Face it

What made Facebook a crazy success was that college kids had a place to hang out virtually, free of adult supervision. It played right into endless connectivity, a trend that began with Gen Y using e-mail, instant messaging and Napster. Shared experiences, 24/7. Eventually, their parents, little brothers and sisters and even grandma and grandpa joined the party.

Now, Mark Zuckerberg has gone and spoiled all the fun by taking his billion-member social network public on the NASDAQ stock exchange. The reportedly greedy guru may have cashed out, because now he’s taken his cool idea corporate.

Ironically, when Zuckerberg and his partners first launched Facebook, while at Harvard University, he adamantly opposed the idea of selling advertising to monetize the burgeoning social media experiment. He didn’t want to prostitute the “coolness” of the concept until it became more viable. It was an online global village that belonged exclusively to college students.

But as the number of Facebook members grew to astronomical proportions, comparable to half the population of China, the urge to cannibalize it became too great. Now, you get to see ads next to photos of your friends and what they’re eating for lunch. Zuckerberg had built a village square for people and groups to gather for free. Now he sells electronic billboards around the perimeter and fills the air above with blimps and skywriters.

General Motors announced this week that it’s dropping Facebook ads, because the carmaker believes they’re ineffective. This went down as Facebook launched its IPO and later kicked off trading. But GM still says brands can build relationships through social media. It’s just that the ads don’t measure up. They’ve tasted the milk for free and don’t think it’s worth paying for.

I wonder if Zuckerberg’s future plans for generating profits will include a premium paid model. We’ll call it Facebook 3D. It could offer special features like chat rooms with celebrities and virtual backstage passes to concerts or events. Don’t laugh. LinkedIn and IMDb both have professional grade versions that you can access only if you buy a monthly subscription.

My sense is, people desire a commercial-free environment for the social lives. We always tolerated ads with free TV and radio. It was a small price to pay for all that programming. But the more we pay for cable and Internet access, the less it seems we should have to endure an endless stream of marketing.

Don’t get me wrong. Ads are very appropriate on the Web. For example, Google provides an amazing service free of charge. Type in a word or phrase and miraculously you receive hundreds and even thousands of related links, articles, images, videos and news stories. You name it. Anyone who is old enough to have done library research the old fashioned way and cranked through miles of microfilm should shed a tear every time Google spits out a list of links in seconds. The ads are a small price to pay for all that free knowledge. In fact, the ads are often exactly what we want to discover.

But there’s something particularly eerie about targeted ads showing up next to a photo of your little nephew’s birthday party. Or a snapshot at your brother’s wedding. We’ve reached the point where reality TV has become viewers broadcasting themselves and corporations selling that content without sharing the profits with the creators. Sounds kind of like what pimps do, doesn’t it?

Enter Dish Network and The Hopper. The satellite TV provider now offers a digital video recorder (DVR) that will automatically zap the commercials so you don't have to watch them during playback. Only seems appropriate since we all pony up so much for cable and satellite and still have to buy Web access. The networks are screaming about the editing technology.

Zuckerberg and his team will be under intense pressure to show a profit right away, since he’s got lots of investors now. Facebook may be tempted to snoop your posts and pics and offer ads that connect to your life. You post a photo of your new Chevy Camaro and Facebook ads for State Farm and Shell gasoline pop up. Maybe even a promo for a local detail shop and Auto Zone. How’s that sound?

The quickest way for Zuckergberg to raise profits is to sell a portion of his mammoth membership a subscription to Facebook on steroids. Let’s say, only 10% of current members buy in at 50 cents a month or five dollars a year for premium access. That would be 500 million bucks without selling a single ad. Ten bucks a year or about three cents a day is a billion dollars, and so on.

And the paid, premium version of Facebook could offer an ad-free environment, just like when the social network started.

Then Zuckerberg could charge corporations like GM big bucks to join as members and post their status. That’s what Facebook should sell, not your private life.

The worm turns

I love apples. Both the kind you eat and those you click.

In the spirit of full disclosure, I’m keyboarding this blog on a MacBook Pro. And we own five other Apple products including an iPad my wife, Ellen, rarely puts down. We also have an AppleCare contract and have received prompt, friendly and consistently excellent service from technical support.

Although I enjoy these devices and how they work, I’m not crazy these days about the way the technology company is behaving. And I’m not just talking about the exploitation of workers in foreign countries.

The most valuable company in the world is also allegedly continuing to set new standards for greed right here at home.

This week, the U.S. Department of Justice launched a lawsuit against the Cupertino, California company alleging collusion with five book publishers. Apparently, Apple set prices for e-books at its iTunes store and required the publishing companies to pay a 30% commission on every virtual volume sold there. Plus, they demanded the book business not sell e-books at lower prices through other Web retailers.

In fairness to Apple, the alleged price-setting efforts were in response to Amazon’s parasitic relationship with the publishing business. Amazon has been slashing book prices. According to a Bloomberg News interview, Amazon is allegedly selling books at a loss in hopes of driving bookstores, competitors and eventually publishers out of business. If book prices get low enough, publishing print versions won’t be a viable business model. Authors will be forced to deal directly with the likes of Amazon and sell only e-books.

Publishers allegedly crafted the Apple arrangement to fight back against price deflation. The Feds and 15 state attorneys general say consumers have paid millions of extra dollars for popular books. Three of the five publishers settled and two agreed to pay $51 million in restitution to book lovers.

All of these twisted tactics spell trouble for the creative minds that generate the content for books, newspapers, magazines, movies and other media.  As the value is artificially deflated and middlemen divert profits to their pockets, there’s less revenue for those who actually invest in media. The media companies and their creatives are being bled.

Apple’s 30% commission is based on an agency model. In other words, rather than buying the books wholesale like other retailers, or even selling them on consignment, they insist on nearly one-third of the price paid at the Apple store. And they’ve extended this to all sales generated at their App store, including subscriptions, as well and all sales made from within a company’s App bought at the App store.

In that sense, they’re setting prices by imposing a mandatory 30% premium rather than allowing the market to decide the value and price of a product. On the other hand, a bookstore would typically buy merchandise at the wholesale price and then sell them for whatever the market would bear. That way, a great book would bring the top asking price and a bore might sell at rock bottom.  The market rules. But at Apple, in every case, they get 30 pounds of flesh.

You can’t really blame Apple though. They saw the gap in the thinking of media companies and are simply exploiting it.

Consider this. In most cases we pay extra for convenience. Whether it’s the high-priced groceries at the gas station; the surcharge on carryout food orders; handling fees for sports and theater tickets or the shipping costs for mail order or Web purchases. Shopping the easy way has a price and it’s often steep.

Why is it that so many media companies gave away online access to newspapers and magazines for free? Think about it. In most cases, the new media version of a publication or creative asset is more robust and valuable than the old school version. For example, newspapers offer video and galleries of photos online. You can also easily search and e-mail articles and assets to friends and family. Yet, many publishers allow you to enjoy online media with all its extra perks for free. Makes no business sense.

Now, after giving away first-class journalism online, publishers like the New York Times are trying to train readers to pay for it. As they should. And advertising is more measurable online than in any other medium. It’s worth more.

In the 20^th century, radio and television began under free access business models. But advertisers paid top dollar in the golden age of radio and TV to buy share of mind of consumers who invested in radios and TV sets. However, over time, both have evolved into pay models, with satellite radio offering broad programming and excellent reception wherever we go. And cable TV provides hundreds of channels plus on-demand access to first run movies that cost less than theater tickets. But you pay at least the $29.99 monthly teaser rate for satellite or cable TV. And those current box office offerings are extra.

Simply put, you get what you pay for and if it’s convenient, you typically pay more. Getting your favorite journal or show delivered to your desktop no mater where you are in the world, anytime day or night is the ultimate convenience. And it should not be free. Giving away journalism and entertainment is costing jobs and may eventually destroy the media industry as we know it.

All the recent legal haggling with Apple and others couldn’t have come at a better time.

In early April, a consortium of leading magazine publishers announced they would batch 32 major titles for online subscriptions. You get all the monthly magazines at the all-you-can-read price of $9.99 per month. For $14.99 you receive both weekly and monthly titles. An unbelievable deal.

The consortium, called Next Issue Media, includes publishers like Condé Nast, Hearst, Meredith, Time Inc. and News Corporation. Some of the popular titles in the bundle are The New Yorker, Time, Vanity Fair, Better Homes and Gardens, Elle, Esquire, Wired, Fortune, People, Real Simple and Sports Illustrated.

You might say magazines are going cable, except this subscription model requires no extra fees for the premium content. It would be like getting HBO and Showtime thrown in with your local channels, ESPN, AMC and The Big Ten Network.

The Next Issue Media magazine App will reportedly work with the iPad, Android tablets, Kindle Fire and Nook. It will take about 12 months before the publishers officially make the offer.

Will they have to pay Apple 30% of every subscription they sell through the iTunes store? How will that impact their operations and business plan?

Imagine what would have happened to radio and TV if broadcasters had to pay RCA Victor, Motorola and Philco a 30% fee so the technology tuned into their programming. Even credit cards charge just a few percentage points commission for financing retail sales. The late Steve Jobs must have consulted the ghost of Hammurabi when developing his 30% taste of the business that passes his processors. I’m not talking about a commission on Apps, I’m criticizing the commission on subscriptions.

Apple and Google have created a double tax on the toll roads of the information highway. Consumers already pay fat fees through monthly charges for Internet access. Without the content that media companies create, iPads and other tablets are roads to nowhere, sleek looking launching pads with limited destinations.

My suggestion is that publishers prevent the technology giant, Apple, and others like Amazon or Google from worming in on their valuable content. How? Some technology writers are encouraging media companies to invest in developing Web-based Apps instead of those designed to run on Macs.

That way, they can advertise their amazing offer on the Web and have consumers connect there. Consequently, publishers would then be able to take a bigger bite of the apple for themselves — and the talented people who develop the content for their award winning media. 

Power to the Producers

Like more than 70 million people worldwide, I just watched they “Kony 2012” video on YouTube. It’s powerful, engaging and more than worth the time. If you haven’t seen it, you owe it to yourself to spend the 29 minutes.

What can we learn from Jason Russell’s video? Too many things to count. But let me connect a few dots in the world of new media.

For perspective, “American Idol”, TV’s most popular show, reaches 12 million viewers on a typical night. It’s all about entertainment and it’s in its twelfth season. Kony 2012 is a gut-wrenching expose of Joseph Kony, a Ugandan warlord who abducts kids and turns them into sex slaves and soldiers in his rebel army. Documentary producer Russell has reached a massive audience with a serious message by leveraging the power of social media. His goal: to shine the spotlight of truth on Kony and provoke the international community to stop this criminal.

Russell is a great storyteller, effective communicator and social activist with justice in his sights. But imagine for a moment that his strategy is used for less lofty goals. Like selling entertainment.

For example, a producer or production company creates the pilot for a TV show. But rather than sell it to a network, it’s posted on YouTube. It goes viral and builds dramatic interest in the new show and its characters.

Then, teases for other episodes in the series appear on YouTube and Facebook, directing viewers to a Web site where they can pay per view. In Jason Russell’s case, if only 10 percent of his current audience decides to pay to watch the second episode, that would be more than 7 million viewers. And any money, let’s say a buck a show, would go directly to him and his cause.

So, I ask you, in the future, why will creators go to the networks or studios with their scripts? Some will need corporate Hollywood to underwrite their productions. However, in many other cases, private investors could play that role. With on-demand viewing and streaming video, the producer no longer needs a syndicator or regular time slot on a cable network. They simply need an audience that is willing to pay or sponsors who will pony up the dough to reach an established audience. And with Web TV, you don’t need Nielsen to monitor your ratings. You can count hits automatically, record how long people stay with a program and where they go when they’re done.

In fact, you don’t even need the likes of Netflix to carry your show. That streaming service is in peril, as their contracts with the movie studios are running out in the next couple of years. Soon Hollywood’s moguls will be demanding billions, not millions for the rights to stream their movies on the Web. Giants with deep pockets,  like Google and Amazon, may gobble up that territory. As the recession wanes, the value of content is coming back.

So, once again, the creative mind is king. Unless Netflix, the networks and their kind pay to partner with content developers, they will soon become empty pipelines.

Jason Russell’s noble Facebook crusade is attempting to liberate Africa’s children. In the meantime, he may have empowered artists, worldwide.