that person is interested in because their first prize is the “auto-follow”. By finding enough folks who don’t have auto-follow turned off they artificially inflate their number of followers which inflates their “expertise” in the field. Most start out by doing this to each other, but before long they need to prey on the flesh of the living.

And of course, like any other time a new ecological niche is opened up, species start to adapt to it:

On a related note there’s also a related clan of zombies which are the SEO “experts” — these creatures are a blue collar variation of the social media experts and usually have the term “web master” in their bio. Sometimes the social media and SEO zombies can mate to produce a marketing strategy monster, but most of these are harmless as they don’t use the auto-follow technique.

Anyway, the discussion at Amplified was about where to go next if Twitter becomes Yet Another Marketing Opportunity and spoils it for the community - the view is that the videoblogging systems like Seesmic are by and large still nerfed (take too much time, still at airhead content stage, can't link easily etc etc), Facebook - well Facebook was what you did before Twitter and before it succumbed to the commercial crapola. Friendfeed - maybe, but only if there is nothing better (better being a very low hurdle) was the view.

So there you have it - early warning that the Social Media Butterflies are starting to flex wings and thinking of how to fly from Twitter unless it is possible to find some way of filtering / mediating the craposhere that seems poised to invade it.

For what its worth the Rant Thesis was that the only way to exterminate these Zombies was to invite them somewhere like a desert island and ten nuke them all. I propose a more humane treatment - invite them all to the Paris Hilton* (who could refuse a name like that) and then run it as an online reality TV show for the next 2 years and not let 'em out nor give them any access to online media. We could thus have a live Human Menagerie and sell ads against it to fund all the startups that can't get VC money, as well as ridding the planet of an entire generation of social media expert marketeers.


(*The Paris Hilton is a very nice hotel in Paris, France by the way)

Real Time Search is an interesting topic - for most consumer uses its not really that useful, until something important happens that means the search indexers (like Google) are going to be totally out of kilter - like say the election of a new President.

Quick Lecture Time - most major search engines today use index based search, a 2 stage process - spiders crawl across the web, collecting web pages and changes thereto, and creating massive indexes which Google etc store. When you type a search, its the index that is searched. If a tree falls in your world but the spiders don't see it, as far as Google is concerned it hasn't happened. Real Time Search, on the other hand, goes and looks at the original sources every time a search is initiated

The problem with Real Time Search is that to search the whole world wide web in real time is not feasible, the task is too huge - you would have a real time wait of several hours (at least) and it ain't cheap to do it this way - so you have to start to narrow the searched fields - ie introduce context into what you are looking for so the system can knock out stuff not wanted before it even goes near it.

But even this winnowing can still make the task too daunting, so one also has to look at near real time approaches - one of the most powerful of which is the Publish / Subscribe model (Pub/Sub) - where the search target continually publishes its updates, to which you subscribe (think Twitter). To extend the reach, the publishing entity can be a focussed aggregation / spidering system that is cycling round and updating itself in "good enough" near real time.

Which brings us to the resurrection of Pubsub, a real time search play that closed its doors in 2007 - as RWW notes:

You can either give it a number of keywords to search for, or subscribe to a topic. The choice of topics is extremely broad (think 'Nintendo,' 'Micronesia,' and 'Hepatitis'). Every time a blog posts an article that either includes one of your keywords or fits into one of the categories that you subscribe to, PubSub will update your search results in real-time.

Because PubSub is part of the Ping-o-Matic blog update system, these updates often happen only seconds after a story went live.

(Pingomatic being an aggregation service as mentioned in my microlecture above)

As RWW notes, the curious thing is that Google has not yet entered this real time game, something that has always surprised us:

Clearly, this is the kind of service that Google, thanks to owning the ubiquitous FeedBurner service, could easily have created itself, but as we pointed out last week, Google seems to have missed the boat on the real-time web.

.

A few years ago, most of the early 2000's Real Time engines closed down, but the broadband mediaweb is starting to see their re-emergence methinks.

(Disclosure - at Broadsight we build Real Time search technology for context specific client applications, such as this one)

Two related posts - Forbes says that European CEO's don't like Twitter, and Yammer, last year's TC50 finalist, gets $5m in funding. Re EuroTwitter:

Despite Twitter's success in the U.S., the three-year-old company's service hasn't caught on in Europe. According to Twitter's search tool, Twitter Scan, there is one account under Tesco (nasdaq: TESO - news - people ), the U.K.'s largest retailer, but it has only one outside comment so far. The same goes for financial services firm HSBC (nyse: HBC - news - people ), which has 18 followers but no status updates.

Most European companies haven't even heard of Twitter, and some might think it's a time waster. A spokeswoman for energy firm Total says that Chief Executive Christophe de Margerie has no idea what Twitter is. British Telecom says it doesn't have a Twitter account and doesn't plan to open one. Nestle's (other-otc: NSRGY.PK - news - people ) communications manager says using Twitter "just never came up within the group strategy." In general, experts say Europeans don't latch on to new social networking technologies as quickly as Americans.

"If the E.U. business community wants to have efficient conversations with customers and partners like U.S. companies have, they will get to Twitter, sooner, faster and in greater numbers," says Shel Israel, author of the forthcoming book Twitterville.

Insofar as this is actually a story rather than a bit of PR puff to raise Twitter's Europrofile and flog a few books, all it really shows is that most European CEO's (in fact most people outside the small band of the Euroblogosphere) have never heard of Twitter. Its still firmly in the Early Adopter camp in the Other Moore's law.

Notwithstanding the PR-puffy nature of the article, the Eurotwitterrati are all chirping huffily and fluffing their feathers, but the key question everyone seems to have lost sight of is this - is Twitter actually of any use for businesses anyway, or is it just the latest bit of ephemerality that corporate PR peeps should espouse to look "with it".

Which brings us to Yammer, which is essentially a Twitterclone but aimed at Enterprises rather than duking it out for consumers - who have just taken $5m in funding:

Yammer is a spinoff from genealogy site Geni, which also just received another $5 million from the same investors in a series C financing.

The Founders Fund is a $220 million seed fund whose partners are mostly former execs from PayPal, where Sacks himself was the COO.

The A round should help Yammer make more inroads into companies big and small. Yammer is an enterprise version of Twitter that helps people in companies keep up with what everyone else is doing. It works especially well with far-flung employees (we use it every day at TechCrunch). But many competitors have already sprung up, including Present.ly and WizeHive. And Twitter itself could easily move into the enterprise market simply by launching a groups feature, as it has done in Japan.

Not to mention popping up your own service via identi.ca or the soon-to-be-opensourced Jaiku. So - why hand $5m over to a near pre revenue company with no discernable IPR advantage in a market with no real barriers to entry? Apart from it being being a Paypal Mafia company , is there any rational reason to do so? (After all, there is an entire book to be written on the risks of investing in the schemes of previously successful executives...)

Strangely enough, its because so few people have heard of Twitter that you would probably do it - there is clearly potentially some "there" there - despite the teething problems - with this stuff, and Twitter has not yet jumped the Enterprise chasm yet, and thus an enterprising startup could potentially do so - or at least sell themselves to some CRM behemoth in 2 - 3 years time when it wakes up (and the $5m is nearly all gone)


(And of course there is always Critter, the Microbotblog for the coming m2m revolution)

Its Inauguration day, and while we are delighted with the passing of the Ancien Regime, the koolaid euphoria seems to have gone to everybody's head - except, interestingly enough, Wired Magazine, which posts a sober article about the differences between the dreams that are being foist on Mr Obama's shoulders and the reality. Take the Net Utopia he is supposed to lead....as Wired notes, the hoopla was all about it being:

"Franklin Roosevelt 2.0," in the words of The Huffington Post. The Washington Post proclaimed the advent of the "YouTube presidency."
1 million:
The number of views received by Obama's first YouTube address as president-elect.

It wasn't long, however, before savvy observers noted what was missing from this and other Obama videos: the chance for ordinary citizens to talk back. The campaign initially disabled the comment function on YouTube and prevented response videos from appearing alongside. A YouTube video without comments, some pundits groused, is more like a monologue than a chat, fireside or not. "I don't see how one-way messages provide any more transparency for the work of the White House or government than the current old-style radio addresses," blogged Ellen Miller, director of the Sunlight Foundation, a government-transparency watchdog group.

....

The real reason, however, was that Obama wasn't actually trying to have a conversation with Americans via YouTube. Like every president before him, he was simply harnessing the latest tools to talk to them, one-way.

Leopards, spots, politicians, etc.....As the article notes later on though, this use of interactive media for broadcast has set unachievable expectations:

Obama has himself to blame for raising such expectations. During the campaign, he embraced every form of social media. At My.BarackObama.com, supporters could create profiles, talk to each other, and—by election day—plan some 200,000 offline dinners and living room fund-raisers. Users could log in from home to get lists of swing-state voters to telephone; this generated 3 million calls in the final four days of the race. Those efforts were combined with massive database-crunching to identify potential voters who could be approached door-to-door by last-minute canvassers, myself included.

......

But turning his innovative campaign and transition into Government 2.0 won't be easy. The nimble Obama startup is about to be absorbed into a stodgy, technologically backward behemoth: the federal government. Ahead are bureaucratic obstacles the campaign never imagined, along with the political land mines that transparency brings. Obama will have to preserve the enthusiasm of his supporters while engaging the larger group of people who either didn't vote for him or didn't vote at all. His task is to rebuild the personal connection that supporters felt they had with Obama the candidate, assuring them that he is listening to them—without being deafened by the cacophony

And of course there is that little issue of democracy being for all the people, not just the weborati:

The Obama team, for all its Web enthusiasm, recognizes that an online community—no matter how vibrant—doesn't represent all of the American public. "A lot of people consider online interactions and communications as representative of Americans. But we have a lot more high-speed Internet lines to drop before that's true," the Obama aide says.

Not to mention the small problem of a looming major economic depression, some very militant foreigners, and a host of long burn domestic social issues coming home to roost that he has to manage - last time round the guy doing the Obama job had to wear the the no-win shoes as they all dropped, it was the one afterwards (FDR) that got all the prizes because by the the bad news was all out , the last of the scoundrels had been booted out (many are still in situ today and it will be a hard and damaging fight to remove them) and it was much clearer by then what had to be done.....

We wish Mr Obama the very best of luck - because he will certainly need it!

Update - Mr Obama has a blog it would seem, and intends to use it (hat tip to Adam Tinworth)

A friend sent me this New York Times piece from September 30, 1999, by Steven Holmes:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Hows this for a prescient paragraph.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

1999..........and people already knew it would end in tears

Interesting story in The Times today about how a Microbrewery microbranded itself:

Soon after starting up, Scottish beer business Brewdog was struggling to sell its product until its co-founders hit on the idea of using the internet to market their distinctive beers.

“It was a hard sell locally at first,” said co-founder James Watt. “People had grown up with lager, and a lot of the pubs in Scotland are tied. So we decided to see if we could interest overseas beer enthusiasts online. We could see an opportunity in places like Sweden and America where specialist beers are popular,” he said.

Watt found the most popular bloggers in each country and sent free samples to them. Having built a following, they convinced local importers to sell their beer and international orders took off. Today exports account for 80% of sales.

One of the travails of being a tech business blog is no one ends us stuff like that (pity, we do consume the stuff.. )The thing that really interested me was they used video as well as text/picture blogging:

Brewdog uses video to talk to customers. It recently gave them the chance to create a new beer by posting clips of its staff arguing about the virtues of different types of beer and letting them vote on how the final product would taste. “We called it Beer Rocks and it was the first ever democratically designed beer. It generated a lot of interest and all it cost us was a couple of hours’ filming and the price of a video camera,” said Watt.

We believe that video will prove to be "the" new customer marketing medium for 2009 as:

- It gives full bandwidth information for users in new/unfamiliar situations - you can see faces, body language etc - potential for greater trust. It needs to be integrated with text, but is a powerful medium.
- It is still novel and thus for a while will have higher attention / takeup (all new Ad modes do in the early days, before people become familiar with them)
- Lots of people now have broadband and are increasingly used to taking video onboard.

Also, there is some evidence that Google is favouring video searches at the moment, as Nate Elliot of Forrester notes.

Article in the WSJ puts paid to the wishful view that search advertising will survive the recession, whereas display advertising will not.

U.S. search advertising spending fell 8% in the fourth quarter of 2008 from the same period in 2007, according to a new study from search advertising firm Efficient Frontier, whose search industry spending index was flat for most of 2008.

We never believed the hoopla, but its good to see it proved.

Explains Google's radical strategy overhaul over the last few months, culling non core businesses and trying hard to make costly ones like YouTube pay their way.

Fascinating discussion of Newspaper vs online media economics over here from Ethan Zuckerman of Global Voices. I'm going to quote the piece in quite a bit of detail as it is very interesting on a number of levels:

Firstly, the economics of a regional paper:

....the paper relies on dozens of unpaid correspondents and pay-per-piece freelance contributors, it also has eight editors, several reporters, professional compositors/paginators, and departments for administration, circulation and ad sales. My friend guessed that, with everyone in the office, day and night shift, there were at least sixty full-time employees responsible for producing, distributing and monetizing the paper.

I don’t mean to suggest that this is excessive, or that the newspaper’s (legendarily tightfisted) management is running anything other than a lean, efficient operation. While the office is responsible primarily for the 26,000 circulation daily newspaper (not bad for a paper that serves a county of 135,000 people), it also publishes a 6,000 circulation paper focused on the northern Berkshires and southern Vermont. And the mighty four-color presses in the basement produce an additional Vermont paper, helping defray the costs of production. (Given the parent company’s financial difficulties, and the downgrade of their bonds deep, deep into junk status, any efficiencies are surely appreciated.)

What I was amazed by was how much advertising and subscription revenue the paper must generate to support dozens of full-time jobs. I haven’t been able to find revenue numbers specifically for the paper, but a back of the hand calculation suggests that it must be generating significantly more than $2 million a year in subscription and ad sales to support salaries and production costs. It’s quite possible that subscription is what keeps the paper alive - at a retail price of $176.88 for daily home delivery, subscriptions could generate a couple million a year. (I assume not everyone is paying retail price, which means that some significant part of the paper’s revenue picture comes from advertising.)

Ethan compares this with his online service's economics:

I help run a fairly popular online citizen media site, which is visited by roughly 300,000 visitors a month. We’re doing a great deal of strategic planning at the moment, looking for ways to broaden our revenue base from foundation support and corporate parterships to include online advertising revenue. As we run the models, the numbers aren’t especially pretty. Suffice it to say, very few of our models project us making a million dollars a year in online ad sales. Fortunately, we’ve got less than half a dozen full-time employees as well as an army of volunteers and contractors, so we don’t need nearly as much revenue to support our work as our local newspaper does.

The issue is the orders-of-magnitude discrepancy in Ad values per reader

The difference in ad pricing between online and print advertising is something I’m finding mind-boggling. Advertising inserts in the Berkshire Eagle are priced at a base rate of $45 per thousand customers for two print pages, targeted by zipcode. Those prices don’t include production costs - the advertiser is responsible producing the inserts and delivering them to the production facility. The cost covers the insertion of the ad into the appropriate papers and their delivery.

This model of advertising pricing - called CPM (cost per thousand) - is what early internet companies tried to use to monetize content. In the early days of Tripod, we called our friends who worked for glossy magazines, found out what they were charging for ads in CPM terms - usually $20-$60 - and asked our advertisers to pay at least as much. Our logic? Since you can’t click on a magazine ad, they simply build brand, while ours build brand and can lead to sales.

We were able to earn $45 CPMs for a little while, until advertisers started to question our logic. In some cases, they saw other sites offering much cheaper rates; in other cases, they questioned whether the ads really were leading directly to sales, as they could track who’d clicked on the ads. CPM rates fell across the industry. Some sites continue to make pretty good money on a CPM basis, especially sites with highly targetted content likely to appeal to a certain type of customers. Federated Media, an advertising network that focuses on technology content, offers CPM ads from $3 to $26. Most content providers don’t see rates that high. According to Technorati’s 2008 state of the blogosphere, US bloggers who accept advertising saw a mean CPM of $4.20, but a median of $1.20 - that implies a small number of bloggers earning high CPMs for highly targetted content, and a lot of folks selling impressions at $1 per thousand.

Ethan thinks through the possible reasons for the disparity in values:

Basically, there are two ways to explain the disparity in online and offline ad cost. One is to argue that paper ads are, for some combination of reasons, ten to a hundred times more effective than online ads. The other is to argue that advertisers are better at pricing online ads than offline ads.

Or advertisers are massively underpricing online Ads? Anyway, given Ethan's hypotheses, he comes to a conclusion that concerns him (and us)

Here’s my concern. If I’m right and print advertising costs are fundamentally irrational, then it’s possible that the way we’ve built media in the United States can’t survive a transition to a more rational market. That would be bad. Newspapers aren’t just businesses - they serve a critical function in a democratic society, informing citizens so they can make intelligent voting decisions, lobby their elected representatives on issues of their concern and hold political and business powers accountable.

What if the idea that commercial enterprises should carry out the public interest function of journalism is built on a fundamentally broken model? What if advertising worked pretty well as a way of subsidizing public interest journalism only so long as advertisers didn’t understand the effectiveness of their ads?

But, Ethan also shows in passing that one potential reason for higher prices may be a shortage of inventory in the paper model, thus making it more expensive:

Why are advertisers willing to pay these prices without strong evidence that they give an effective yield? They may not have much choice - other options in a community where many customers are offline are also pay per impression and may be similarly expensive. The worry the local Price Chopper has is that if they don’t produce an insert and the Big Y does, perhaps they lose their share of the local customerbase.

No conclusions here from us, its just a fascinating essay. Its blogged more as a record and for something to mull over for now.