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Forbes.com Underscores Premium Online Content's Monetization Morass

Yesterday, I read one of those news items that seemed strangely overlooked, maybe because a lot of people who read it didn't really grasp what was going on: it was the story that the legendary Silicon Valley v.c. Roger McNamee was stepping down from the board of Forbes Media, which his fund, Elevation Partners, had bought a significant stake in only two and a half years ago. Here is the explanation McNamee gave to The New York Post's Keith Kelly via email, but he's not saying what you think:

When we invested, we were convinced that online advertising could more than outperform any decline in print. That view has proved to be wrong for reasons that are no fault of Forbes.

The deterioration in the advertising market late last year caused Forbes and Elevation to agree that we could no longer count on Forbes.com to offset declines in print. We agreed to a strategy shift from investment in the Web to aggressive cost cutting.

Sounds like the guy is bummed out by the media recession, right? Wrong. I think what he's talking about is a far graver problem facing premium online content companies: the recent exposure of the fundamental flaws in the online business model that was supposed to make premium content a money-maker. As McNamee alludes to, the thinking was that the shift of online advertising and audience to the Web would offset the gradual erosion of print revenue.

While the shift of online advertising and audience continues to happen, the shift of money, and eyeballs, to digital media isn't being felt by premium content's biggest players. Instead, the constant upping of the supply of online ad inventory, not just from established sites but from blogs and social media, and the rise of ad networks that monetize this long tail, is killing premium content's business model. Advertisers want as much inventory as possible, but only if it's on the cheap and if it offers a distinct return-on-investment. (Forbes.com CEO Jim Spanfeller also recently blamed Google, in a post on paidcontent.org, because, among other perceived sins, it doesn't t put a higher search value on sites like Forbes.)

Since Forbes is a private company, we can't really know the specifics of what's going on under its hood, although it's obviously not pretty. But you can see the dynamic elsewhere in the fourth quarter numbers of some other premium content players at a time when, the Interactive Advertising Bureau said that the medium eked out a 2.6 increase compared to a year earlier. Time Warner's AOL had a six percent decline in ad revenue in the fourth quarter; The New York Times Company's Internet properties, including About.com, saw a 3.5 percent decline, and the story is the same throughout online media.

How does this all this get resolved? One can assume that if McNamee knew, he wouldn't be asking off Forbes' board. I've been having a series of email conversations with one industry consultant, Steve Goldberg, who, back in the day, was MSN's first online ad sales executive. He thinks premium content sites, some of whom use the ad networks that have helped devalue online ad pricing, need to stop, cold turkey, and embrace the big, branding ads that have everything to do with making people aware of a brand, but little to do with hard metrics, such as click-throughs, that advertisers have gotten hooked on. Make advertising on premium sites exclusive again, he says:

Trust me, if we sold more impressions this way, we would grow the industry. Cut a deal where Jack in the Box is the only fast food that can buy for a month on Hulu and they will pay a premium and they will buy it ... And click through or not ... measurement or not... [ Jack in the Box] will see an uptick in sales of those mini-sirloin burgers ... And that is one burger McDonald's will not sell that day.
To that end, as I said in a post last week, entities such as the Online Publishers Association are workinng with their members to introduce bigger, splashier ads. But look at the comments after that post, and you'll get a sense for just how deep premium online content's monetization morass really is.
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