Content Matters

It’s been a busy January.  Most years, I’ve posted my themes & predictions by New Year’s day.  This year, it’s almost February and I’m just getting this out. 

First, a quick look back at my predictions for 2007:

1. Growth in vertical search – didn’t really happen
2. Changes in web advertising models and metrics as page views become less important due to AJAX and UGC.  This one was a big issue and Nielsen/NetRatings dropped use of page view by mid-year.
3. Further consolidation in the industry/heavy M&A: record-setting year.
4. Rollup of blogging tools: Most of the companies I mentioned in this paragraph (Feedburner, MyBlogLog, Last.fm) were acquired; just not by the same company.
5. MySpace jumps the shark: While Facebook had the stronger growth during 2007, MySpace continued with steady growth.  The predicted slowdown didn’t happen.
6. RSS Gains Adoption: sort of, but not really
7. Widgets gain prominence: Thanks to Facebook, widgets skyrocketed in 2007.
8. Drop in newspaper readership accelerates: OK, sort of like predicting that the sky will be blue, so I’m not taking too much credit for this one.

I score that five out of eight, slightly better than my usual 50%. 

Let’s take a look at what 2008 might have in store.

The economy will hang heavily over all business, especially during the first half of the year.
Both b2b and b2c content businesses are likely to see revenue declines.  On the b2b side, the first thing that goes in a week economy is the peripheral user.  When asked, most business leaders will tell you that the bulk of their customers are “core users”.  In reality, for most businesses, it’s probably half that.  So, half of your users have been paying for subscriptions but can’t quantify the value you provide.  2008 may be the year that many of those casual users choose not to renew.

That creates opportunity, of course, for new business models.  Advertising-supported or freemium businesses may be well-positioned to take users away from long-established paid content providers.  Providers like ZoomInfo may not be as good as the incumbents they replace, but for free, they may be good enough.

Slowdown in M&A
The second economic impact will likely be a slowdown in M&A.  2007 was a record-setting year for M&A in the content industry.  According to Jordan, Edmiston, there were 838 transactions worth nearly $108 billion, nearly the sum of the prior two years combined.

With lending tight, at least for the first half of the year, it will be harder to do large acquisitions.  On top of this, some of the more active strategic buyers in the past, such as Thomson, Reuters and Dow Jones, will be busy digesting their 2007 deals and may have a lower appetite for new deals. That said, this could finally be the year that Yahoo gets acquired, either by Microsoft or perhaps by private equity.

Yet 2008 will not be all bad for M&A.  For European and Asian acquirers, the weak US dollar makes it seem like everything’s on sale.  While private equity deals may be down a bit this year, cross-border strategic acquisitions will keep the deal flow alive.

A great time for startups
The weak economy could be a good time for startups, however.

It’s never been less expensive to get a content or technology startup off the ground than now.  Hosted technology solutions mean you can buy an off-the-shelf technology infrastructure at a fraction of what it would cost to build it out yourself.  Meanwhile, as legacy businesses see their revenues erode, they’re less likely to test out new revenue models or launch new products.  For nimble startups with low cost structures, this can be a great time to gain a foothold into a market.

The financial markets may also yield opportunities for startups.  Thomson and Reuters will be distracted by the internal politics of combining their two businesses.  At the same time, financial institutions often require multiple sources for key databases.  The consolidation of Reuters and Thomson may leave only a single source, creating opportunities for others to become the alternative supplier.

The other big issue for 2008 will be the Elections.
The hot races in both parties have helped take the sting out of the writers’ strike for the networks.  So far, little election spending has made its way online, but I think that will begin to change as the campaigns move from the retail politics of New Hampshire and Iowa to the broader media campaigns of the national election.  Lehman forecasts that $110 million will be spent by candidates in online advertising.  More important than the advertising dollars could be the continued large roles of blogs and user-generated content as primary sources for political knowledge. 

The elections also create an interesting opportunity for startups.  Mashing up campaign contributions with legislative records or voting results with census data could generate really great websites that the media and public will eat up.  Lots of this information is publicly available, so it’s there for the picking.

Revenue models emerge for social networks
As users spend more and more of their time online using social networks, it’s inevitable that viable business models will emerge.  While 2007 was definitely the year of Facebook, I think it’s likely that the Google-led OpenSocial will be a big player during the second half of 2008.  I had truly expected Facebook to position itself as a solid b2b platform by now, but they’ve shown little interest in doing so.  That should leave a void that can be filled by LinkedIn, who are already the dominant player for business social networking.  If they embrace the “open” aspect of OpenSocial, they could entrench themselves as the players to beat.

The emergence of widgets was one of my themes for 2007.  In 2008, widgets will become more important as users look to get your content "their way".  Visits to traditional destination sites will be down and content providers who don't widgetize their information will see usage drop accordingly.

Video hits b2b
Until now, video has largely been a consumer play.  While some markets will be slow adopters (for multiple reasons I don't see it playing on the financial trading floor), video will start to penetrate the corporate market this year.

So, there they are.  Trends & predictions for 2008.

As always, I welcome your thoughts in the comments.

The big news out of Davos on Thursday was Rupert Murdoch's pronouncement that the Journal would continue to keep at least some content behind the pay wall.  According to Rupert:

The really special things will still be a subscription service, and, sorry to tell you, probably more expensive.

The arguments in favor of doing so are twofold: first, you've got $70 million in subscriber revenue to replace if you kill it; second, that the pay wall creates a higher demographic for selling advertising.

I'm not sure what's driven him in this direction, as all signs pointed to tearing down the pay wall and making the Journal free.  While it's possible they could move forward with a hybrid model, I think that it's already been shown that model does not work.  The Times killed Select and I have tremendous doubts about the FT's current approach where users can get 30 page views per month for free, but must subscribe if they use it more frequently.

I am a current WSJ Online subscriber.  I also get the NY Times delivered in print (I need something to read on the train platform).  A few times a week I will read an FT article.  Of the three, the Times gets the bulk of my page views and it's the only one of the three that I will typically link to. If the Journal keeps large chunks of their content behind the subscription wall, they'll continue to limit the growth of their brand.

So I don't think that's what they're going to do.  If you parse out Murdoch's quote, he doesn't say that the Wall Street Journal will remain a subscription product.  Instead, he says that "the really special things" will be a pay service.  So, what's really special?  Not the business and financial news, most of which is a commodity.  There's no chance that he will put their editorial page commentary behind the pay wall as the Times tried.  Clearly, Murdoch views the Journal editorial page as a means of projecting his views, not bottling them up for a select audience.  So, in re-reading his comments, I think that we're likely to see the majority of the Wall Street Journal become free.  At the same time, I expect them to build out some new capabilities - perhaps tools and data-driven applications, and put a premium price on those. 

What do you think?

Despite improvements in contextual and behavioral internet advertising, for many sites, the typical ads that are served are not very relevant.  This is particularly the case with blogs and websites offering financial commentary and business information.

The challenge is that most internet advertising is product-focused.  So, if I'm writing a blog post about the company Motorola, contextual ad engines will most likely serve up an ad prompting the user to buy a  mobile phone.  But when a user reads a post on this blog, she's not looking to buy a phone; she's more likely trying to learn more about the company and research its stock.

Introducing the Premium Content Ad Network.

That's why Alacra has launched the Premium Content Ad Network ("PCAN").  PCAN has been developed to help publishers of business and financial information better monetize their websites.

For a blog or website covering stocks, PCAN will serve up contextually relevant ads which contain links to premium business information on the company being written about.  Leveraging the content in the Alacra data warehouse, PCAN automatically generates ads consisting of selected premium business information based upon the content of the page the visitor is viewing,   In the above example, a user landing on a page for Motorola (MOT) might see a list of recent credit or investment research, conference call transcripts, company profiles or other content about Motorola the company.

For web publishers, PCAN is complementary to existing advertising programs.  Publishers can continue to run display ads and use ad networks such as Google AdSense for text ads.  PCAN is a pay-per-action network; leveraging the Alacra affiliate program, participating websites will receive a share of revenue on any content sales.

The initial Alacra partners for PCAN are EDGAR Online and blog the Livermore Report.  You can view PCAN ads, for example, on the following pages:

• EDGAR Online page for Citigroup
• Livermore Reports page for IBM

For more coverage of the PCAN launch, read Silicon Alley Insider, Fred Wilson's A VC, MediaPost and the Alacra Blog. 

Publishers interested in learning more about the Premium Content Ad Network should contact Ron-dot-Waksman at Alacra-dot-com or visit here.

After days of rumors about potential layoffs of 1,500 or more people at Yahoo, today comes word from "insiders" via the New York Times that the layoffs will be smaller than had been rumored.

Now, that may be a good thing, but it seems that the team at Yahoo just can't get out of their own way.  Let's assume that the layoffs number around 400-500.  That might be the right number, but you can be sure that Wall Street will beat the stock up when it's announced because the market had been primed to see a bigger number.

My old boss frequently used the expression "let's get a few adults in here" to deal with tough turnaround situations.  By adults, he wasn't referring to age.  Instead, he wanted people who were a bit savvy and had been through similar situations in the past.

Managing expectations is Investor Relations 101.  By allowing the rumors to get ahead of the story, they've set themselves up to get beat up by the market even if reporting good news.  While Jerry Yang might be the right guy to run the show there (and his 100 days have come and gone without any validation of that premise), he really needs to surround himself with a few "adults" who have been there before.

Via PaidContent comes a summary of the political ads so far during the early primary season.  While the leading candidates in the two parties have already burned through nearly $400
million, little of that has made its way into the coffers of online publishers.

The post sources Evan Tracey of TNS Media Intelligence indicating that most of the political advertisements thus far have been relatively inexpensive buys on partisan blogs.

Most of the money from political ad spend that’s making its way onto the internet have been issue-oriented ads. And that’s going to the political blogs, which don’t rack up a lot of money.

Yet Lehman analyst Doug Anmuth projects roughly $110 million in political ads in 2008 with more than a third coming from the presidential race.  Of course, that's a drop in the bucket when compared to the nearly $1 billion dollars that will be spent by the presidential candidates overall in 2008.  While the candidates may be far ahead of where they were, internet-wise, four years ago, they are still fairly apprehensive.  Mitt Romney's recent experience where his banner ads ran on some gay and lesbian sites have made the campaigns a bit gun-shy.  And, for all the Internet hype around Ron Paul, that's been driven by grass-roots activities, not advertising.  Yet, I expect that once each party has their nominee, we're likely to see a more aggressive online advertising effort. 

I've been long on Yahoo for the past couple of years.  So far, all that's gotten me is the opportunity to buy more on dips. 

Today's BreakingViews takes a look at a potential breakup of Yahoo, suggesting it could add $15 per share in value; a $36 price would be roughly 65% higher than the current stock price.  The key components of the breakup:

• Outsource search.  Shut down their search operations and license search from Google or Microsoft.  This would trample on some egos, but should have a solid business impact ($3 billion per year according to Sanford Bernstein)
• Sell off their stakes in Asian sites Ali Baba and Yahoo Japan (together worth more than $13 billion).  The post suggests creative ways to spin  this out without tax implications.

Jerry Yang proposed a 100 day plan for his turnaround when he returned to the CEO role last spring.  More than six months later, the stock is still floundering.  If Yahoo doesn't get acquired by Microsoft, then the breakup plan makes a lot of sense.

Jordan Edmiston Group has just published their year-end M&A Overview for the content industry.  For 2007, JEGI recorded 838 transactions worth nearly $108 billion.  The $108 billion figure is nearly equal to the total of the prior two years combined, and is an increase of 79% over the 2006 figure of $60 billion.

The news was mixed, though, as more than two-thirds of the deals occurred in the first half of the year, with about $33 billion worth in the second half as credit markets tightened.  While we can expect the slowdown to continue to impact large deals, JEGI indicates that middle-market deals continued at a brisk pace throughout the second half.

 

Not surprisingly, the biggest growth came in some of the hottest segments, including Online Media (306 deals worth $11 billion) and Marketing & Interactive Services (249 deals worth $31 billion).  The Marketing Services segment was led by the mega deals for ad networks, including Google’s $3 billion DoubleClick acquisition, Microsoft’s $5.7 billion deal for aQuantive, Yahoo’s $300 million deal for Blue Lithium and AOL acquiring behavioral ad network Tacoda for $275 million.

Newspaper deals were up by a third over 2006 with 45 transactions for nearly $14 billion.  But the story there was mixed.  While News Corp paid a premium $5.6 billion price for Dow Jones, most of the other deals came in lower than the sellers had hoped.  JEGI also indicates that there were fewer mid-market transactions than in 2006 when there were 74 deals in the industry.

The Database Information Services segment was up from $2 billion to more than $24 billion for the year, but the bulk of that is attributable to Thomson’s $18 billion acquisition of Reuters. 

Segments down this year include the trade magazine segment.  Despite Incisive Media’s acquisition of ALM for $630 million this year, b2b magazine deal value of $3.165 billion was barely half that of the prior year.  The consumer magazine segment faired much better, with nearly $7 billion in deals (almost four times that of the prior year) led by Primedia’s divestiture of its enthusiast group to Source Interlink and the sale of Dennis Publishing to Quadrangle.

Meanwhile, Berkery Noyes has just published its 2008 Outlook+Strategies report on the media and information industry.  Berkery sees a continued solid market for M&A but with a buyer’s market.  According to the report, the frothy multiples of recent years, where content companies sold for as high as 10.5x EBITDA have gone away and they project typical deals to be in the 4-6x EBITDA range. 

While the credit crunch has had some impact on private equity, Berkery notes that PE firms accounted for about a third of the content industry transactions in 2007, significantly higher than just a few years ago.  While the terms may change, they expect private equity to continue to play a significant role in deals in the industry.  They also expect lenders to return to the scene within 3-6 months after clearing some of the earlier mispriced deals.  The firm also expects that Wall Street volatility could lead to an increase in public-to-private transactions in 2008 and 2009.

 

As does JEGI, Berkery looks to the middle market as the active segment of the deal market in 2008, with a mix of strategic buyers and private equity deals.  They note that private equity firms in this space have raised   They are bullish on all facets of the media and information industry, seeing particular strength in the online marketing segment and b2b media, information and trade show markets.

In my opinion, it’s likely that 2008 will bring more of what we saw in the second half of 2007.  Deals will likely be smaller, due in part to the credit crunch and also due to the fact that many of the strategic buyers, such as Thomson and News Corp, will be busy digesting their large deals from 2007.  While private equity will see some impact from the credit markets, there’s still a lot of money sitting on the sidelines, though firms may have to put more of their own funds into a deal until lenders loosen the purse strings a bit.  The favorable exchange rates should continue to spark cross-border deals as American markets look cheap to European investors.  For sellers seeking the 10x multiples of recent years, it's going to be a long wait.

Research Recap, launched by Alacra last summer, has unveiled the 10 most widely read posts of 2007.

Research Recap is a free service that highlights and abstracts compelling credit, investment, economic, market and industry research.  Research Recap is published in blog format and is also available as a free RSS feed. Much of the underlying research is available free of charge, while some is available for a fee, either through the Alacra Store or from individual content provider sites.

 

Research Recap editors review tens of thousands of research reports each year, surfacing those reports which they feel provide insights and information not well-covered in the mainstream media. Topics covered by Research Recap in 2007 were varied, with considerable coverage of the housing and credit markets, eCommerce and social networking, corporate governance, energy and green technologies, hedge funds among others. 

While the topics covered by Research Recap during the year were broad, eight of the ten most widely-read Research Recap posts were focused on the subprime mortgage market implosion.

The most widely read post this year was, US “Housing Bust” Effects to Linger Until 2009, based upon a report issued by Moody's Economy.com, barely nudging past More Bank, Brokerage Writedowns, Ratings Cuts Inevitable, which sourced a CreditSights report.  Other posts among our top 10 highlighted reports issued by S&P, the International Monetary Fund, Fitch Research,  the Wharton School of Business and Salary.com among others.   

The full top-10 list is available on the Research Recap site and can also be found here.

During the year, we were most proud of the fact that Research Recap consistently surfaced topics that were later picked up in the mainstream media.  For example, in October, Research Recap highlighted several reports suggesting the possibility of the subprime crisis spilling over into commercial real estate.  That same topic was covered two months later by major business publications.  Similarly, Research Recap has been out in front on topics such as the questionable wisdom of using food crops for biofuels and bailout plans for complex financial instruments such as SIVs. 

Each Friday, Research Recap publishes a Research Zeitgeist post, highlighting the most widely read and other notable posts from the prior week.  Another regular feature of Research Recap are our highly alliterative Research Recap Research Roundups, which provide quick links and summaries to multiple views on a given topic.

Publishers seeking to have their content reviewed by Research Recap may contact the Research Recap editor at editor-at-researchrecap-dot-com.

The SIIA has just released the list of companies which will be presenting at the 2008 SIIA Previews.  Previews is part of the annual SIIA Information Industry Summit, and provides a forum for early stage content and content technology companies to present to potential investors, partners and clients. 

The companies showcased at last year’s Previews included a number of emerging leaders such as Generate, Near-Time and Attributor, among others.

This year’s lineup looks quite strong.  The keynote will be Kevin Ryan, former DoubleClick CEO and currently co-Chairman of Alley Corp.

Presenting companies include:

• FeeDisclosure.com, which provide consumers with transparency into the fees surrounding real estate and mortgage transactions;
• ExpoTV, the leading provider of user-generated video product reviews;
• Courtroom Connect, a provider of video-based coverage of trials, depositions and hearings
• ArchieMD, a physician led education company offering a massive library of scientific and health imagery;
• Health Monitoring Systems, which provides analytics of aggregated healthcare providers;
• Linkstorm, who provide navigation on top of advertising;
• Vator.tv, a professional network for pitching business ideas, founded by ex-Marketwatch columnist Bambi Francisco;
• Lingospot, a search and aggregation service that enables publishers to more easily cross-link relevant content;
• Keibi Technologies, a user-generated content enabler, offering technology for the moderation and classification of UGC; and
• TutorVista, an eLearning innovator

Much of the innovation in the content industry comes from these new upstarts, so it’s a great forum to identify potentially disruptive technologies and business models.

To register for the January 29 SIIA Previews, visit the SIIA Previews page.
For more info, visit Larry Schwartz' Newstex blog.

Via Doug McIntyre comes word that United Online Media (UNTD) is cancelling the planned IPO of its Classmates.com division due to market conditions.

The much-anticipated spin out and IPO was to raise $125 million.

As PaidContent points out, while there was enthusiasm for a pure-play social network, Classmates.com subscription model was not quite the same as a Facebook offering.  Rafat sources a recent Cowen & Company report that may have tempered investor enthusiasm:

“We expect the Classmates.com subscriber base to peak in the first half of 2008, followed by a steady decline to zero by 2025.”

Ouch.