AR&D - Audience Research and Development

WEDNESDAY, JULY 25, 2007

TWO POSITIVE ANNOUNCEMENTS TO NOTE FROM THE NETWORKS (Terry)
CBS and NBC have made the news in the past week for online concepts that I view as extremely positive. They're also strategic issues that should be on the plate of anybody who does local media these days and wishes to expand their portfolio.

Last year, CBS made the unique (at the time) decision to unbundle its content rather than force users to come to their branded sites. They cut deals with many sites, rightly discerning that users preferred to watch clips at their favorite sites instead of those belonging to CBS. On Friday, the network announced their goal of making CBS content available on 400 sites.

"CBS is all about open, nonexclusive partnerships," CBS Interactive president Quincy Smith said. "Just CBS.com is not the answer" to reaching viewers, he added, so the network is devoted to going out where the viewers are, not forcing them to CBS.com.

The videos actually run from the CBS server, so all the traffic is counted and monetized easily.

We call this strategy "unbundling," and it's the right strategy for extending the brand of any media company in today's distributed media paradigm. In attacking the Media 2.0 distruption, however, a key strategy is the creation of niche verticals, and that brings me to NBC.

The new president of the NBC O&Os told Broadcasting & Cable that's he's encouraging all GMs to emphasize local niches.

"You’ll see a big change in the focus on local, in terms of our digital strategy," he says. "It's our intent to have a bigger presence in niche communities and get away from general news."

This is a remarkable statement and one that would've been unthinkable just a year ago, but it suggests to me that eyes and minds are being opened to the realities of Media 2.0.

Each station's content, he says, will reflect its DMA. "There are a lot of unique qualities in each marketplace," Wallace says. "There’ll be a very different look and feel to how we present content in that marketplace. There’ll be major reliance on [general managers’] local expertise."

This is going to explode over the next twelve months with a scramble in each market to see who can grab which niche. If you're thinking about jumping into this, you must consider that your competitors are doing likewise. If you're not, you'll likely be in a very bad competitive situation in a short time.

These two shifts in thinking at the corporate level represent welcome and refreshing change. To everybody else, I say what are you waiting for?   <Permalink>

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THE RISE OF BEHAVIORAL TARGETING: AOL BUYS TACODA (AND DAVE MORGAN) (Terry)
AOL/Time Warner bought the ad network TACODA yesterday for a reported $275 million. CEO Dave Morgan is an old friend (in internet years), and he told me via email that the deal "will mean great things for TACODA, our partners, our customers, and AOL. They've got a great platform and are very committed to building a great advertising business and we're very excited to be part of it." Dave's a pioneer in internet advertising, and he goes along with the deal. He'll take a "senior position" at AOL.

This is the latest in a series of big acquisitions involving ad networks this year. Google bought DoubleClick, although the government is looking at that one. Yahoo acquired RightMedia. WPP purchased 24/7 Real Media, another company started by Dave Morgan. And Microsoft bought aQuantive.

The real story in this latest deal is the growing popularity of behavioral targeting (BT). TACODA is thought by most to be the leader in this field.

The behavioral targeting market is projected to increase to $3.8 billion by 2011, from $350 million in 2006, according to eMarketer. Through Tacoda's cookie-driven practice, advertisers can deliver messages to consumers based on where they have gone online regardless of the content of a specific Web page.

At MediaPost's Behavioral Marketing Forum in New York yesterday, Tameka Kee of Online Media Daily wrote that BT isn't ready for prime time, "...it was clear that obstacles exist ranging from definition to education." She added that there are problems with metrics and creative, but there certainly is interest in the concept.

...a recent Jupiter Research survey found that only 16% of advertisers have used behavioral targeting in the past year, compared to the roughly one of every three that have used geo- or contextual targeting. And while almost 20% of ad executives surveyed said they planned to use behavioral targeting next year, it's more of a focus for agencies, not their clients.

In an Online Media Daily commentary, Steve Smith wrote, "The sheer numbers of planners, publishers and brands who attended Tuesday's show is itself a testament to the importance of BT in people's minds' if not to their pocketbooks."

So the ad industry itself is more or less curious about BT, but it's content to study the currents for now rather than jump in the lake. That's usually a sign that it's time for us to move, because institutional advertising — like so many other businesses facing disruption (see below) — would rather pull the disruption into their comfort zone than move into the disruption itself. This is why you're hearing things about the need for standardization of everything from metrics to creative.

As I've written so often in this space and elsewhere, behavioral targeting is something we all should be exploring. The science is pretty easy, albeit sophisticated, but the advertising industry itself isn't going to take the lead. It's too strange, and it's a lot of work. It's more about actual sales results than branding, the heart and soul of mass marketing. At the national or global level, this is problematic, but it shouldn't stop us from plunging into it with and for local advertisers.

Key to this is the creation of a local ad network, and that requires defining and organizing the local web, a mission just waiting to be done. TACODA has proven the validity of behavioral targeting, something I'm sure Dave Morgan would be happy to discuss with anyone.   <Permalink>

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THE YOUTUBE/CNN DEBATE: A MODEL FOR LOCAL MEDIA? (Terry)
I spent several hours yesterday studying reaction to the CNN/YouTube Democratic Presidential debate Monday night. Several themes appear, listed here in no particular order.

There was general consensus that the format was the only real winner. From the Seattle Times: The technology, which gives everyone a chance to make a video and get it before hundreds of thousands of eyeballs clearly added some real flavor to the traditional debate format and gained some priceless advertising.

The mainstream press and bloggers alike loved the homespun video questions from real people. The San Francisco Chronicle: It might have been the first debate in which the questions — 39 chosen from 2,989 submitted — were more important than the answers.

The event was overhyped by CNN (what do they expect?). MSNBC: ...for all the hype, this debate was not effectively that much different from all the others to date...For the most part, the masses asked the same kinds of questions as the chattering classes...And they had every bit as much trouble getting the candidates to break stride and make some news. CBS News Public Eye: While they may have been guilty of a "thinly veiled ratings grab" a little over a week ago, today’s cable news hucksterism insults the most casual viewer.

The candidates overall performances were just like other "debates." The New York Times: ...the change went only so far: Candidates frequently lapsed into their talking points, and there was little actual debate among them. Wonkette: ...just another stupid debate.

The candidates YouTube efforts weren't on the same level as the questioners. Instapundit, Glenn Reynolds: it was pretty good - except for the candidates' YouTube efforts, which were predictably lame. Jeff Jarvis: The candidates’ videos were just commercials.

We'll see much more of this format. Tom Shales from the Washington Post: As the media involved evolve, the program may be looked back upon as a brave beginning, if not a milestone. Darknet author J.D. Lasica: I think this format is here to stay — there's no turning back. Congrats to YouTube on this important evolution in our national political dialogue.

There are a lot of cautions about adapting the format for local media debates, like vetting questions to determine whether they're "real" or originate from the candidates themselves, but it's certainly worth the effort. In a world where everybody's a media company, this is as natural as including comments on stories.

There's also the reality is that the event didn't really need to be broadcast in order to be successful, and this is a path we might want to pursue, even if airtime is an issue. If citizen Jones can ask a question via YouTube, candidate Smith can answer the same way. Facilitating this aggregation would be a smart play for somebody.

I'd also add that aggregating reaction to such an event is a business model for somebody. You won't find what I've written here anywhere else, for example, and that's a missing element in today's media landscape. With all the viewpoints that are available these days, people are awash with knowledge options they never had before. Your favorite columnist might resonate with you, but if you want to be informed, you need a voice that'll aggregate all the rest.

This is as true at the local level as it is at any other level.   <Permalink>

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QUARTERLY REPORTS AND THE NEWSPAPER CONSORTIUM: NEW MATH? (Terry)
Based on earnings reports issued over the past week by publicly-traded media companies, one has to wonder how struggling newspaper companies linking their online futures (the only bright spot in the reports) to a struggling internet company can possibly make a real difference in how either can boost revenues and, subsequently, profits. This question has been bugging me ever since the original announcement that a consortium of newspapers would be working with Yahoo to provide local news to the web giant and split revenues.

That question looms large in the wake of 2nd quarter reports by all involved.

• The Journal Register Q2 profits fell 44 percent to $5.5 million from $9.8 million the year before.
• Media General saw its profits tumble 74.8 percent. Q2 net income was $5.1 million, compared to last year’s net income of $20.2 million.
• Dow Jones reported profits fell 26.5 percent, posting earnings of $21 million versus $28.8 million one year ago.
• While Gannett's profits were up 18% due to asset sales, revenues from its newspaper unit were down across-the-board.
• McClatchy told analysts that Q2 net income fell to $39.95 million from $44.1 million in the year-ago period. That's a 9.5% drop.
• Journal Communications said its Q2 profits were down 7.2 percent to $14.2 million compared to $15.2 million a year ago.
• Lee Enterprises second quarter profits dropped slightly to $22.5 million, or 49 cents a share, from $22.7 million, or 50 cents a share, a year earlier.

Meanwhile, Yahoo said its profits fell 2% to $160.6 million in the second quarter compared with $164.3 million a year ago, and reporters, like Verne Kopytoff of the San Francisco Chronicle, came away from the analysts' conference with less-than-confident appraisals.

In what could be confused with a confessional, Yahoo Inc.'s executives listed their Web portal's problems Tuesday and then promised to engineer the greatest transformation in the struggling company's history.

The comments, by CEO Jerry Yang and deputy Sue Decker, came during Yahoo's second-quarter earnings call, after yet another subpar financial report. They underscored what many analysts have already speculated: Change is coming to Yahoo's business. The question is how much.

The answer will have broad repercussions for Yahoo, which is being pummeled by Google Inc. and a growing crop of upstarts such as MySpace and Facebook in the race for users and online advertising. Although still profitable, Yahoo's business is eroding, prompting a major reorganization at the company and ample hand-wringing by investors.

There's a lot of speculation about Yahoo being an acquisition target, and analysts note that the company is counting on the deal with the newspaper companies to help lift its revenues.

So Yahoo is looking for the same lift that the newspapers are seeking, and I can't figure out how that's going to happen. Online is the big bright spot for newspaper companies (although the numbers are small, they're at least headed upwards), and nobody's been able to fully explain to me how this can possibly be a win-win. The papers will be using Yahoo's ad-serving software, which will give them access to Yahoo's considerable local users in sections of the portal beyond the local news they'll be providing.

But doesn't Yahoo need that revenue? And sharing the revenue means less for either, right? Is the assumption that promotion from all of these markets will drive new revenue for Yahoo simply because they're using its ad-serving tools? I just don't know, and my concern is always for the local media companies.

The Yahoo Hotjobs' ad platform is the first thing the consortium newspapers are adding, and that is credited, in part, with cushioning the net income decline of Lee Enterprises. While a new classifieds strategy may help, it doesn't resolve the bigger question. So we'll just have to wait and see.

Meanwhile, other web-based pureplays reported earnings this week with much better outlooks:

• Google's profits soared 28% but fell below analyst expectations for only the 2nd time since it went public in 2004. Revenue for the period totaled $3.87 billion, a 58 percent increase from $2.46 billion at the same time last year.
• eBay Q2 profits jumped 50 percent to $375.8 million from $250 million last year.
• Microsoft's profit was up 7 percent, hitting $3.04 billion, compared to $2.83 billion the year before.

One final note. Media company investors are different than technology investors, and they have different expectations. I continue to believe that we'll see more and more public media companies going private in the months and years ahead, so they can concentrate fiscal efforts on building for the future rather than responding to investor demands.   <Permalink>

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MOVING INTO THE DISRUPTION DEMANDS AUTONOMY FROM THE MOTHERSHIP (Terry)
I'm often asked about whether local media outlets should have separate sales staffs for the web, and it's becoming pretty clear to most that the answer is yes.

The following is excerpted from my essay "Selling Against Ourselves" that was first published 14 months ago. More than anything else I've seen, it describes the problem that contemporary media companies are having dealing with the disruption of Media 2.0. It's simply a different animal, and protecting our old business model while exploring the new requires courage and a willingness to move outside our comfort zone.

When you read this, it's pretty hard to argue with the notion of separate sales people for the web.

Clayton Christensen is one of the leading thinkers on the subject of disruptive innovations that influence markets. His books, The Innovator's Dilemma and The Innovator's Solution are the standards for what to do — and what not to do — in the world of business disruptions. In an interview two years ago with Gartner Business Fellow Howard Dresner, Christensen was asked how companies can match up against disruptive innovators.

To catch up against disruptors, incumbents must be prepared to set up subsidiaries and give them autonomy to kill their parents. There are a few examples in recent times. HP used to sell its inkjets through its laserjet business but it wasn't very successful. They then set up an independent organization in Vancouver to kill its laserjet business.

Surprisingly, they discovered the inkjet business took off without cannibalizing the laserjet business and they remain as the dominant printer company.

So the smart thing for broadcasters to do is set up autonomous web businesses and let them do their thing...In order to get this started, broadcasters must begin talking to people who don't watch them anymore. Follow this thread from Dresner's interview with Christensen:

Dresner: Would you say a company's install base of customers is another inhibitor of innovation?

Christensen: That's right. A customer will never lead you to develop a product which that customer cannot use.

Dresner: So sustaining innovation of course can keep a company viable for many, many years, but listening only to the customer base, for the long term, could in fact be quite damaging.

Christensen: That's right. In fact, if you're looking to start a new-growth business, very often, the most important customers to understand, are non-customers. Because if you figure out why it is they're not customers, and then bring an innovation that allows them now to become customers, that's what growth comes from.

Dresner: For an existing company with an installed base, how would you suggest they simultaneously serve the installed base, while trying to invest in future growth businesses? How do you do that? What's the right structure?

Christensen: If the organization or the business unit charged with serving the installed base is also asked to go after non-customers with the more affordable, simpler product, they can't do it. Because the business models are so different, and small customers with the lower priced product — it's not an attractive financial — it doesn't solve the financial goals of an established business unit. Almost always, this new game begins before the old game ends. If you somehow create a strong economic incentive for the management of the existing business unit to go after the new disruptive opportunity, you take your eye off the main profit and cash engine of the company, and you stumble very quickly. And yet, while that is still going, you've got to get your foothold in the new market. And that's why it's just really important to set up a separate unit.