Content, dethroned

Jonathan Knee uses Netflix to argue in The Atlantic that content is not king and that aggregators are better at capturing value. That will be raw meat to those who claim that aggregators are content kleptomanics.

Knee’s analysis is good but there’s a critical element that needs to be underscored: Aggregation itself is not sufficient. Netflix gains its advantage because it has a substantive relationship with its customers, which yields data about their desires that the company uses to superserve them, making highly relevant recommendations and filtering noise (give me the filter bubble!).

This business strategy makes us rethink where the core of value is in media: in the content or in the relationship and data. What is Facebook’s answer? Google’s? I address that in my link economy treatise here:

Rather than concentrating on total audience, we should concentrate on the net future value of each reader. Where does that value reside? That question raises a fundamental strategic—and religious—issue: We in news and media keep saying that our content has value. Well, yes; no one will disagree. But we need to ask whether the greater value resides in the content or in the relationships and data it can spawn. Yes, the content has value, but how best do we extract that value?

Over lunch recently a media executive repeated the accepted wisdom that “our content has value.” That often leads next to the contention that we “should be paid for it,” though I counter that “should” is never the basis of a business model. In news, of course, we have always extracted more value for our work through selling our audiences to advertisers than selling our content to audiences. Why would that change today?

This executive also complained that digital companies, such as Google and Facebook, don’t value our content. But look at this new media ecosystem from the perspective of Facebook, a company that by some reckoning could be valued at as much as $100 billion by the time it goes public within a year. What does Facebook itself value? Relationships. Data. Relevance.

As for content, Facebook doesn’t so much refuse to value it, as my media friend implied, but instead finds value in a much more expansive view of content. It finds worth in all that apparently useless blathering we do in what Facebook calls, to journalists’ derision, its members’ “News Feeds.” That’s not news, the news people say; news is what we make. That may have been the case in a scarcity-based content economy, when there was room for only so much news in the world’s publications and airwaves. Now content—like advertising—is abundant. The incumbent content companies are having trouble taking advantage of that growth because their definition of content remains limited and their models based on controlling scarcity. Facebook, like Google, sees content everywhere, made by everyone, and each in its own way is better than legacy content companies at finding value in it. Each uses content to gain more signals about users and to use that data to target content, services, and advertising.

My lunch companion said that media companies’ content is the “steel” that makes Google’s “cars.” That metaphor still assumes that content is a scarce, consumable, and perishable commodity. Digital companies’ ability to make money on the back any content—Facebook enables the creation of it; Google organizes it—irks the content makers. This is why Rupert Murdoch and his News Corp. lieutenants (in a list curated by Arianna Huffington) accuse Google and its ilk of being “parasites,” “content kleptomaniacs,” “vampires,” and “tech tapeworms in the intestines of the Internets” who “steal all our copyright.”

There are two problems with the Murdoch worldview: First, according to my thesis of the link economy, Google, Huffington Post, curators, aggregators, bloggers, and readers linking via Facebook and Twitter do not steal value but instead add value when they direct readers to content. In response to News Corp.’s accusations and epithets, Google Executive Chairman Eric Schmidt said in Murdoch’s own Wall Street Journal in December 2009 that Google causes 4 billion clicks a month to news publishers, a quarter of that from aggregator Google News.

In an apples-to-pineapples comparison, only a few months later,, the leading URL-shortener used in Twitter, passed that 4 billion mark and a year later it doubled that (though not all that goes to news sites). There we see the rising power of the peer’s recommendation, the human link. In early 2011, the Pew Research Center’s Project for Excellence in Journalism confirmed that social services were driving higher proportions of traffic to news sites, with Facebook coming in second or third in the list of referrers to five of the top 25 news sites.

The second issue with the Murdoch view of links is that it fails to take account of the new ways that digital companies mine value in content, links, and relationships. For them, content is not a product to sell but is more a device to generate information about users to increase their value. Content is a signal generator that reveals interests, needs, sometimes location, and more. Facebook can find out that you are a fan of Green Day if you read articles about it but also if you write about it or your friends are fans or you listen to or recommend its music. Then Facebook wants to sell you a ticket to the next Green Day concert near you (and Facebook knows where you are). In this example, content takes many forms—an article, a conversation, a song—and monetization comes not from advertising but from commerce. Does Facebook need a publisher’s article to make these economics work? Is it the steel without which there can be no car? Hardly.

A more extreme example: In 2010, researchers used a set of keywords to track aggregate moods in Twitter messages and found they could predict daily ups and downs in the Dow Jones Industrial Average with up to 87.6 percent accuracy. A hedge fund now uses the formula in partnership with one of the scientists. The content—very broadly defined—created by millions of Twitter users produces value, if you know how to look for it.

In our research, we will need to catalogue such additional sources of worth and revenue. For part of the lesson to content creators and link recipients should be that there are more ways to recognize value than the traditional way of selling audiences to advertisers. At the e-G8 conference in Paris in May 2011, Zuckerberg bragged that Zynga, built atop Facebook’s open platform, had just past game champion Electronic Arts in market capitalization. He said Zynga succeeded because it understood not only games but also people and relationships. He suggested that the next winners in music, for example, would similarly understand both (see: Lady Gaga). How will the similarly savvy news company succeed?

I’m not suggesting that editors call the people formerly known as the audience little monsters and don bodacious bustier to earn a buck. But I do believe we must challenge our every assumption about the role of content and its creators in a new media economy. Media’s role was to make and distribute content because it controlled the means of both. Now they do not. The former audience can make content and media’s role may be to support them in that with tools, platforms, aggregation, curation, promotion, training. The former audience has also taken over the role of distributor when they link, recommend, discuss, and embed content and so the question for media is how to take full advantage of that. Where do the former content controllers fit into this new ecosystem? How do we add and extract value?

The simple question—how do we increase the number and value of links and clicks for media—raises these larger questions. This research can hardly answer them all but perhaps it can inspire new ways to see value and new structures and methods to realize it.

  • Excellent, Jeff. Two related things. One, the content that matters today from a purely economic standpoint is being created by the people formerly known as the advertisers. It’s growing like a Texas wildfire on 40 mph winds. We mistakenly assume that only the content WE create has value, because that’s the way it’s always been. I’d argue that the model of ad-supported media content is broken forever, and the idea that we have no place helping advertisers become their own media companies is holding us back from serious revenue.

    Two, we aren’t now and never have been in the “content” business. We’ve always been in the advertising business, and the revolution there is what requires our attention, not in how we can force new wine into old wine skins.

    I shall follow your efforts closely, because I like the direction you’re taking. Links have tangible value, for if they didn’t, spammers wouldn’t get paid.

  • Jeff, thought provoking as usual. My comments are here: “Content May Not Be King But It Still Behaves Like Royalty”

  • JC

    I like Netflix purely for convenience sake. Their recommendations are irrelevant to me.

  • Nanker Phelge

    >>>Jonathan Knee uses Netflix to argue in The Atlantic that content is not king and that aggregators are better at capturing value. That will be raw meat to those who claim that aggregators are content kleptomanics.

    This column is based on a false comparison. Netflix _pays_ movie studios for films – and it pays more all the time, now that more of its business is in streaming. Huffington doesn’t pay for “aggregating.” Netflix makes money WITH studios – they just negotiate over how to split it. Huffington makes money OFF OF the work of others. If she paid to aggregate content the way Netflix does, I don’t think so many people would find her so objectionable.

    That’s a BIG difference. It’s shocking to see them compared directly.

  • Stan Hogan

    “Rather than concentrating on total audience, we should concentrate on the net future value of each reader. ”

    Yeah, and let’s concentrate on that sentence until our heads explode.

    • Nanker Phelge

      Rather than concentrating on that sentence, we should concentrate on the value of links to that sentence.

  • My father used to day that yesterday’s news is today’s fish wrapper, which meant that content was known to be ephemeral even as far back as the forties. He said it because when one of his clients got bad press (he managed celebrities in NYC), it worried the client but not my dad. He knew content in newspapers was ephemeral.

    So content is like unsold airplane seats or hotel rooms; if it’s not used, it expires and becomes useless. That’s why it is really hard to charge for news.

    Links are the only way to keep content alive, so links have value on both sides of the equation.

    • alexk2009

      Todays news s tomorrows current affairs then becomes data for historians and other researchers. For 99.99% of the population an old newspaper is fishwrapper or toilet paper. For most of the rest is is interesting. For a few a bit of it is valuable.

      There IS value to old news, it just takes time to become valuable again

  • Andy Freeman

    > This is why Rupert Murdoch and his News Corp. lieutenants (in a list curated by Arianna Huffington) accuse Google and its ilk of being “parasites,” “content kleptomaniacs,” “vampires,” and “tech tapeworms in the intestines of the Internets” who “steal all our copyright.”

    And yet, they don’t block search engine crawlers, which would eliminate all of these problems.

    The major search engines obey robots.txt and that has no effect on user experience.

    I think that Google should stop crawling news corp sites for a week and publicize any resulting communication from news corp. If the “links are useless” crowd is correct, News Corp won’t care. If Jarvis is correct, News Corp will beg Google to start crawling again.

    • Andy Freeman

      There is another possibility – News Corp says that search engines are “stealing” because they keep all the revenue from ads on the search results pages, even when those pages have links to News Corp’s content.

      If so, News Corp is simply wrong. News Corp can ask for a share, but search engines are entitled to say “we don’t charge you for the traffic we send your way and we don’t share our revenue – if you don’t like that deal, we’ll be happy to remove you”. News Corp is not entitled to search engine inclusion.

      Such take-it-or-leave-it offers are not stealing when News Corp makes them to other people and they are not stealing when Google makes them to News Corp.

      That said, some search engines do pay to crawl certain sites. (I’m unaware of any sites that pay to be included.) Those sites are more valuable to said search engine than said search engine is to them.

      If News Corp wants to be in that position, it needs to have content Google will pay to have available as a search result.

      I suspect that some News Corp sites are in that position, that NC’s “stealing” rant is merely negotiation bluster.

      • Andy, your last sentence is the key — it would be very interesting to see what NC people really say in private when the run their analytics and see how much traffic Google brings to them.

  • Tex Lovera

    The news providers always thought that the news was whatever THEY said it was. In reality, the news is whatever us readers say it is. With the internet, we now have the power to demonstrate that concept.

    And I second Andy’s suggestion regarding the “crawling” experiment. That should easily settle the question, no?

    • Nanker Phelge

      Murdoch may have a point: In May, a Belgian appeals court upheld a ruling that Google News infringes copyright. (That’s Google News, not the general search engine – the difference is significant.) I haven’t read the ruling – it’s in French and I haven’t seen a translation – but I know that copyright laws in Belgium are very similar to those in France, Germany, and most of Europe. (Those in the U.S., the U.K., and Commonwealth countries are very different.)
      You may object to this, but that’s the law in Belgium – and perhaps elsewhere in Europe as well. Perhaps Murdoch should be nicer to the French.

    • Andy Freeman

      > In May, a Belgian appeals court upheld a ruling that Google News infringes copyright. (That’s Google News, not the general search engine – the difference is significant.)

      Yes, the difference is significant.

      Google News isn’t obligated to carry any given source, so Google’s response may be to drop those publications. Murdoch can win the lawsuit and lose distribution.

      • Nanker Phelge

        >>>Murdoch can win the lawsuit and lose distribution.

        The lawsuit isn’t Murdoch’s. I’m not sure whose it is.

        So far, for all your bluster on Google’s behalf, they haven’t pulled anything, that I’m aware of.

        Jeff, I’m eager to get your thoughts on how Netflix, which pays studios millions, compares to Google News, which pays them nothing. You’re certainly free to argue, ‘Let them eat links.’ But you should at least acknowledge that this particular comparison is strained.

    • Andy Freeman

      It looks like Google has dropped the belgian newspapers.

      “The paper La Capitale said on its web site Friday that Google had begun “boycotting” it. Google searches late Friday showed that the websites of the newspapers who sued Google, who were members of an organization called Copiepresse — a Belgian, French-language newspaper copyright management company — did not appear in search results, as they have in the past.”

      Yes, the newspapers were complaining about Google News and Google Search retaliated.

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  • Great article. Another issue with the Murdoch view is that it emphasizes a tactical, transactional view not just of content but of advertising. Most of his advertisers are looking to build rich insights into their audiences and tap those insights across their marketing channels to improve customer relationships at an individual level. As you state, the advantage for publishers and advertisers is in strategic use of the data. — Jim Soss, CEO, Red Aril

  • I was told by a magazine dinosaur that publishing stands on three legs: editorial, advertising and distribution. It seems that distribution, which used to be a whole department and expense, is now done for free by Google, HuffPo, etc. … am I right?

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  • Taylor Shiells

    “He said Zynga succeeded because it understood not only games but also people and relationships.”

    Laughably ignorant of the reality of the industry and situation. Zynga didn’t understand games, they just understood the dirty tricks of compulsion loops and used shady business practices to rob its user base and steal the work of others. They succeeded because social media created a new breed of consumer to ignorant to recognize when they were being robbed blind.

    And that’s where articles like this annoy me, while marketing buzzards are flying in circles trying to figure out whether content or aggregation is key to securing market share, you’ve managed to somehow seriously convince yourself that the actual product can be an afterthought.

    Real journalism is dead and it is views like this that will prevent bloggers from ever taking up the mantle. All anyone in the internet business cares about is finding cheaper ways to shill articles…I’m sorry, “Content”…without any concern for creating something of value. Users have bought into this on the belief in some magical “Power of the people” myth but soon another bubble we’ll burst and we’ll realize that these aggregation sources (And no, Netflix is a distributor not an aggregator you ponce, learn the obvious difference) are houses of cards which exist only to attach fake logos to whiffs of nothing and there isn’t enough real information or substance to prop up these nothing-machines.

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  • Excellent post. Content producers continue to pump out data in the form of articles, videos, etc. However, in today’s internet and economy, the real value lies in the data about the data. In most cases, consumers value the company that can direct them to the best choice out of 100 options higher than they value the companies that provide any one of the actual options themselves. Companies like Google and Facebook are in the position to direct consumers in this way, and they are raking in the cash because of it.

    I do however take issue to your point that in the Green Day ticket sale example and in similar cases “monetization comes not from advertising but from commerce.” Such a ticket sale is of course still advertising, just more efficient advertising. Even if Facebook charges strictly on a per-sale/affiliate basis, the real transaction is still being handled by Ticketmaster or some other company, not Google, Facebook, etc.

    Granted, Google and Facebook are moving into an increasing number of verticals and are trying to get a bigger share of the commerce their traffic drives. However, I think this is where things start to get hairy and user experience can get compromised for the sake of profit. It will be interesting to see what happens if this trend continues.

    But yeah, to get back on topic, content producers are pretty much SOL in an age where metadata rules.

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