In The Market
14 March, 2006
Big media companies are prowling for new media acquisitions. What are they looking for in potential partners?
According to the New York Times, industry commentators think of last week's $600 million purchase of women's content site iVillage as a "medium level deal." While buyers are operating with more discipline than they did in the last dot.com boom, the price iVillage pulled in still suggests that small and medium level internet companies can attract big bucks from traditional businesses trying to expand their new media offering.
The trouble is, there aren't many left. According to the NYT, big media has run out of purchases, and has trained its sights on Silicon Valley in order to catch the next big thing before it goes stellar.
Potential sellers should create sites with niche interest but with the potential to reach a broader audience - or, indeed, appeal to a niche (like online teenagers) that just happens to be huge. The viral nature of community and networking sites is always going to be interesting to buyers - and the loyalty such sites inspire is a plus. When you make a community of real and 'virtual' friends online, you go back to speak with them daily - it's easy to leave MySpace, for example, but dragging your entire community to a rival web forum could be the online equivalent of crossing the Atlantic Ocean.
Visitors have to come in serious numbers. "For a Web site to pique the interest of mass-market advertisers, it needs to have at least a million unique visitors a month; to be considered a major takeover candidate, it needs to have five million unique visitors," the NYT reports (iVillage had 13.4 million unique visitors in February).
Numbers not only give the community stability, they make it an attractive proposition for advertisers. And the advertising industry is increasingly prepared to pay for space on community websites. Specific sites, such as finance portals, can command higher fees for individual users, but a huge general use site like MySpace can still command $1-2 per 1000 views. This has risen "from pennies" only a year or so ago.
Outside community and networking sites, the NYT tips "sites that allow people to play casual interactive games; store, send, manipulate and print photos; build and store blogs; and research and shop for big-ticket items like cars. Also eliciting interest are "next generation" Web sites, like those focused on allowing people to search the universe of blogs more effectively."
Unlike traditional media companies, the price of new media start-ups fluctuates wildly. Traditional media and established new media businesses are valued in multiples of their revenue. For new companies, the price is what the market bears, and there are few guidelines. Sometimes, it's all about potential, whether in number of likely users, or advertisers, or (and here we're on even more speculative territory) number of potential subscribers.
Microserfs and the new feudalism
Moreover, potential revenue streams need to be squared with another new internet phenomenon - the increasing expectation among content creators that they should be paid.
While a number of video gag companies are offering $1000 'awards' to contributors of popular films, bigger players such as Yahoo are contemplating payment schemes for the user-generated content it believes will become increasingly important to its media offering.
Along with Google, Yahoo already has an advertising scheme for bloggers, which places keyword-linked ads alongside users content. Bloggers or site hosts are given a share of proceeds from the ads. If a site approaches MySpace's popularity, advertising revenues could do more than pay pocket money to its teenage users.
Few would dispute the intention of finding ways to pay contributors for their work, or to allow the best bloggers to continue working on their sites. After all, the buyouts listed above suggest that the cash is flowing towards site creators and technology enablers; coupled with the relative failure of mainstream paid subscription models on the internet, it would appear that in the world's greatest ever information explosion, the creators of the information are the only ones to lose out.
Some commentators warn that payment might put a damper on free expression, however: Professor Dan Ariely of MIT Media Lab worries that the internet's volunteer ethics could be changed, while the NYT also quotes a consumer loyalty specialist who warns that by introducing financial awards "you're introducing an externality that degrades the value of the community itself. It undermines that whole model."
It's possible. It doesn't look like many of the 75,000 citizens who become bloggers every day will get rich, or even earn a living from their work. But at the same time, granting users space to toil for free - even if it is fun - while the site owners rake in advertising revenue and acquisition loot seems like a curiously feudal way of managing the 21st century's digital revolution.
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