There has been a lot of talk in the blogosphere lately about media business models. It began with Chris Anderson making a list and then Fred Wilson adds to the list. A few days later, Nikole Gipps asked about writing and money. She noted that this blog is filled with ads, while my new blog isn't. In part that is because this traffic has 500x the daily traffic of the new blog. In part it's because writing for money changes things. That's not the point of this post. Rather, I want to talk about whether or not media business models can work in the long-term.
ReadWriteWeb had an interesting post on The Danger of Free. Free has come to be expected on the web. Everyone is pushing for the Wall Street Journal to go free, even though some analysis shows that it would require a 12x jump in traffic – no small feat for a site like the WSJ.
What I want to know is, with the explosion in content on the web, are there enough ad dollars to go around?
Let me give you an example. A recent study showed that, despite all the web2.0 pundit love for user generated content, when it comes to videos, users prefer the professional stuff. Yes, blasphemy, I know. But this is backed up by the fact that video aggregators such as Blip, DailyMotion, and others, are begging for quality content. They regularly tell the Daily Idea team that they need more regular, high quality web shows. Their viewers want them. But, it costs lots of time and money to produce a web show, and it is difficult to find advertisers until you reach an extremely high traffic level. So there is a disconnect. Users want high quality content, but don't want to pay for it. Advertisers want to reach users, but rates don't support video production costs. I expect it to improve as more advertisers embrace video, but can it improve to the level that everyone can make money? Probably not.
Now, admittedly there will be some improvements as advertising becomes more efficiently targeted, and that will help, but with the privacy concerns many people have, I think we are a long way from realizing those gains.
Growth in web usage is slowing in first world countries, as saturation points are reached. Low barriers to entry to create content and web tools have led to an explosion in both areas. Unless there is a corresponding explosion in ad dollars, there won't be enough to go around to support all these media business models.
Ultimately, the highest quality content will be created by people who have the most incentive to do so – the people getting paid. But if media production is "long tail" and audiences are "long tail" then, for any given piece of media, there isn't much money available to support it's production. That is why I believe that quality of content will improve when content isn't free. Consumption choices when things are free vs. when they aren't can be very very different, because few people will pay for something (even if it is higher quality) when a free version exists.
I'm not saying content is dead or there are no more opportunities. I'm just asking a question that I don't see asked very often.
Is there a limit to ad dollars, and if so, what does that mean for content quality?
Web surfers have limits of time and attention. If a few thousand Joe Bloggers each steal a visitor here and there from mainstream media sites, and their revenues suffer as a result, who will pay to put in the time required to create high quality content? I don't know.
Content creation, far from possessing the "edge" economics often talked about, will actually favor the old media blockbuster model. The only good returns will go to the mega-hits on the web. That will probably encourage people to accept the risk and investment required to launch web media businesses, but a lot of them are going to fail.
So what does this mean in the context of launching a business? For me, it means that I'm looking at two kinds of web business ideas: those that aren't advertising supported, and those that have some unique distribution opportunity that can serve as a barrier to entry or provide a competitive advantage.