Part 1: It’s Not All About Content; Building Media Companies that Succeed

It’s an unusual week that CommonAngels doesn’t receive at least two business plans for web-based media companies—businesses that produce information and entertainment in one or more consumable formats using advertising, subscription fees, or pay-per-use as the revenue model in contrast to businesses that are based entirely on direct selling of a service or product.

Most of these firms create and aggregate content and then give it away (sometimes charging a minimal fee to create qualification) to aggregate an audience from and about which they will collect data used to convince advertisers to advertise.

Entrepreneurs who start up media companies almost always recognize the need for the information they are providing. It is okay to be in love with the content to start, but then how do you make it useful?

We asked two of our members, Tom Burgess and Jay Habegger to roundtable with us as a way to share their advice and experience about starting up a media company.

Tom is a four-time entrepreneur who founded and sold Collegelink, a portal for college-bound high school students, to Monster and recently sold his latest company, Third Screen Media to AOL. Jay, also a serial entrepreneur, is the founder and former CEO of Bitpipe, which was sold to TechTarget in 2004. Most recently he is the founder and CEO of OwnerIQ, a media company that aggregates audience by helping consumers support the products they own. OwnerIQ is receiving more than 1,000,000 unique visitors every month.

This is the first in a three-part series which will cover the key areas of focus for media companies: attracting audience and advertisers; building credibility and value, and considerations of growth and acquisition.

Part 1: Starting Up a Media Company: Know Your Audience and Advertisers

James: One question I always ask media company founders is what audience are you reaching and/or what data are you getting that is so difficult or impossible for an advertiser to get through any other channel? What problem are you solving for the advertiser?

Jay: The most important thing about any media business is the audience. Lots of media company business plans are based on a neat idea, but the entrepreneurs haven’t thought enough about their audiences. The entrepreneur will spend significant money in building web sites and will not spend any capital on validating that audience exists and can be aggregated. They can talk about the content, the site, or the tool and why it’s nifty, but they aren’t able to talk about their audience from an advertiser’s perspective.

Tom: It’s never a build-it and they will come—that’s a fool’s model, but any upstart whether software as a service, a heavy technical IP play, or a media company can be out there early if they’ve really created something that fixes an immediate pain in the marketplace, in this case for the advertisers.

James: A media company that is going to be successful must have a methodical way to extract information about people. Tracking site visitors to prove that you have access to a great demographic is important, but you have to collect more than visitor statistics. Attracting an audience with cool content is a vehicle to gain access. The founders must then take their cool content and build it into something of economic value.

Jay: If you are going to sell advertising successfully, your company has to distinguish itself through the characteristics of the audience; the engagement you have with that audience, and/or the reach of that audience. The media company entrepreneur must articulate a formula to achieve at least one of these three.

If the secret sauce is targeting, how is that actually going to get done? If it’s reach, how can I actually prove that I can get to that audience? This is what every advertiser cares about. Can you produce and deliver the audience?

Tom: It’s all about acquiring those eyeballs and creating the underlying infrastructure to monetize through advertising, subscriber fees or a combination of the two. How are you going to cost effectively go out and acquire eyeballs? What is your cost per acquisition, and how is your revenue model going to produce a profit per subscriber? You are going to be asked these questions by any savvy investor. These are numbers you need to know.

It’s also critical to know your audience. Look at Google. Two young guys built a solution that their target demographic used every day. They understood how to build a really clean portal that did a good search. They did it better than existing companies who had lost touch. They didn’t have to go study the demographic because they were the demographic. That demographic is growing up with them. The same people who used Google 10 years ago are using Google today.

James: Goggle is a great example of what drives the media business—the ability to reach and engage the consumer. But knowing the audience isn’t enough. You have to understand the advertisers.

Jay: That’s right. Once you’ve articulated the audience, the next hurdle for the entrepreneur is to understand which advertisers care and why. There’s a market for most audiences, but the market has to be identified. Every media company entrepreneur must be able to identify and define the advertiser who cares; why they care, and how much they care?

One of Google’s big inventions was the way to tap into latent advertising budgets in medium and small businesses. These size companies didn’t have an outlet. Their budgets were too small to take a bite of The Boston Globe in anything other than classified.

Tom: I might expand on that point and say that you need to understand what the advertiser is looking for. There are two fundamental areas of importance for advertisers: audience and content. Advertisers know who they want to reach, and they know what type of content their audience consumes. Many advertisers also focus on content to help define their product; think Gatorade® and sports.

The true job of the media entrepreneur is delivering specific audiences in a format that appeals to media buyers. Once the audience has been defined then the delivery and cost structure must be addressed. Is the audience best reached through unique premium content that is purchased at a pre-determined price and duration, such as cost per thousand (CPM) or share-of-audience? Or is the audience more economically reached through superior targeting technology that allows an advertiser to expand their reach across a larger more disparate set of content through a performance based pricing structure? Google set the standard for the later model.

James: CommonAngels looks for the entrepreneur who says, I have a way to find out what advertisers have been dying to find out.

Jay: The field is so crowded; the number of messages that are editorial and ad driven is enormous. There are a million factors of individual behavior. More so than ever advertisers need to find a way to reach and communicate messages, and anything that helps cut through that clutter has a shot. That need isn’t going away; it’s getting more acute. That’s what’s driving these media businesses.

Tom: This is an excellent point. There are two perspectives regarding the transfer of audience data to the media buyer. The first is wrapped around the behavior and influencers of an audience. The second is accurately tracking and reporting the reaction of the audience to the advertisers’ message. Unique and effective solutions to these issues will help differentiate up-starts from other companies and will create barriers of entry to potential competition. Additionally, media buyers are always looking for something new. Unique approaches to old models will help break down doors and secure sales meetings with the big money.

In our next installment – Part 2: Starting Up a Media Company: Building Credibility and Value

Tags: bitpipe, digital media, owneriq, social networking, third screen media, Web 2.0