I recently wrote an article (“Old Media’s New Might”) about whether “old media” can survive and what it must do to prosper. The article is written from a personal investment perspective (e.g., I recommend stocks and make market analysis), although a significant chunk of the text is a more general analysis. The general theme fits in with the dotcom redux that the market, tech, and many industries, are currently experiencing.

There was not enough space to expand on certain issues in the article, and one of the trends that is not receiving nearly enough attention, by tech and market types, is MySpace.com. Some have said that News Corp overpaid for it, but in two years nearly everyone will agree it was a smart move. As one discussant said at a Pulver Media show I recently attended about MySpace.com’s South Korean counterpart CyWorld, “Do you want to get laid? Well, you can’t get laid if you’re a South Korean youth without a CyWorld page.”

The article I wrote appears in the November 23, 2005 issue of Personal Finance, which is the largest personal investment newsletter in the country. PF is aimed at a general audience of investors, covering many different industries and investment themes.

The general analysis section of the article is below the jump. If you’d like the market analysis and stock recommendations, let me know and I can provide you with a trial username and password for the site.

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Old Dogs, New Tricks

Everyone—including Wall Street, the industry and investors—are worrying about two things: How new media fits in and undermines old media; how spending on advertising remains stagnant and revenue growth for media companies appears limited.

We heard the hype about new media during the dot-com era, but only now have the technologies matured and saturated enough so that huge numbers of people can receive a wide variety of content through their Internet connections.

So what does new media’s second coming portend for old media? Surprisingly, not much.

That’s because the business model remains the same, although the content’s format may differ (e.g., newsprint versus Web sites). People who want to be entertained generate the demand.

And companies trying to make a buck—usually through advertisers—deliver the content.

To do so, media companies have needed three things to make money: content to generate interest, ease of access to draw an actual audience (there’s a difference between people interested in something and people consuming content) and information about that audience to attract advertisers.

The first requirement isn’t a problem. After all, media companies are already generating content.

However, for companies that don’t have access to content—such as Web portals and search engines—content is important, although not required, for continued growth.

This is working its way out in the marketplace as companies like Google, Microsoft and Yahoo! beef up their content creation departments and/or make moves for content providers, such as Time Warner’s AOL unit.

The second component—ensuring ease of access—is a serious stumbling block for media companies. Most think that giving away content or offering it cheaply will lead to a loss of revenue.

For example, despite the success of online music downloads through Web sites like Apple’s iTunes, the music industry is still hesitant to offer what the consumer wants, how the consumer wants it.

Making it difficult for people to view the content, whether it’s through pay-for models or something else, is a difficult business to maintain because consumers can usually find an alternative, easier-to-access method of getting their news, sports highlights or weather. Most content isn’t unique.

Although companies may generate some pay-for revenue or be able to control their content, using these types of controls usually leads to viewership decline.

This leads to the third component: the importance of advertising dollars. Those dollars are crucial to media companies.

When audience numbers (e.g., subscriber totals, Web site visitors) decline, the companies and investors become worried. But the total number of viewers isn’t as valuable to advertisers as knowing the details about the audience and their behavior.

This is why online media is so profitable. Not only are they generating growth in total audience size, but the technology behind them allows for a better understanding of exactly who the audience is.

This type of information is what advertisers really want and for which they’re willing to pay. Seeking better information about audiences isn’t new, but only now have we entered an entirely new level of understanding and information quality.

It’s not surprising, therefore, that new media advertising spending is expected to grow by more than 15 percent a year during the next few years, while old media will see growth of less than 5 percent.

And the companies that are best at collecting and using this type of information can be expected to take a disproportionate share of that 15 percent-plus growth. For example, advertising revenue grew 18, 20 and more than 100 percent at AOL, Microsoft’s MSN unit and Google, respectively (see graph, p. 1).

The key for old media groups is to better understand their audiences. Doing so allows them to more effectively tailor content and sell advertising space (and at premiums). All of which is best accomplished through the Internet.

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