Key highlights in this report include:

• For publishers, the first step to monetizing something is to be able to measure it. The analytics tools now available make it possible to track the spread of content on social platforms closely.

• Until now there has not been a marketplace where those potential buyers and sellers of content could meet. Nor were there adequate tools to enable verifiable transactions between them. Tools like Cascade and Ricochet are helping put the foundations of such a market in place.

• Both publishers and licensees will need to seize the sort of ad hoc syndication opportunities that arise online and on social media networks. One of the major tasks facing publishers over the next three to five years will be to structure their repositories of content so they can be searched, sorted, customized, repackaged, and accessed in real time via standardized APIs.

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The latest attack on Bleacher Report came last week in a long SF Weekly article, which said that the network “floods the web with inexpensive user-generated content” and is “a long way from any quaint notions of journalism.” The story includes a number of examples of what it says is the kind of sloppy writing that comes from BR’s volunteer contributors, and the author criticizes the network for focusing on cheap SEO (search engine optimization) tactics, such as “reverse-engineering content to fit a pre-written headline” that is stuffed with popular keywords in order to attract clicks.

Unpaid writers “competing for virtual crumbs?”

The SF Weekly piece also spends a lot of time talking about how a majority of Bleacher Report’s traffic is driven by unpaid writers — like the 19-year-old who admits to author Joe Eskenazi that even he doesn’t really buy the headline on his post. The obvious implication is that the network is nothing but a content farm filled with day laborers who churn out posts to fill a quota, and are encouraged by the “virtual badges” they earn for posts rather than an actual salary. As the piece describes it: “Unable to earn actual crumbs, they compete for virtual crumbs.”

Ryan Chittum at the Columbia Journalism Review characterizes the network in much the same way in a post based on the SF Weekly piece, saying Bleacher Report is engaged in a “race to the bottom.” As he puts it:

“Bleacher Report is a sort of Demand Media of sports, a content farm engineered to get search engine visits with lowest common denominator clickbait.”

These criticisms about Bleacher Report aren’t really a surprise — after all, they have been made about virtually every other digital-media entity from Demand Media and The Huffington Post to BuzzFeed: the idea that user-generated content is just a sop to readers in an attempt to bolster SEO-driven metrics, and that it is an endless rush towards the bottom with little or nothing of actual value to add to either media or journalism.

And as the SF Weekly story notes, even Bleacher Report insiders to some extent acknowledged this: the magazine quotes from a speech given by King Kaufman, who was hired last year by the network to upgrade its editorial standards, in which he says that BR had gotten a reputation for “lowest-common-denominator crap.” Of course, the article also fails to mention that Kaufman and his team have spent a considerable amount of effort on boosting the quality of the network, to the point where it is actually more stringent about things such as plagiarism than mainstream outlets like ESPN.

An alternate route to a career in writing

Not only after the SF Weekly article appeared, someone else added an interesting — and I think important — perspective to the picture: Matt Miller, a senior writer for Bleacher Report’s NFL unit, described how he went from being a would-be sports writer with no experience to a member of the senior team at the network, based solely on his contributions to the site. As he put it:

“Fast-forward to today. I’m no longer in marketing, I now work full-time for Bleacher Report as an NFL Lead Writer. I have benefits and vacation time. I have a salary. I have these things because I was able to work my way to the top at B/R. I wasn’t handed a job based on my résumé.”

This is part of the problem with the traditional media response to “content farms” or user-generated media sites like Huffington Post and Bleacher Report — the sense that they can’t possibly be as worthwhile as a regular content operation because people are writing for free, and therefore the only possible value has to be the creation of low-quality content for cheap traffic purposes. But what about the writers? Why do they do it? And isn’t there value there as well?

Miller’s account makes it clear that there is value: unlike the old days of traditional media, where writers had to toil for years in dead-end jobs with newspapers or magazines or trade publications before some of them could be “discovered” and elevated to the higher ranks of the profession, sites and networks like Bleacher Report, Huffington Post and BuzzFeed give anyone the ability to rise to whatever level their writing ability justifies.

Is the content produced by places like Bleacher Report the equivalent of a mainstream outlet like ESPN or the New Yorker? In most cases, no — but does that mean it is of no value? Of course not. Readers seem to like it, and who are we to say they are wrong? Not only that, but Miller makes the point that he and many other writers see a lot of value in what they have done, even if that value isn’t recognized by members of the mainstream media, because it allows them to bypass the traditional barriers that used to encircle journalism. And isn’t that ultimately a good thing?

Post and thumbnail images courtesy of Flickr users D. Miller and Yan-Arief Purwanto

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There was some consternation in the media industry this week when the Chicago Tribune announced that it was letting more than 20 of its journalists go and handing over its local coverage to an outfit called Journatic, which looked to some like a “content farm” not unlike AOL’s hyper-local Patch unit. Meanwhile, Wired magazine wrote about another emerging competitor for the traditional news business — namely, the news-writing robots or algorithms employed by startup Narrative Science, which automatically generate sports and business stories. Is this what the future of the media industry looks like? Robots and content farms?

The announcement from the Tribune made it sound as though the newspaper was investing more resources into its hyper-local unit, which is known as TribLocal and has been providing coverage of smaller regions and communities both online and in print for about the past five years. Editor Gerould Kern said that the paper made the move because “we believe that it is a more effective way of providing hyperlocal news, and we think we can do more of it in this way.” And the Tribune isn’t just outsourcing its local coverage to Chicago-based Journatic — it has acquired a stake in the company as well, although the size of the investment hasn’t been disclosed.

Journatic pays writers $2 to $4 for each story

For journalists at the Tribune and elsewhere, however, the big news was probably the fact that about half of the 40 journalists who worked for TribLocal — reporters, editors, designers and web developers — were going to lose their jobs, with the rest being reassigned elsewhere inside the Tribune. And who is replacing them? Much like so-called “content farms” such as Demand Media, Journatic appears to use primarily freelance contributors who are paid on a piece-work basis: one ad for writers says they will be paid $2 to $4 per story, which the site says works out to about $12 an hour.

Position: Per Piece Writer
Treatment: 1099 Independent Contractor
Time: You choose when you work, but we are looking for day availability
Location: Remote. As a contractor, you choose where you work
Pay: Per-piece, roughly $12/hr. For example $4 stories take about 20 +/- minutes, and $2 stories take about 10 +/- minutes.

For some observers, including Streetfight columnist Tom Grubisch, this solution makes perfect sense: while some journalists lose their jobs, the Tribune gets local content that costs substantially less than the stories it was producing — and some of those stories don’t really deserve any more than 10 minutes or $2, says Grubisch, if they simply involve note-taking at a city council meeting. In fact, he says some stories may not require human beings at all: “Reporters, at $12 an hour or higher rates, aren’t needed for most data journalism. That can be produced by software and algorithms.”

Are robot writers freeing us up, or putting us out of work?

And that brings us inevitably to Narrative Science, a company that also happens to be based in Chicago. Founded by a couple of data scientists in 2010, it now produces sports and business coverage for a range of outlets, including Forbes magazine — where it provided this auto-generated article about the expected earnings from the New York Times Co. The Wired magazine piece makes much of the fact that Narrative Science pieces are almost indistinguishable from traditional sports or business coverage.

Rebecca Greenfield of The Atlantic, however, says that we shouldn’t be scared of “robot journalism” because much of it is barely even journalism at all — a point that she has made before. Instead, she says, most of what the company does is the meaningless data-driven drudgery that regular journalists usually hate doing to begin with, because it doesn’t add much value (and having written earnings summaries, I can attest that this is true). So why not let robots do it? A similar type of argument could be made for using Journatic.

Data specialist and journalism professor Matt Waite makes this argument in his defence of “algorithms for journalism.” In effect, he says, we can use robots or automated tools to do what those things have always done — namely, take away boring and repetitive tasks that human beings have always done, and make it easier for them to focus on the things they do that really add value, in ways that only humans can.

That’s a powerful argument, but it presumes that the journalists who are “freed up” because of Narrative Science or Journatic can actually find somewhere else that will pay them to do the really valuable work that machines can’t do. If they can’t, then they will simply be unemployed journalists. And newspapers like the Tribune that make use of a content-farm style approach need to be aware of what they are getting as well — as the Washington Post recently found with one of its bloggers, asking for dozens of stories a day can tend to reduce the quality to an unacceptable level.

Post and thumbnail images courtesy of Flickr users Connor Tarter and D. Miller

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If you follow the media sphere, you might have seen some news articles and blog posts recently about how the “New York Times paywall is working,” or words to that effect. They were all over the place, including a piece by Reuters media writer Felix Salmon, in which he admitted he was wrong about whether the paywall would succeed or not. Salmon has now written an update to his original post, with some of the reasons he thinks the paywall is working. But what is meant by the term “working?” Is the NYT getting readers to pay? Yes. But the long-term value of that is still very much an open question — and a paywall remains a fundamentally defensive strategy.

Salmon said in his original post that he had been forced to admit the NYT paywall is working because the paper has been able to attract about 400,000 paying users in a variety of forms, according to Seth Mnookin, in a piece for New York magazine about how the newspaper company has defied expectations that it would fail (although no specific expectations are ever attributed to anyone in the article). When the paywall launched, Salmon made a bet with Financial Times writer John Gapper  – whose newspaper also has a paywall, although a much less porous one — that the NYT would be able to get 300,000 paying readers within two years, which now seems pretty likely. Said Salmon:

I was very much a skeptic with regard to the paywall experiment, but I’m extremely happy that it’s working, I’m a big fan of the NYT, and I sincerely hope it has found a predictable and dependable new revenue stream in the volatile and treacherous media business.

In his follow-up post, Salmon says that some of the reasons the paywall is working are that it doesn’t take a hard line on reading the digital product, the way the paywalls at the Financial Times and other papers such as News Corp.’s Times in London do. Instead, the NYT allows readers who come in from social media such as Twitter or blogs to read articles for free (only 20 of these non-social links are allowed per month). And Salmon also notes that some people are clearly just happy to pay for the NYT, in the same way they pay for things like museum memberships, even if they don’t have to.

First we need to define what “working” means

That may all be true, but does that mean the NYT paywall is “working?” I’m not convinced yet, and I’m not the only one. Felix Salmon may have lost his bet with John Gapper, but why is 300,000 subscribers the magic number that determines whether it’s working? That may mean it’s off to a good start, but it doesn’t mean it’s a raging success. Don’t get me wrong; I agree with Salmon that it’s great to see the the NYT with a recurring stream of revenue — but by that criteria, the newspaper’s last paywall in 2005 (which inadvertently helped fuel the rise of The Huffington Post) also “worked,” because it made money. But as Josh Benton at the Nieman Journalism Lab notes, the number of subscribers peaked quickly and never grew again, and the wall was dismantled.

What kind of growth will the NYT see from its paywall? Will it peak at 400,000 or so (some of whom were provided by advertisers such as Ford, which subsidized them, and so don’t really count), or will it continue to grow? And at what rate? Those are the criteria for a successful digital strategy, it seems to me, not whether a percentage of existing subscribers pay a few dollars a month for the paper out of charity.

Will the paywall result in a single new reader coming to the New York Times? That seems unlikely at best. While it’s not impossible that someone might suddenly decide to pay for the paper despite not being a regular reader, it seems more likely that the people currently paying are die-hard NYT fans. And that’s great — although the comparison Salmon makes to a museum might cut a little close to home — but it’s hardly a forward-facing digital strategy, as I’ve argued in the past (and others have argued as well).

The bottom line is that the paywall is arguably producing about $35 million or so a year at the current rate of subscriptions — but as Salmon notes, that is a relative drop in the bucket for a corporation the size of the NYT, which has revenues of about $2 billion. And will that number grow, or will it stay the same or even shrink? Even if it doubles, that’s still a fairly small contribution to the overall business. Is it better than nothing? Sure it is. But it’s not going to make or break the newspaper.

But the biggest knock against the paywall is that it has virtually nothing to do with actually taking advantage of the digital world in any concrete way. It’s just charging people nickels and dimes for their paper, the way the NYT and other newspapers have for a century and a half or so. In that sense, it’s not really a strategy at all; it’s more like a line of sandbags designed to shore up the print business and squeeze as much money out of it as possible as it declines. A wise move? Perhaps. Something to get excited about? No.

Post and thumbnail photos courtesy of Flickr users U.S. Army and jphilipg

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Digg, the link-sharing site that was once the top of the social-news heap, has launched a new feature it hopes will bring users back to the service: Newswire allows readers to create their own filtered view of the links that are being submitted to Digg in real time, which the site calls “sifting for diamonds.” But after a disastrous redesign that caused many users to flee the network, and the departure of founder and chief visionary Kevin Rose — not to mention the rise of Twitter and newer sharing platforms like Google+ — can new features such as Newswire help the site recapture any of its faded glory?

As Digg staffer Will Larson describes on the company blog, the Newswire allows users to not only see posts appear in real time as they are submitted to the site, but to filter that stream based on a number of factors — including the number of Diggs they have received, what topic they are related to, and whether they contain video or images. There’s also a “trending” view that ranks the posts coming in by how quickly they are receiving Digg votes. In a break with Digg tradition, the Newswire also shows who “buried” or voted down a post or link, which the site hopes will increase transparency.

Filtering incoming links and watching them appear in real time is a handy thing to have. But is the new Digg feature anything revolutionary? Not really. Some reviewers have called it a “radical experiment” in social news, but it’s anything but radical. Many users already get a similar blend of trending links and commentary from Twitter and related services such as Topsy and Tweetmeme that show popularity — and a number of apps like Flipboard and Zite provide a curated, real-time newswire-style experience. Does Digg bring something dramatically different to the table? Not that I can see.

Even a Digg staffer notes in a comment on the thread about the Newswire launch that “making upcoming real time with Newswire is simply catching up with the general trends,” while one long-time Digg user described it as being little more than an updated version of an earlier feature called Digg Spy, which was launched in 2005. While the Digg users commenting on the launch seem to think the Newswire is a great addition, it’s not clear whether it will be enough to draw in new users or bring back old ones.

Digg Version 4 repelled users

Many of those departed users, who in some cases were Digg’s most devoted fans, fled the service after a mammoth redesign, known internally as Version 4. The redesign was in the works for more than a year, but when it launched last summer, it sparked widespread criticism and outrage from existing users — in part because it was seen as altering the independent culture of the site by appealing too much to mainstream media sites. Alexis Ohanian, co-founder of Digg competitor Reddit, said in an open letter to Kevin Rose that the redesign “reeks of VC meddling” and was little more than “cobbling together features from more popular sites,” and many users seemed to agree.

In the months following the launch of the new design, Rose stepped down as CEO to be replaced by Matt Williams, who almost immediately apologized for the flaws in the redesign — and the site proceeded to undo or roll-back almost all of the changes that had been made (and laid off about 40 percent of its staff at the same time). But the damage had already been done: Digg’s user base continued to decline, to the point where Compete.com says it is now only slightly larger than Reddit with about 3 million unique visitors a month, down from more than 8 million a year ago.

In terms of overall traffic, Compete says that Reddit is now about twice as large as Digg, with 14 million page views a month to Digg’s 7 million, while Quantcast shows Reddit as being almost three times larger in unique visitors and four times the size of Digg in terms of monthly page views with about 44 million to Digg’s 9 million.

In a move that seemed to cement the network’s decline in popularity, founder Kevin Rose left Digg earlier this year, and has started a new incubator for mobile apps and services called Milk. Matt Williams said earlier this year that the site’s traffic had “stabilized” and that he continues to believe Digg can be a major player when it comes to filtering the news that continues to bombard web users from multiple sources.

But while features like Newswire may be positive additions to the former superstar’s bag of tricks, it’s going to take a lot more than me-too services to bring back its faded glory. The harsh truth is that Digg’s time may have come and gone.

Disclosure: Milk is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

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Demand Media, the newly public content company that’s doing everything it can to avoid the term “content farm,” has been engaged in a head-to-head battle with Google since just before Demand issued its public shares. That battle got jacked up a notch or two recently, when the search engine tweaked its algorithm to crack down on what it calls “low quality content” and Demand’s eHow unit got caught in the crossfire. Demand says this isn’t a big deal, but the reality is that its biggest partner is also its biggest enemy, and that’s going to dog the company — and the stock price — for the foreseeable future.

Google’s first content-farm related algorithm update in February (known as the “Panda” update, the nickname of one of the engineers involved in designing it) hit a number of content companies fairly hard, pushing down results from Associated Content and Suite101, among others. But Demand’s eHow site — which represents a large proportion of the company’s content business and also a substantial chunk of its revenues — escaped with very little impact, which came as a surprise to many. In fact, some estimated the site’s pages were actually showing up higher in search, not lower.

That changed dramatically with Google’s latest algorithm tweak, however. It’s not clear whether the search giant rolled out its latest update specifically to target eHow and others who were missed in the first go-round, but according to at least two tests — one from Sistrix and one from Cnet  – eHow pages are now showing up as much as 65 percent lower in Google results. And the new algorithm changes were based in part on feedback from users about what webpages they found least useful.

Demand Media published a blog post late Sunday night saying the Google algorithm change did affect eHow’s rankings, but that estimates of the severity of the decline were “significantly overstated.” In the kind of careful language befitting a newly public entity, the blog post — which included a legal disclaimer almost as long as the post itself — said Demand expects to generate year-over-year page view growth “comparable to or greater than the year-over-year page view growth reported for Q2 2010,” which was 25 percent. The company also reaffirmed its financial guidance for 2011. Despite those reassurances, however, the stock price fell by close to 10 percent in early trading on Monday.

In other words, as far as Demand is concerned, things are just fine. But investors shouldn’t be quite so sanguine. For one thing, Google continually tweaks its algorithm, and there’s no reason to believe this is the last update related to content farms. And the big picture for Demand remains the same: namely, it relies on Google for an estimated 40 percent of its traffic and about 30 percent of its revenue, as described in its IPO securities filings, and therefore, the search giant holds the keys to its ongoing success in that market. Google has made it clear that “content farms” are a problem that needs fixing. As Demand said in the “risk factors” section of its prospectus:

Google may from time to time change its existing, or establish new, methodologies and metrics for valuing the quality of Internet traffic and delivering cost-per-click advertisements. Any changes in these methodologies, metrics and advertising technology platforms could decrease the amount of revenue that we generate from online advertisements.

Demand has said it’s working on boosting the quality of its content (something other “crowdsourced” content distributors such as Examiner.com are also doing in order to avoid the wrath of the great and powerful Google), but this is also likely going to increase costs at the company, another thing investors should be aware of. That and the need to constantly look over its shoulder at what Google is doing with its algorithm are going to be the biggest challenges facing Demand for some time to come.

Post and thumbnail photos courtesy of Flickr user Crystaljingsr

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Just before so-called “content farm” Demand Media went public in January at a $1.5-billion valuation, Google said that it was planning to make some changes to its search algorithms to clamp down on the profusion of low-quality results from content farms. Last night, the search giant finally rolled out those changes, and they appear to be a dagger aimed directly at the heart of companies such as Demand, whose stock tumbled on the news. The content company maintains that it won’t be affected by the new algorithm, but it seems clear that Google is upping the ante in the content-farming game.

Google hasn’t specifically said that the changes are aimed at content farmers — in fact, the term doesn’t appear anywhere in its blog post, which simply refers to “low-quality sites” — but Search Engine Land says the rollout is almost certainly aimed in that direction. According to Google, the changes affect about 12 percent of the company’s search results, which is a fairly large proportion for such a change, and an earlier revision last month targeted so-called “scraper” sites, which simply copy content verbatim from other sites. Google’s statement in January said that action would be taken against both scrapers and content farms, so by the process of elimination this algorithm change seems likely to be directed at content farmers.

So why is Google being so coy and not calling these changes an attack on content farms? Perhaps because the whole term “content farm” is problematic — not just in the sense that it is difficult to define, but problematic for Google, since sites like Demand Media run a lot of Google advertising (although the company says this plays no part in whether it cracks down on their results). GigaOM Pro analyst David Card and I looked at the content-farm industry in a recent research note called Content Farms: The Players, the Benefits and the Risks (sub req’d), including the challenges of dealing with Google, and I also discussed the need for Google to take action against content farms in a related paper (sub req’d).

Demand Media — which is adamantly opposed to the term “content farm” — maintains that its content is high quality enough to escape Google’s crackdown. After the search giant announced the coming changes in January, founder and CEO Richard Rosenblatt said that Google’s comments “were not directed at us in any way.” And on the Demand Media blog, it responded to the latest changes by saying that:

As might be expected, a content library as diverse as ours saw some content go up and some go down in Google search results… It’s impossible to speculate how these or any changes made by Google impact any online business in the long term – but at this point in time, we haven’t seen a material net impact on our Content & Media business.

When it comes to the latest changes and their effect on content, the stakes are high for all content-production companies — including Yahoo’s Contributor Network (formerly called Associated Content, which was acquired by Yahoo last year) and other sites such as Suite101 — but they are arguably highest for Demand, which went public based in large part on the value of the content created for its eHow platform and related sites. Among the risks it detailed in the “risk factors” section of its securities filings prior to the IPO was the possibility that Google could make changes to the way it handles and ranks content, and that this could negatively impact the success of eHow.

Now, investors will no doubt be paying close attention to the effect of Google’s changes — and they seem to already be skeptical about Demand’s insistence that this won’t change anything, since the stock dropped by more than 5 percent after the Google news.

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Post and thumbnail courtesy of Flickr user Armchair Aviator

The key companies in this space are Demand Media, Associated Content, AOL (with Patch and Seed), About.com, HubPages, Examiner.com and Suite 101. The main benefit to their approach is a cost base that is dramatically lower than the typical offline content-production business delivered by newspapers, magazines and TV networks. Demand and its competitors save money on production and distribution costs, but they also spend far less on writers and editors than a traditional media company. In some cases, writers are paid as little as $5 for a 500-word article, something that a traditional newspaper or magazine would pay between $100 and $800 for.

In addition to sharply lower costs — not to mention time-to-publishing and raw volume — content farms can also generate higher revenue from their content than a typical media company. Since the content is chosen based on the potential advertising appeal of an article, each piece of content that is written (or photographed or filmed) is designed to produce the maximum amount of revenue possible. Much of the content that appears in newspapers and magazines is chosen for reasons that are only indirectly related to monetization potential, and therefore the revenue-generating ability is reduced. However, printed and televised media still commands much higher advertising rates than web-based content produced by Demand and similar companies.

But there are two main risks to the content farm model: search and saturation. To answer criticism of the quality of its search results, Google could change its algorithm to drive down the frequency with which results from these content farms appear. That would decrease — possibly dramatically — the amount of revenue these companies can generate. Google recently released an extension for its Chrome browser that enables individual users to block sites that produce search results they consider spam. That blocking info goes back to Google, where it could be incorporated as input into results ranking. It is unlikely Google would completely blacklist a site like eHow — though search startup Blekko does — since some of the content there is useful to many, perhaps less sophisticated, searchers. But Google could refine its source credibility rankings by topic.

The other main risk to advertising-driven content creation is that by flooding the web with hundreds of thousands of articles of relatively low quality, Demand and other companies are creating an oversupply. Impression- and keyword-based online ads already face pricing pressures due to the breadth of the Internet and the efficiency of ad networks and optimization. Adding more and more articles just ensures a greater supply of pages on which to advertise, driving down the price of advertising. This is a classic case of the “law of diminishing returns.”

The so-called content farm model is a risky business in its current incarnation, but it is evolving. To read more about how, and to see in-depth profiles of the aforementioned companies, check out a new research note at GigaOM Pro (subscription required).

Image courtesy of flickr user Klearchos Kapoutsis

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