Future of Advertising and Content Monetization (transcript part one)

On Thursday, May 9th VIRURL held an event called the Future of Advertising and Content Monetization with VIRURL Chairman and founder of MSNBC.com Merrill Brown and the following panelists:

  • Francisco Diaz-Mitoma Jr., cofounder and CEO, VIRURL
  • Scott Lenet, managing partner, DFJ Frontier
  • Keyvan Peymani, managing director digital strategy division, ICM Partners
  • Malcolm Casselle, CEO, Mediapass

Merrill Brown: What is the future of content monetization?

Malcolm Casselle: 25 billion songs downloaded on iTunes and we can see very clearly the trend. Their spending all their time in front of not just one but a second and third (computer) screen.

It doesn’t feel like buying Now that buying isn’t always about putting your credit card in but clicking the button, clicking buy.   .  It doesn’t feel like you are spending money and that’s really changed things.  Now that you have 25 billion songs downloaded on iTunes and we can see very clearly the trend that people are spending all their time in front of not just one but a second and third (computer) screen.   With all that time spent in front of the screen friction for purchasing coming down. People we want to start charging for things. Another reality because businesses can charge, it means the guys that charge (for advertising) make radically larger profits than those who don’t.  The difference you can make on advertising on a per page basis V.S.  A paid subscription on a per basis is 110X, 200X to 1000X.  We see it every day.  The guys who  charge are going to create better content and then they are going to then have more subscribers they have superior business models.  Guys with superior business models win.  What it means are the guys left not charging are screwed. That’s the business model we see trending.  Most advertising is concentrated; most ad revenue goes to the top 50 guys.  What does that mean?  Well that means the long tail, the other 10% is spread thinly across a lot of other sites and they can’t survive.

Merrill Brown: So the takeaway is that if you are launching a content business you better have a subscription strategy or your future is murky. 

Malcolm Casselle: Subscriptions are not the only way to think of it. Premium is another model, there are certain models that you can use to monetize, and advertising is the one people go for.   You see people working with free services, the drop boxes and so forth but we are also seeing it for content.  And I’m really coming in at a content point because I think services people already get.

Francisco Diaz-Mitoma Jr.:  So I agree with some of the things said but I also disagree with many of the things said in terms of having to charge for better content or only the paid content is the best but that’s not a question.

Where I’m coming for on this whole issue and content monetizing is strictly from growing up with the Internet. For example, being on Myspace and starting to avoid the banner ads.  I am not the only one. Eye tracking studies have been done, that show people are avoiding the ads and consistently banner ad engagement has gone down.  Our company Virurl challenging this, it’s taking that banner space that is generally avoided and placing content that does one of two things 1) that informs the audience or 2) entertains the audience and that has been our mission.  We see that as a business model and a great philosophy to base a company on because it’s everlasting. It is not that challenge you can solve overnight.  No company will ever solve it, because predicting what kind of content to suggest is a very complex challenge.

Merrill Brown: To follow up, the premise of your thesis is the old models are broken whether it’s subscription, premium or ad based and it’s something new and different like you’re doing with VIRURL.  It’s where things are going.

Francisco Diaz-Mitoma Jr.: Absolutely.  Content monetization is being reinvented across the board.  The great content for example on Netflix, the house of cards which people are willing to pay for because it’s that premium, it’s that good content and that’s a relatively new way to monetize content which is interesting.  The advertising base content monitization is also changing with companies that are focusing on this native advertising space.

Keyvan Peymani: Right now there is not one thesis that is right. It is really all grays because of the think ecosystem that exists today.  This ecosystem still generates billions of dollars, not only revenues but profits and it works together, it feeds each other.   It’s why so many new business models are hard to get off the ground. It’s hard to get marketing of the ground because you have this entrenched system that feeds each other.   On the flip side, you have what I think is one of the most exciting things coming out of youtube and that is the ability of content generators to start a business. The fact that they can get there and entertain billions of views a week and can engage an audience means that we are in this really fascinating space where you can start to build business models that are on a user generated models.

At the same time the big media companies are trying to figure out how to migrate their current business models.

Thesis:  We are in an environment now where contextualization that leads through engagement that leads to some kind of activation is the fundamental underpinning that is going to drive a business.

Merrill Brown: Please clarify contextualization.

Keyvan Peymani: Three answers I would give to that.  The first is the message must be absolutely targeted.  It’s finding the right person with the message at the moment that they would be inclined to care about the message.  Secondly, contextualization means narrative. Reading a story about a bunch of things and the ad unit is giving you another piece of the story.  And lastly the thing contextualization means to me is business model.

What’s the takeaway from that for the entrepreneurs in the room? I think the take away is you have multiple bites of the apple, you have multiple business models that are built into you system.  You have to measure which ones your user base is actually gravitating towards and measure ruthlessly.

Merrill Brown: Do you think the era of free content is over?

Keyvan Peymani:  I don’t think it’s as black and white, to say that if you’re a (free) content publisher you expect the views to make up for it. But a blogger who gives away all their content today to a massive readership can then turnaround and create a million dollar book deal with Harper Collins tomorrow.  That model for that you could argue was built on free trading. It is really contextualized in the broader sense on how do you plan to drive monetization off your intellectual property if you want to make it just that.

Scott Lenet: My Thesis would be there are two types of content good enough to pay for.  You can make money on all the rest of it.  I think the You Tube example is an interesting one but as a venture capitalist we don’t usually invest in content. It’s an interesting notion.  How do you tell what type of content is good enough.

Merrill Brown: That is an inadequate answer in that it really doesn’t really offer the entrepreneurs in the room or even the panel on what it feels like to you as an investor.  Would you consider investing in something where the publisher has all his or her content free on the web and is dependent on the web?

Scott Lenet: I absolutely would.  The way you describe contextualization is probably exactly the way we think about it. There is an element of a business model, there is a way you can say if there is something that is premium, is a lost leader in some way in order to get to another model.  That is something we can do and have done.  An example I would give is our investment in a company, Boom Studios.  Boom Studios doesn’t give away their content for free, they sell Boom comic books. They are sold digitally on the web. They don’t make a tremendous amount of profit in those comic books. A typical series they might start might be four issues.  Some of them might make money some of them might make a lot of money and some of them might lose a little bit of money or break even.  But when that property then gets marketed in Hollywood as a feature film or television show, bought up and moved through the chain then they can make a lot of money.  That’s the interesting model. You know making movies is like playing lottery.  If someone came to me with a movie script I wouldn’t back that as a venture capitalist but if there is a machine for making great comic books and you will be able to consistently put that machine through the system.  We fund that.

Merrill Brown: Great, Thanks.  A year or two ago the hot buzzword around the world we live in was solomo – social, local, mobile – today the hot word is native advertising. We have to give the group here today a view of native advertising and how we approach it and think about it.  How do you think of native advertising at Mediapass?

Malcolm Casselle: I think of native advertising as part of a supply chain and that we need to figure out the value of that supply chain.

I actually enjoy native advertising.  Native advertising to me is like being at Whole Foods at the checkout counter and clicking on sponsored content. I actually enjoy looking through them.  I click on them much more than I ever would a banner ad.

Scott Lenet: Is native ad advertising in your mind limited to that type of material?

Francisco Diaz-Mitoma Jr: That is not native advertising that is strictly lead generation disguised as native advertising. When I think of native advertising, the best way I can describe it is by providing an example.  It’s an experience.  You bounce around a blog, lets say 3 to 4 different blogs about skiing and you have now learned how to wax your skies, you have seen the ski conditions.  You have done all these things but within a contextual experience.

What you describe is an issue the advertising agencies are having an issue with.  It affects us all within this room, when you are on the internet you see a little thumbnail that you want to click on.  It will show how to stop hair thinning, you click on it read the article and at the end of the article it’s driving you to buy a prescription pill.  So for me that is absolutely the incorrect way to describe native advertising. Its using a lot of the same element where it is trying to blend in with the website but the fundamental it’s breaking all the laws that I believe define native advertising.

Scott Lenet: Do you believe native advertising is like product placement, where it is so deeply embedded its part of another story already.  Where is the line? You cross?

Francisco Diaz-Mitoma Jr.:  Well it’s definitely a murky line and that’s why we brought on Merrill, with his great editorial background to help us navigate those waters.  You know it has to have some taste to it.  Where okay in some cases where there is branded content.  For example we did a campaign for a car company last month, which was a branded travel adventure, and people would naturally want to see that video and share that video. It was the right audience.  Agencies and companies are starting to invest more in content.

Merrill Brown: Scott as the older guy on the panel you might remember when advertisers use to own networks and sponsor programs and you watched the Brystol Myers hour.

Native advertising may be the long waited segway if you will where sponsored programs have a different branding and a different level of engagement with sponsors.  That are we getting there you think.

Scott Lenet: That and the sponsorship model makes a lot of sense for a lot of the content we are talking about compared to what we rationally think of as advertising on the web.  What you guys have all described from banner ads , people clicked on them and after time they monetized.  If you have something like click bait , tricking you into thinking it’s part of the page when it’s really not going to monetize over time.  And that’s going to get higher click rates but not for long because people will figure it out.  But if it is truly embedded and its part of the narrative you describe and it’s contextual then I think it’s more like a sponsorship.  As a business how do you make that scalable and not an incredible effort each time?

Keyvan Peymani: Brands are getting much smarter on how they engage their audience.  I think there is a generational wave of executive chief marketing positions that still believe in brand 101 strategy oppose to those who are much more focused on activating the right individual at the right moment and then drive it to sales.  Basically if you look at entertainment marketing it’s growing very very quickly. Everything is blasted to the community for four million dollars it’s not let’s build that community, feed that community.  We are starting to see that change happen.

Merrill Brown: Do you see the difference between building your brand and exploiting your brand?

Keyvan Peymani: That’s an awesome question and I’m going to give a great answer to that, yes and No! (Laughing) I think building the brand and exploiting the brand are now interlocked in a way they weren’t before.  Because while you’re building the brand and making money off the things you do, you have to be cognizant of the reason in which you are exploiting the brand, impacting the brand you are building.  It’s because of the world we live in; I mean movies open and close on a Friday afternoon now.  It used to be that they had weeks and weeks to run but now we can now tell each other if something sucks or is really a complete sell out.  So you see the pendulum swing were the Kardashian’s build a huge brand exploit it and it backlashes on them … then they figure out maybe they need to re build that brand.  It’s a much more difficult navigation now, as brands can be built faster than ever, that’s the great news but they can also be destroyed faster than ever.  You have to think of both sides as you’re doing it.

Future of Advertising and Content Monetization: part two is coming soon.

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