Google and Other People's Content

Google and Other People's Content
It sticks ads all over. But to maintain growth, it may need to own the places it puts them
BY Jon Fine
http://www.businessweek.com/magazine/content/07_49/b4061083.htm

The eternal story line in media is "Google is moving into [fill in the blank]." In recent weeks, Google announced its Android operating system for mobile phones and its OpenSocial standard, which will link applications across major social-networking sites, so long as (for now, at least) they're not named Facebook. As several blogs discovered, in November the company filed a patent application for a Google magazine of sorts, which would allow users to collate Web content around which Google would wrap targeted ads. It's also launching a job ads initiative.

All of which multiplies the number of arenas into which Google can sell advertising, which provides 99% of its revenue. The formula is familiar: Sell ads, in many cases around content Google doesn't own; turn over the bulk of that revenue to the owner of the content; repeat until the end of time.

Google's revenues almost tripled, to $11.8 billion, in the first nine months of '07, so it's hard to argue with its approach. But, really, how long can this go on? Not even the most ardent Google apologist claims its profits will balloon by the billion forever. Some perched in lofty places throughout the media biosphere advance a quietly radical notion: Google will start buying content companies. In fact, they say, Google will have no choice.

EYEBALL HUNTERS
This doesn't happen today or tomorrow but somewhere down the road, as the torrid growth tails off. The reason is AdSense, Google's business that runs ads around others' content and pays the owners the bulk of related revenues. (For the first three quarters of 2007, AdSense accounted for 35% of Google's gross revenues.) This business is less profitable than AdWords, which runs targeted ads around Google's search results. And there are indicators that gap will widen. The costs for eyeballs will only go up as the other big online ad network competitors-Microsoft , Yahoo! , and AOL -all tussle to lock up sites that generate lots of quality traffic, of which there are a limited number. (For an online ad network, more traffic equals more data equals better targeting equals more money. Microsoft's $240 million bought only 1.6% of Facebook, but it kept that traffic from Google.) Google's traffic acquisition costs-which include fees paid to content players-come to almost 84% of its AdSense revenues in the third quarter.

Owning some high-traffic sites, however, does away with revenue splits and immediately boosts profit.

Remember that "content" doesn't have to mean "television network." "Content" can simply be "information you sell ads around." It would be insane for Google to buy New York Times Co. a cost-intensive entity operating in a severely stressed sector. It may not be insane for Google to load up on properties like Landmark Communications' Weather Channel-or, better, the competing Web site Weather Underground, which would be cheaper. That's info everyone wants, and creating it doesn't require an army of reporters and producers.

This idea, of course, runs wholly counter to Google's reigning ethos. Its stated goal is to organize the world's information, not buy it. Google-ites will tell you the culture is allergic to owning content. And companies begun, and defined, by programmers have struggled to navigate the byways of media, as many failed initiatives from AOL and Microsoft attest. (Don't recall Microsoft's Sidewalk online city guides? You're not alone.) Google intimates also say that the company's we'll-partner-with-everyone approach would be hurt by owning content, given the incentives to favor what one owns.

But Google already owns sites traditional media outlets view as rivals, like Google News and YouTube , and few partners have fled. As long as Google's ad network delivers the goods, traditional players won't opt out. (Giving up a few million dollars a year from Google is not an option these days.) Google's defenders say it's more likely to invent new lines of business, as it's trying to do with Android and OpenSocial, among others, to stoke growth. But as generations of past companies have discovered, there comes a time when it's easier to buy a way out of a bind than to invent one.

RJ Reynolds to stop print ads next year

RJ Reynolds to stop print ads next year
By JOCELYN NOVECK, AP National Writer


The R.J. Reynolds Tobacco Co., which has been under intense pressure from anti-smoking groups and members of Congress over print ads for its cigarettes, said Tuesday it would not advertise its brands in newspapers or consumer magazines next year.

The company had been criticized sharply for both its colorful and feminine Camel No. 9 ads, which appeared in fashion magazines and were seen as cynically aimed at young women, and also for a recent ad in Rolling Stone.

In that ad, four pages of Camel cigarette ads bookended Rolling Stone's own material on independent rock music, which was presented in a cartoon-like format. That angered anti-smoking advocates, who said it appeared the whole thing was a Camel ad - and that it recalled the old "Joe Camel" cartoons that were banned because they appeared aimed at children.

R.J. Reynolds spokeswoman Jan Smith said the decision, first reported Tuesday in the Winston-Salem Journal, had been made sometime before October and was unrelated to the Rolling Stone controversy.

In a telephone interview, Smith called the move "an effort by the company to enhance and sharpen the effectiveness and efficiency of its marketing programs." She did, however, say the company had taken into account, at least in part, the protests over the Camel No. 9 ads.

"Obviously tobacco industry issues are in mind with every decision we make," Smith said. "A result of this is there should be less controversy over cigarette advertising in magazines and newspapers, because we won't be doing it."

The Washington-based Campaign for Tobacco-Free Kids, which has long protested the Camel ads, called the company's decision "more a strategy to deflect criticism than a real change in marketing."

Matthew Myers, president of the group, said it was unfortunate that R.J. Reynolds had not committed to permanently stop print advertising. Smith said the company, based in Winston-Salem, N.C., would make decisions about future years at a later time.

Myers also said the company has far to go to curtail egregious marketing practices, which include promotions at bars and nightclubs.

"What they've done is just to limit the ads that have prompted the fiercest criticism, because they are the most visible," Myers said in a telephone interview. He noted the company is still engaging in direct mail advertising, heavy promotion at retail outlets, and price promotion "for the brands kids like most."

The Camel No. 9 ads, launched early this year, appear on thick, shiny paper in fuchsia or teal and are adorned with images of roses and lace. A group of Congress members, led by Rep. Lois Capps, D-Calif., have been urging women's magazines such as Cosmopolitan, Vogue and Glamour to stop accepting the ads, saying they threaten the health of the teenagers and young women who form a large part of their readership.

Capps on Tuesday called the Reynolds decision a "token concession" that was "a day late and a dollar short."

In fact, the print ads account for only a tiny portion of what the tobacco industry spends on marketing. But they've been notable because they often appear in magazines side by side with articles promoting women's health.

Print ads for tobacco are banned in a number of countries, including throughout Europe, but legal in the United States. Tobacco advertising was banned from radio and TV long ago, and more recently from billboards.

A major tobacco report issued earlier this year by the Institute of Medicine, a branch of the National Academy of Sciences, recommended that print ads be restricted to black and white text only - no images.

A number of magazines refuse to accept tobacco ads. A few are Self, Men's Health and Money, according to the Tobacco-Free Periodicals Project.

Copyright © 2007 The Associated Press. All rights reserved.

Paper Costs Leaves Publishers Shuddering

Expected Rise in Paper Costs Leaves Publishers Shuddering
Mags Could Be Paying 25% More Next Year Due to Mergers in Pulp Biz
By Nat Ives
http://adage.com/mediaworks/article?article_id=122187

Magazine publishers are already facing way too many rising costs: technology investments, postage, editors both diva and deserving. But the seemingly mundane budget line for glossy paper is suddenly the one everyone is worried about.

Welcome to our hell, publishers said last week.

"I frankly became more of a quasi-expert than I would want to be, only out of necessity," said John P. Loughlin, exec VP-general manager at Hearst Magazines.

The weakness of the American dollar is increasingly restricting publishers' overseas options.

Seller's market
More worrisome, paper seems to be emerging from a competitive era of cyclically rising and falling prices. This year already has seen increases implemented and announced. Now structural changes, including mergers and a growing role for aggressive private equity, look likely to drive prices up next year by another 20% to 25%, Mr. Loughlin said.

The industry hasn't seen a spike like that since 1995, when announced increases led to a brief run on the paper market that echoed Dutch Tulip Mania. This isn't spare change, either: Paper comprises some 15%-20% of publishers' costs, Mr. Loughlin estimated. One big publisher said it's still unclear how big a hit is bearing down. "We're still examining what we believe specifics amount to, and whether there are benefits to our scale," an executive there said, speaking on the condition of anonymity.

Planning the right strategic response is complicated by that fact that visibility, beyond such rough projections, remains limited. Paper manufacturers aren't too helpful on this score. A spokesman for AbitibiBowater, the result of an October merger and now the third-largest publicly traded paper company in North America, declined to discuss publishers' fears. "We cannot speculate on pricing on a going-forward basis," he said.

A spokeswoman for NewPage, which hopes to close on the acquisition of Stora Enso's North American operations by the first quarter, did not respond to a voicemail and an e-mail seeking comment Nov. 21.

Hearst ready
Mr. Loughlin said Hearst would get by. The company increased cover and subscription pricing on many of its magazines this year and is considering a couple more hikes next year. "We have tried to be thoughtful about our structure in the good years and in the tough years relative to paper prices," he said. "Nobody wants to be here, but frankly we're in a good position in that we've managed our costs and don't have to change the physical specs on the magazines."

The other obvious recourse, trying to pass costs along to advertisers, just won't work well enough for everyone, said Malcolm Campbell, publisher of Spin. "It's going to put some people out of business," he said.

And he didn't just mean the indies. "Don't kid yourself," he said. "There are a lot of large-publishing-company old titles that are very marginal anyway. You're going to see a lot of icons going down if paper prices go up that much."

Spin, he said, will continue just fine in print, even without exploring options like switching to cheaper paper stock or reducing the magazine's size. "There may be some adjustments," he said. "I don't think we're going to go that route. We'll find other ways."

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Paper prices "must double" says M-real chiefBY William Mitting, PrintWeek

http://www.printweek.com/paper/news/768484/Paper-prices-must-double-says-M-real-chief/

Paper prices must double to make the paper industry economically and environmentally sustainable, Andrew Gun­man, regional director of paper manufacturer M-real, has warned.

Speaking at the annual PPA Magazine Conference at London's Millennium Hotel last week, Gunman said the industry had to "pay the right price" for paper to save the environment and secure its future.

"Increased paper costs would reduce waste and force the industry to consume less," he said. "The paper industry needs more money to build a sustainable future."

Gunman added that, while most publishers do not insist on the environmentally friendly FSC certified paper, there has been increased demand from large retailers such as Sainsbury's.

"We have seen a 100% increase in demand for FSC paper in 2007 which is pushing up prices," he added.
Bemoaning the cheap price of paper in Europe, Gunman said the supply and demand mismatch was the fault of the paper industry, which had sold too cheaply.
He added that the low prices were destroying communities across Europe as paper mills are forced out of business.

Gunman's comments will be met with concern among the printing industry which is already struggling with increased paper prices.

One industry insider said that paper-based marketing and information communication has to stand up economically against other delivery channels. As paper prices increase, it makes these other channels more viable, threatening the industry.

In 2006, the dollar price of softwood kraft pulp increased by 22%, a cost which was passed onto printers.

Digital Divide

Digital Divide


Having learned to love the Web, former print editors urge magazines to carve out stronger online identities
Mark Golin, editor of People.com, looks back with some humor on the early days of his Web career in the late '90s. He had proudly created some new features for Rodale's Prevention.com, only to discover people weren't clicking on them. "They were just beautiful looking," he recalled. "God help anyone trying to figure out how to use it."

For Golin, who spent much of his career in magazines including stints as editor of Maxim and Details before making the jump to the digital space seven years ago, the episode made him realize the complexity of building a successful site, with all the visual cues that are needed to keep users engaged and entertained.

"One of the immediate things that hit me is how much more complex production online can be," Golin said. "Content packages are planned months in advance. You almost start to think about a game of three-dimensional chess."

And while most magazine publishers now realize they have a bright future online, he and other former print editors agree that many of them have fallen short in adapting their magazines to one of the biggest threats -if not the biggest threat-to their existence.
To make their brands succeed online, magazine editors need to rethink practices and assumptions that are suited to print, these former print editors say.

"I think they need to think about the Web as a completely different animal," said Michael Caruso, a former editor of Men's Journal and Details who founded The Daily Tube, a site that trolls the Web for the best new videos.



Traditions that have made print magazines strong can be a liability online, former print editors said.
Given the interactive nature of the Web, magazines, with their "experts telling a large audience what to think and what's new," have a diminishing role to play, Caruso said.

Keith Blanchard, onetime editor of Maxim who worked on the sites of Wenner Media's Rolling Stone, Us Weekly and Men's Journal, sees print brands struggling to be responsible and authentic at the same time. "Perez Hilton was able to come up out of nowhere because he didn't care about the legality of what he was doing," pointed out Blanchard, now vp, director of programming at videogame maker Kuma Games.

Online, it's content that matters, not the source, he continued. "Newsweek, Time, don't mean anything, but Justin Fox does," he said, referring to Time's business and economics columnist. "I don't think people are very brand-loyal online."

Blanchard and others say too often magazine sites offer no unique value, have loads of information that's poorly organized and too closely mimic their print counterparts. They urged magazines to carve out stronger identities online.

One way is to recognize that sites don't have to mirror print editions, Golin said, noting that People.com is more celebrity-oriented than its print counterpart.

"I think the main thing is for them to have a very clear mission statement," he said. "What is the need on the part of the user that you're fulfilling? I see a lot of magazine Web sites where I don't know why I've come here, I don't know why I'd come here regularly."

Given the Web's user-directed nature, Blanchard suggested magazines' sites do more to let visitors customize their experience, by geography or other factors.

Since making the jump to online, these digital denizens said they've had to adjust to a culture of heightened speed, intensity and technological change.

"The culture is a lot more casual, the hierarchy is a lot more fluid," said Jimmy Jellinek, who was replaced as editor of Maxim after its recent ownership change and is now consulting at Heavy.com, an entertainment site geared to young men. "There's not the sense of power derived from a masthead. But at the same time, there's pressure to grow profit. There is a constant intensity because the Web is constantly changing. Here, you're working on a day-to-day basis. You constantly have to be plugged in."

While digital defectors don't seem eager to return to print, they still see strong value in the service, long reads and escapism it provides. Said Jellinek, "The one thing the Internet doesn't do is provide context. You get instant information, but it's not analysis."

Price hikes hit Bauer titles

The once-seemingly unstoppable celebrity weekly category is showing more signs its growth is peaking. It started with Wenner Media's Us Weekly and Northern & Shell's OK! missing rate bases on multiple issues in the first half of '07, followed by American Media's Star cutting its rate base to 1.35 million in July, from 1.5 million.

Now, in the two weeks since its price increased by $1 to $2.99, In Touch Weekly's single-copy sales were at least 25 percent below their 1.3 million average for the first half of 2007, according to preliminary sales estimates provided by three industry sources. At sibling Bauer Publishing title Life & Style Weekly, which also raised its price by $1 to $2.99, single-copy sales were down at least 10 percent from its first-half average sales of 744,294, per the sources' estimates.

To be fair, two weeks is a small amount of time to determine whether or not a price increase has a long-term impact on sales, which can be affected by a host of factors. Fall is generally a slow time for celebrity weekly newsstand sales, for example. According to an industry rule of thumb, a title can expect a percentage decline in newsstand sales equal to half the cover price's percentage increase, however.

Cover prices have been trending up this year across the celebrity category, but Bauer's price increases were seen as especially risky because of the 50 percent hike and the company's reliance on low cover prices to support its newsstand growth. Ian Scott, president of Bauer advertising sales, would not confirm or comment on the latest newsstand sales, but did say Bauer would continue its record of overdelivering on rate base. "That's what we've done in the past and that's what we're committed to doing in the future," Scott said.

Meantime, newsstand sales of other celeb weeklies have stayed relatively even, according to source estimates. If anything, Dave Leckey, executive vp, consumer marketing of American Media and publisher of Star, noted, "I think [the Bauer price increase has] benefitted us."