Costly Content

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The Internet was never supposed to be a one-way street. We didn't log on for high-paid cyber versions of Dan Rather or Tom Brokaw speaking down from their gilded anchor desks. The Internet was supposed to free everyone from star media talent to let the community have its say.

But it didn't work out that way. In the rush to commercialize the Net, many Internet companies seeking instant credibility hired top reporters and editors to generate compelling content that might yield traffic. Unlike traditional publishing giants, especially newspapers—who got rich partially by underpaying their scribes—the Internet overpaid, perhaps grossly. Talent raids were costly for Internet startups that paid premium salaries for some star content creators.

In San Francisco, companies like CNET raided newspaper tech reporters to build its own newsroom and paid them about 25% more than they were making. Six-figure salaries were not uncommon for San Francisco Chronicle reporters like Herb Greenberg who went to Street.com and Jeff Poline who joined CNET. CNN's respected anchor Lou Dobbs jumped ship to join Space.com. Stock options were part of the lure.

Even freelancers got a smaller piece of the largesse. I'm no Walt Whitman, but I was paid $600 per article to write short nature pieces about camping trips for PointsBeyond.com. It was great while it lasted (four months), but I knew basic publishing economics would fold PointsBeyond's tent. Revenues have to justify content costs.

When the dot com bubble blew up in 2000, content costs were still rising while advertising revenues fell short of projections. Most Internet companies had to look at content costs and figure out ways to maintain quality. With reality setting in, some of that high-priced talent has been pink-slipped or had their salaries cut. Many have gone back to their old jobs, such as Dobbs, who is now back at CNN.

Meanwhile, content companies are seeking formulas to tame content costs or at least find revenue models to justify their editorial star system.

About.com Has A Solution
 Although the Internet was billed as a low-cost publishing platform, it hasn't turned out to be so. The per-page costs to produce content are $1,000 on the low side and $2,000 on the high. These are comparable figures facing magazine publishers. A big part of Internet page costs is text, with author and staff salaries comprising much of the expense. Costs for photos have been minimal so far, Internet publishers say. Design costs per page are negligible as well because Internet pages have a set template designed during a Web site's creation and don't have to be recreated, unlike a magazine that has individual page design.

Linking content to traffic and paying its authors accordingly has been a solution for About.com. About's stable of 700 authors writes about specific niches, but gets paid based on the traffic generated for its topics. If the birdwatching author generates 1/700th of About's traffic and ad revenues, then he or she receives 1/700th of the revenue pool. All authors start with a minimal monthly stipend of $100, and the average monthly pay is $1,000. However, the most successful authors are raking in $15,000 per month, according to About's CEO Scott Kurnit.

Kurnit has applied for four patents on his content, recruitment, and procedures that have yet to be copied so far.

"Too many Internet businesses are conventional content businesses that moved to the Web, but didn't take advantage of the fact that you could have a remote workforce where people were holding down their regular jobs," Kurnit says. "The experience they were getting on their regular job could become beneficial to the site. Someone might spend l5 hours working on the site, but they are really spending full time because the guy who writes about anesthesiology is bringing all real-world experience to us. There is a leverage in the business model of better quality and lower cost through the system."

Unfortunately for most Web sites, About's modus operandi can't be copied because its content is not so distinctly compartmentalized and authors can't be evaluated as cleanly.

Tapping into the community is also a way to control costs and leverage the ultimate power of the Internet.

"The most successful sites on the Internet have been community-driven. One great example is The Motley Fool. It was built by creating just one percent original content, the rest is created by the audience that comes and chats about things," says Daniel Ambrose, managing director of mergers and acquisitions firm DeSilva & Phillips. "If you look at the Net only as a place to pipe downstream at people, you will never be successful. There must be exceptions to that rule, but I think that is what the Net is about, it's about two-way. TV is one-way, as are magazines and newspapers, and each has its own set of cost structures. The Net is different because people can talk back to you." The Open Directory Project is another site that has contained costs by leveraging community, Ambrose says.

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