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On PowerPoint, a business plan that monetizes content generated by users can provide us with a wonderful business model of potentially unlimited scalability and a cost structure sustainable from the beginning.

It seems something like this was the idea behind JPG which we now read in GigaOm (through Journalism.co.uk) wanted to print a magazine with content generated and selected online by a community of users. Either it was too early for this project (but, honestly, are we going to print anything in a couple of years?), other say it is early because advertisers still do not want to invest in user generated sites, or it may just be not so easy to sustain businesses based in content generated by users.

I did work in an user generated content business (eBay, and yes, I still remember when I had to face all Spanish powersellers and their problems with the last update of Turbolister) and I know it’s not easy, and it is already recognized that social networks will be soon in trouble if they do not find cash. We also know that youtube (ugc) is performing in terms of finance much worse than hulu (professional content).

The truth is that it is still uncertain to assure that user generated content will be a gold mine while professional content is death. In fact, the demonstration that the long tail did not arrive yet they way they told us also supports the great difficulty to build up sustainable models based in user generated content.

In fact, the distinction between user generated and professional content is quite unfair very often, Shakespeare or Cervantes were not “users”? Why do we need to draw such a line? That line that separates UGC from professional content is more a concept invented to convince investors than a reality. When we talk about UGC we mainly mean contents done for free than I can exploit, no matter they were created by a Nobel prize or by my grandmother. Why am I talking about this?

Because behind the euphemism UGC many projects and business plans have been based (and I accuse myself in the first part becuase I have also produced and defended business ideas heavily based on UGC). Trying to build top-down a business place thinking that it will encourage a community to emerge is like, we say in spain: building the house from the roof. Communities, by definition, have at least a partially bottom-up growth, if not, more than a community they are a kind of army.

Well, I have to say I have seen how tuenti was created top-down and now it is a complete success (apparently).

It may be possible to build on communities but really difficult to create them from scratch. I would invest -honestly- little in user generated content, because it is difficult to control and always out of your hands.

Even if we feel very sorry for the closed company and its workers and investors, we have, as a society, to try learning on the experiences the others are  having to not repeat the same mistake. Having said that, I have to admit 8 y 10 new ventures right now are probably making this mistake. My guess is that we are going to see many UGC based business closing during the coming years and a couple of winners. I know it sounds crazy, but I even imagine youtube with a similar luck or with a radical model transformation.

Let’s leave this post online and see what happens!

(by the way, if you want to invest in a not completely user generated content business plan in Spain, let me know )

According to the theory of the long tail, sales of products follow a Pareto distribution. But, this is not yet the case because we may tend to this, but we are coming from a very different and much asymmetrical situation.
That sales do not follow a Pareto distribution is something demonstrated by Harvard Business Review:
It was a compelling idea: In the digitized world, there’s more money to be made in niche offerings than in blockbusters. The data tell a different story.

Now we found a pricing change (increase, of course) of iTunes
Apple is likely to sell the “vast majority” of the songs for 69 cents, people familiar with the matter said. But they cautioned that the handful of the most sought-after songs — which generate the vast majority of sales on the service — would likely cost $1.29. (wsj.com)

It is purely a price increase, because, if you read the empirical demonstration that the long tail simply does not work the way they told us, the 80% of the catalogue probably is making peanuts compare with the top 20%.

Update:

In this article they tell us how Time Warner is seeing an evolution that still does not confirm the long tail theory.

From a really interesting interview of Hulu CEO, Jason Kilar, 3 remarkable ideas in terms of new media business development:

- global vision

- user behaviour transformation: 1 they may look for advertisers themselves, and 2 they will just be conected, it is unnecessary to continue donwloading information if it is available online.

- business venturing without the weight of a company culture legacy.

1st. Hulu’s global vision. Who will marry them in other countries?

The concept of Hulu is predicated on being a global business. Our mission statement describes us helping people to find and enjoy the world’s premium content wherever and however they want. That will be predicated on finding the right partners and having a business model that enables us to create value for advertisers, content partners and our shareholders.

We are able to measure on a daily basis (mostly geo-filtered access logs) what the latent demand might be for content all over the world for a Hulu service overseas. We are obsessed about it. The majority of our team has worked in global positions; I was global when I worked at Amazon.

2nd. Hope that users search directly for products and advertising themselves. (That would really be a revolution, because that would make the user to be searching for the advertising, contrary to what happened so far).

We have been very fortunate to go from 10 charter advertisers to over 100. I would not be surprised if that number in the fullness of time gets to be over 1,000 advertisers. That’s when you can have a substantial body of advertisers in any one category for users to choose from if they are interested in a product. So, the thing we have to drive is the volume of advertisers.

3rd. downloading contents is nonsense in a 24×7 connected society (I totally agree)

I absolutely believe the streaming business is and will be a bigger business than content downloads.

4th. disruptive venturing culture

The fact that we are a start-up is a very big advantage in that we are not dealing with an existing or legacy culture we are trying to refashion.

The interview is here

summary:

In his article Comunication, Power and Counter-power in the Network Society, Manuel Castells points how the rise of “mass self-communication” changed communication landscape enabling social movements that were before aside of main media. In fact, mass media and those “horizontal” movements, are converging.

We moved from a one-way message from one to many to a network society in which communication is global and horizontal. Although, there is to some point, a certain degree of “electronic autism”, that means people who are developing contents for themselves instead of doing it for an audience (like this blog, for example); even in this case, contents are able to be taken, read, and use by others. Traditional media are in a contradictory position when adopting horizontal content production approaches and this is due to some political and businesses struggles.

Main characteristics of new situation according to Castells:

- massive; potentially global

- self-generated; self-directed; self-selected (I would summarize it as customized)

One example of the shift towards mass-self communication in media businesses are their investments: Newscorp acquisition of Myspace.

To some in the traditional media business, these are the most stressful of times. But to us, these are great times. Technology is liberating us from old constraints, lowering key costs, easing access to new customers and markets, and multiplying the choices we can offer. (Murdoch, 2006)

We have seen other movements in the same direction and there seems to be an absortion of new networks by older media. Castells concludes that we are in the struggle fo humankind to free our minds.

——-

comment:

We are going to an asymetric rather than horizontal communication model, and it is due to differences in culture, time and priorities among individuals. Our profile when facing new technologies differ, and some people will tend to get more power than others (with the mentioned power balance change mentioned by Castells). This will shape society in a different kind of power relationships (not purely horizontal). Of course, horizontal in Castells, is more related to “potentially horizontal” than to really horizontal.

Written by Luis S. Galán Lozano, this diary intends to collect articles and thoughts on online contents industry, mainly about construction and development of profitable business based in audiovisual contents and new information techonlogies.

There are many blogs on new journalism, web analytics, marketing and advertising, but, when it comes to media business development I am finding it harder to get other people’s views. That is the reason why I am starting my own aggregation.

My main purpose writing this blog is collecting for myself what I find interesting within my area of interest apart from giving a personal point of view, but this blog is opened to everyone. Please, feel free and welcome to input your ideas. On the other hand, this blog is under Creative Commons License and so, all content can be used for non profitable purposes.

Most of my hours are nowadays invested in trying to cooperate building the biggest Spanish language media group into a world class player within Internet. It is both: a professional and a personal goal.

My job is developing businesses around our online audiences in order to generate revenues making our business healthier, and thus, more independent our journalists and collaborators. I have the hope that my efforts will result in a better and more independent journalism, and, as a result, in a more solid democracy in -but not only- Spain and in a wider range of opinions freely expressed and defended. Communication is more than a business; it is a meta-business that goes further than a mere economic transaction.

No audiences will come to our media in search of our code behind our contents, nor our design, nor promotions… none of this will allow us to grow a sustainable online media. It is a shared set of values what makes it possible for a media to succeed. Everything else may be very helpful, but they are just order winners and not qualifiers for a successful media.

Nevertheless, media is not just content because it would be not sustainable on its own. In order to run a media business we do also need, of course, good design, great code, solid information systems and architechture, and a sustainable business model supporting it (apart from many other attributes). This work intends to concentrate on what modern media buinesses can do to be profitable and sustainable from a strategic/commercial side without forgetting any other implications.

We all know that new technologies are a challenge for traditional media. Business development professionals have to actively contribute to find a way to embrace new technologies converting them in an opportunity for incremental growth.

I wish this topic, although quite specific, was for you as interesting as it is for me and I invite you to introduce any contributions you feel may help in this debate.

Luis S. Galán Lozano

www.onlinemedia.es

www.mediosenlared.es

Disclaimer and apologies on my written English

I have decided to write in English for several reasons being the most important of them that English is today’s most established exchange language and I would like to learn from what is being talked about out of Spain.

I would like to apologize for my language not being as accurate as it should be sometimes.