Leveraging Consumer Magazine Brands in the Digital Age

Slide 2: John Battelle Founder & Chairman Federated Media Publishing

Slide 3: SEARCH, WEB 2.0, BLOGS, AND ALL THAT: THE ROLE OF MAGAZINES IN AN INTENT-DRIVEN WORLD John Battelle Federated Media Publishing MPA December 2005

Slide 4: WHO IS THIS GUY?

Slide 5: Agenda…. • What is a publication, really? • Where are we now, how did we get here? • Web 1.0: What we did right, what we did wrong • Web 2.0: The opportunity, the threat • The Magazine Assets: Well Positioned to Thrive • The Role of Search • Why The Magazine is the model

Slide 6: What Defines a Publication? • A conversation between three parties: Author, Audience, and Advertiser; facilitated by a fourth: the Publisher Author Marketer • Each has different roles, but the best pubs foster and nurture a conversation on a subject for Publisher which all parties share a passion • The best have marketers as participants, they are readers and advertisers, endemic Audience • The best are driven by great voices and point of view, and are leaders/arbiters in their field

Slide 7: What Does NOT Define a Publication? • The medium in which it is delivered – Magazines should not be equated with print – Magazines are bigger than one medium – Until the Web 2.0, we just didn’t have a better medium • Now we do….

Slide 8: What’s Different Now? • Web 1.0 (1994-2001) – Was about “getting on the web” – A lot of shovelware - literally and figuratively – No real business model traction, advertising failed to reach critical mass • Web 2.0 (2002 on….) – Building web native magazines – Focusing on the true mission of your publication – Real business models and vastly different economic realities….

Slide 9: A Brief Web 2.0 Primer • Version 1.0 of the Internet: Long on vision, short on execution, shorter on profits; market & tech immature • Version 2.0: Long on execution, long on profits, even longer on vision; platform is maturing

Slide 10: THE RISE OF WEB 2.0 • Mid-Late 90s - we thought it was a battle for the window into computing: Netscape v. MSFT. • Instead, it became about the content and services, not the window QuickTime™ and a TIFF (LZW) decompressor • Web itself became a robust development platform are needed to see this picture. • Sites also became platforms: Amazon, Google, Yahoo!, eBay, etc QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. • And entrepreneurs began to build on the platforms, creating new approaches to established markets - like media….

Slide 11: Web 2.0 Principles: THE WEB IS A PLATFORM • Building on the lessons of the 1990s • Open source, cheap processing/storage/bandwidth opens new economic realities • Ten years in: Net hit critical mass of usage • Platform sites embrace the open: data, access, portability • Best sites are search driven – Join the “Point to Economy”

Slide 12: Web 2.0 Principles: THE ARCHITECTURE OF PARTICIPATION • Leverage user-generated content & the force of many to create advantage and build network effects • The remix culture: the best sites are mixes of other sites’ APIs, data feeds: Prosumer rising QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture. QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture. QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture. QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. QuickTime™ and a TIFF (LZW) decompressor QuickTim e™ and a are needed to see this picture. TIFF (Uncompressed) decompressor are needed to see this picture. Linux

Slide 13: Web 2.0 Principles: INNOVATION IN ASSEMBLY • Aggregate, manage, analyze complexity • The essence of the “content business” • Dell, Spikesource, SimplestShop.com, Topix, MyYahoo, Technorati/Feedster QuickTime™ and a TIFF (LZW) decompressor are needed to see this picture.

Slide 14: Web 2.0 Principles: LIGHTWEIGHT BUSINESS MODELS • The Web as Platform plus AoP = new generation of “lightweight” competitors – Google/Yahoo News & Craigslist/Blogs v. Newspapers – Tivo/NetFlix/VideoIP v. Comcast/cable – Federated Media v. Primedia

Slide 15: Web 2.0 Principles: THE POWER OF THE TAIL • The force of many: 1 million sites with 1000 readers is far larger than 100 sites with a million readers – Adsense/AdCenter/YPN – 100,000 bands selling 5000 albums, not 50 bands selling 1 million albums – Blogging is this dis/re aggregation phenom for web publishing

Slide 16: Web 2.0 Principles: SEARCH RULES • The driver of Web 2.0 businesses • Search heralds a new “Web OS” • Our culture’s point of inquiry, the spade with which we turn the web’s soil, the artifact of a new culture • A new reality for all forms of traditional business • Barely begun to realize its impact…

Slide 17: HERE’S WHY SEARCH RULES Approximate Customer Acquisition Cost Across Various Channels $80.0 $70.0 $70.0 $60.0 $60.0 $50.0 $50.0 $40.0 $30.0 $20.0 $20.0 $8.5 $10.0 $0.0 Search Yellow Online eMail Direct Mail Pages Display Ads Piper Jaffray

Slide 18: THE PAID SEARCH MARKET • Piper: 5x growth in 5 years • 59% of money is coming from other media budgets • On average 12-15% of all clicks are paid clicks • Average CPC on Google: 54 cents, avg rev/query = 9 cents • Latency: 25% of those who click on paid CE search, buy, but 92% of them buy offline

Slide 19: Gap Between Net Ad Spend and Usage Morgan Stanley

Slide 20: NEW MEDIA WAS NOT THAT NEW • MSM model: Publisher hires content creators, attaches advertising to content, subscription follows • (First) new media model: Publisher hires content creators, attaches advertising to content, hopes subscription follows • MSM model: Create a “thing” (magazine, newspaper, TV show), fight tooth and nail to build and defend an audience. Spend millions. • (First) new media model:Create a “thing” (“website”), fight tooth and nail to build and defend an audience. Spend millions. • Is this “site-based”/packaged goods model really new? • Search gave us the answer…

Slide 21: MARKETING IN POST SEARCH WORLD: INTENT BEFORE CONTENT • Before Search: Content as proxy for audience • After Search: Audience declares intent, then content finds audience • In the Web 2.0 publishing world, intent drives content… • …and content disaggregates • As intent became a proxy for audience, paid search took off…

Slide 22: DISRUPTING FORCES • …and Publishers freaked out “Corporate marketing represents the last bastion of unaccountable spending in • Ad models shifting to intent corporate America.” - Google CEO Eric Schmidt – Marketing becomes a sales channel – Google et al seem to be dis- intermediating traditional media models • Search, RSS, and Blogging are redefining content models • The rise of the “point to” economy – If you are not in the conversation, you’re not in the Index… • Is this going too far? What about branding?

Slide 23: REACTION OF MAINSTREAM MEDIA BUSINESS • Save our old model! • Search undermines content-attached models – Ad can be sold at point of intent, my content is threatened – Regard search companies with suspicion • The Internet is stealing my content – Forbid deep linking, raise the registration drawbridge… “ Google is a brand killer…if you – Keep your content in safe must sleep with the enemy, make sure you use containers… protection and make sure – And if that doesn’t work…sue your you get paid". - Publisher of Economist.com. customers!

Slide 24: BUT MAGAZINES ARE PERFECT FOR A SEARCH DRIVEN WORLD! • Authoritative content, deep archives • Talented authors and editors • Community driven conversations in focused areas • Strong advertiser relationships • All perfect for search! • So join the point to economy and trust your content will drive value to your door online… • And branding it NOT dead, it’s just forced to justify its target more precisely… • …which is precisely what great online publications can do

Slide 25: (hey…is he saying print is dead?) • Print ain’t dead, but online is forcing justification of its economic model • For some print based models, it’s all over save the yelling – Many Local papers, much of the B2B market • For others, it means shifting the print product – National papers, service based magazines, context specific pubs • For still others, print remains the best medium – Fashion, shelter, travel • Here’s a medium term problem to solve: The insanely wasteful magazine manufacturing and distribution infrastructure… • Long term: It may not matter. When paper-quality readers hit the sub $100 price point…. • It’s all magazines, baby. But now with online goodness!

Slide 26: CONTENT DRIVEN, NOT DISTRIBUTION DRIVEN • We must evolve old models while embracing new realities • Media pre web: – Huge capital and customer acquisition/retention costs – Huge advertising revenues – Moderate content creation costs – Distribution lock out driven – Huge profits • Media post web: – Limited capital and customer acquisition/retention costs – Moderate advertising revenues – Moderate content creation costs – No distribution lock out: Content driven – Healthy but distributed profits…

Slide 27: WEB 2.0 PUBLISHING MODELS (it really is different online…) – The Disaggregation of Publisher role • Ad Networks erode sales relationships • Professional Weblogs advance author role – A web blog is a Web 2 publication: Lightweight model, innovates in assembly, lives down tail – Good blogger is a good editor/filter, conversational, leader in community, influencer • Hybrid Magazines rethink traditional approaches – How might you start a national magazine when you don’t have $5-10 million in risk capital? – When your audience is mostly online? – In Web 1.0, the publisher played the dominant role….

Slide 28: …And the Author Was Held Apart • Publisher retains authors to gather Audience (content-driven) Marketer Publisher • Marketer goes through Publisher to reach Audience • Ideally, Audience then begins conversation with Authors Marketer • But, the conversation is limited and the author is marginalized Audience • And leads to publishers being driven more by the marketer, and less by the audience

Slide 29: The Web 2.0 Publishing Model • …But in Web 2.0, the publisher plays a facilitator’s role Author Marketer • And the author is a more equal conversant Publisher • (and often, the author and the audience are one and the same….) Audience

Slide 30: Example: Make • Idea: Popular Mechanics for the Digital Life • Problem: Publisher was not a magazine house • Solution: Leverage Book channel/contacts, viral marketing/blogs, “Makers,” Amazon • Results: 70,000 circ. In first year with no DM, at a $50 price point - 7x expectations • Profitable in year one • 500K/mo online readers • Extremely efficient cost structure

Slide 31: Example: FM • Blogs are difficult to buy at scale • Bundle an ecology of sites together - 10- 20 per category, each site vetted for quality Authors Marketer • Aggregate audience in the millions, views in the tens of millions • Focus on appropriate advertising, messaging for each site • Reporting and analysis for both Marketer and Author, meta-site/feed for Audience and BD • Authors federate under FM, yet each owns/operates their site: FM is like label or book imprint • Marketers gain efficient and appropriate Audience access to robust, passionate conversations • The model scales from sector to sector without traditional publisher constraints

Slide 32: So What’s Your Advice, BlogMan? • Train your editors/writers/authors to be web native, and hire natives - focus your talent and investment on the web • Online, media is driven more by conversation, less by packages/interruption/show • Content should invite conversation, not demand attention • Employ your customers in creating new products, content • Criticism is OK, in fact, how you respond to it can build your brand • Media is no longer ruled by distributors, it’s ruled by attention. However, there are now distributors of attention, so… • Search rules, but not just paid search: Search is how content - and audience - is found. – Join the point to economy. • Your brand is your editors/authors/audience, not the print product. – Online, media is performance art, not packaged goods

Slide 33: So What’s Your Advice, BlogMan? • A magazine is not a form factor, it is a conversation • Join it via the web! • If you have the means…invest in properties that have critical mass, or build them • Find the best authors/audiences online, and cultivate them… • Magazines are not dead - they’re moving into a great new phase!

Slide 34: THANK YOU! SEARCH, WEB 2.0, BLOGS, AND ALL THAT: THE ROLE OF MAGAZINES IN AN INTENT-DRIVEN WORLD John Battelle Federated Media Publishing MPA December 2005 jbat@fmpub.net