Of course, as Om and others have already mentioned, there’s no guarantee this deal will actually be consummated: it could fall apart on valuation, as so many deals do — or Facebook could swoop in with a much higher offer and snatch Tumblr out of Yahoo’s clutches, the same way it did when it stole Instagram away from Twitter last year for close to $1 billion.

Update: According to the Wall Street Journal, the Yahoo board of directors has approved a $1.1-billion all-cash bid to acquire Tumblr.

It makes Yahoo look desperate — because it is

Even if the deal does get done, one of the risks for Mayer and Yahoo is that the company could look desperate by paying more than $1 billion for a site that had revenues of less than $15 million last year (although CEO David Karp has said that figure should hit $100 million this year). That’s an almost bubble-like multiple for a company, and there will likely be plenty of criticism from investors who believe that $1 billion could be better spent elsewhere — in other words, on businesses that would make Yahoo a better return.

But the painful fact is that Yahoo doesn’t just look desperate — in many ways it is desperate. Mayer has made some changes since she took over the ailing former web portal, including the acquisition of Summly and a number of other mobile-focused startups and services, but the company still needs to make some aggressive moves if it is going to jump-start any growth at all. And since Yahoo has about $4 billion in cash on hand, it can arguably afford to make a big bet.

Yahoo buying Tumblr makes sense. Tumblr is only big, cool, newish social platform that Yahoo can afford.—
Henry Blodget (@hblodget) May 17, 2013

For Yahoo, the addition of Tumblr would do a number of things: because of the size and profile of the deal, it would make a major statement about Mayer’s intention to do whatever it takes to revitalize the company, and it would also send a signal to Facebook and Google — and even Apple — that Yahoo is a potential force to be reckoned with when it comes to potential acquisitions. Is doing that worth $1 billion? That’s for Yahoo’s investors and board of directors to decide.

Just as important, it would inject some much-needed life and energy into the somewhat stale lineup of content that the company currently relies on, which caters more to the over-50 set than it does to anyone in the much-desired 18 to 25 demographic. More than any other network, Tumblr is the platform of choice for media-obsessed teens and 20-somethings, who spend massive amounts of time sharing photos and videos and animated GIFs on the site — an engine of potential value that Yahoo desperately needs.

Tumblr gets a massive exit

This doesn’t come without its own risks, of course: As a number of observers have noted, Tumblr’s content contains a large quantity of not only mature or arguably offensive content but outright pornography, which many argue is the source of its massive traffic numbers. How Yahoo (or Facebook for that matter) would deal with this kind of content remains to be seen.

3 q's for Yahoo: 1) Can you convert Tumblr users to Yahoo products? 2) Can you monetize Tumblr PVs? 3) What to do w/ all that Tumblr porn?—
Mark Zohar (@markzohar) May 18, 2013

For Tumblr, meanwhile, being acquired would solve a number of problems — the main one being that the company has gone well beyond the “we’re a startup so we don’t really have to make money” stage, and is facing increasing pressure from the investors who have given CEO David Karp more than $125 million in venture financing, an investment that values the company at about $800 million. Accepting a giant check from Yahoo would take care of that problem in one fell swoop, especially if it was all in cash.

With a major company like Yahoo as a partner, Tumblr could connect its massive audience of users to the firehose of ads and other monetization methods the giant web portal has, and potentially generate much more revenue than it could have by itself. The only lingering question at that point is whether Tumblr fans decide that Yahoo is poisoning the well of social content and community on the site, and decide to flee for greener pastures. In other words, does Yahoo make Tumblr into YouTube — a successful standalone network that can grow and prosper on its own — or does it become MySpace?

The only scenario where a Yahoo-Tumblr combo works is if Yahoo keeps Tumblr separate in the same way Google managed YouTube.—
Mark Birch (@marksbirch) May 18, 2013

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Friedman is no stranger to the vicissitudes of modern media — she was laid off as the editor of GOOD magazine last year, after the publication decided to pivot and become a kind of social network for user-generated content. But in her CJR piece, she describes how on a recent speaking tour she grew frustrated with the numbers of people complaining about a lack of jobs, a lack of money and the rise of short-attention-span media like Twitter:

“Again and again, I found myself playing the role of cheerleader, trying to convince tired and broke journalists to get excited about the future of media.”

There is far more good than bad

As the CJR columnist acknowledges, it can be hard to motivate journalists — or anyone in the field of media — when reports from research outfits like the Pew Center lay out in bald detail how the business model for much of what we think of as the mainstream media is rapidly disintegrating, with nothing obvious to take its place, and when the number of journalists employed in newsrooms is lower than it has been at any time since the 1950s.

But Friedman argues — I think fairly persuasively — that there are far more benefits available to journalists now than there have ever been, if they choose to see and make use of them. Among other things, she lists:

Reporters have more access to sources: Thanks to the web, social media and other tools, “it’s never been easier to find and reach out to anyone.” This is unequivocally true, especially with the number of potential sources who have their own blogs, Facebook pages, Twitter accounts, etc.

Consumers have access to more media: Your job may have been more secure in the past, Friedman says, but now if you have something to say you have the ability to reach a much larger group of readers, and they have much more choice (this is also one argument against paywalls, she says).

Journalists get more engagement: Reporters used to work for years with little or no response from or engagement with readers (which some no doubt preferred), but now you get more feedback than you could ever want. Says Friedman: “I know a lot of journalists hate this, but it’s a good thing.”

Chaos promotes creativity: When traditional paths to professional success are closed, Friedman argues, “those of us who love journalism so much we’d never give up are forced to redefine success – and our methods of seeking it.” And there are more routes to success than ever before.

Disruption also produces opportunity

To some, this may all have a certain Pollyanna-ish feel to it, but I think Friedman is right — and in many ways she is saying something similar to what Matt Yglesias at Slate argued recently, when he responded to the Pew Center report and said that in his view news consumers were better off than they had ever been (although many disagreed). Jay Rosen made a similar case for why the internet is good for journalism in a debate hosted by the Economist in 2011.

Yes, much of the traditional media business is in turmoil, and the road to profitability — or even survival, for some — is far from clear. And it’s easy to look at the chaos of social media and “citizen journalism” during something like the Boston bombings or Hurricane Sandy and assume that we are much worse off, both as journalists and as news consumers (an argument I have tried to counter). And there is no question that many bad things come with the good.

But as Friedman argues, that same chaotic environment is what produces new things, many of which may grow to become powerful and positive tools for journalism — in some cases better than the ones we have. It’s easy to succumb to the gloom, but the reality is that while disruption of the kind the media world is experiencing creates great upheaval, it also creates great opportunity.

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Twitter’s deal means the company is officially moving into larger territory when it comes to advertising and turning the social media company into a serious platform for brands to spend their budgets. The report says the deal will give SMG’s clients access to special advertising slots and opportunities with Twitter.

The company has been improving its different ad products for businesses of all sizes, recently rolling out keyword advertising that allows companies to advertise around particular words that individuals tweet. A research firm recently estimated that Twitter will earn nearly $1 billion in advertising revenue in 2014, likely due to strong growth on mobile, making $528 million this year and $950 million in 2014.

Social media use around television and broadcast events has provided huge advertising opportunities for Twitter already, with the company forging media partnerships around TV and sports, like the NCAA March Madness tournament.

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The first is a chart based on figures from the Newspaper Association of America, and it shows newspaper advertising revenue from 1950 — when the association first started keeping records — to 2012. As economics professor Mark Perry notes in a post at the Carpe Diem blog, the chart shows ad revenue falling off a cliff about a decade ago, hitting a brief plateau in the mid-2000s and then free-falling over the next several years (this is an updated version of a chart that appeared last year).

The speed with which billions of dollars in advertising revenue simply evaporated over the past decade is incredible: as Perry notes, after adjusting the figures for inflation, total print ad spending last year of about $19 billion was below the level set in 1950. It took 50 years — a generation, in other words — for ad revenue to go from $20 billion to a peak of $65 billion in 2000, but it only took 12 years for that progress to be erased. Print revenue dropped almost 50 percent in just four years.

Of course, all of that advertising revenue didn’t simply disappear overnight. So where did it go if it wasn’t going to newspapers? It went online, naturally — and the second chart shows the biggest beneficiary of that exodus: namely, Google. Media consultant and former newspaper editor Alan Mutter combined the latest revenue numbers from the newspaper association with the numbers disclosed by Google about its advertising income, and the resulting chart shows that Google now brings in twice as much as all the members of the U.S. newspaper industry combined.

According to Mutter’s graph, the crossover point — that is, the point at which Google’s growing advertising revenue eclipsed the newspaper industry’s rapidly declining print revenue — occurred in 2009 or so. Since then, Google’s revenue has soared to $46 billion (this is actually Google’s total revenue, but the vast majority is advertising) and the newspaper industry’s revenue has fallen to a little over $20 billion. While many newspapers seem to blame Google for their destruction, this is like blaming a hurricane for the loss of your house — it may have some truth to it, but it ultimately doesn’t help.

Obviously, this dramatic decline in the core of the industry’s business model — something Mark Perry calls “one of the most significant Schumpeterian gales of creative destruction in recent years” — helps explain why newspaper companies are going bankrupt, shutting down their print operations, engaging in successive rounds of layoffs and taking other measures to try and cut costs. But in many cases this is like trying to catch a falling knife.

A growing number of papers are also implementing subscription paywalls in an attempt to bolster what little print revenue they still have, with a majority of the large newspapers having some form of barrier. But while the NAA noted that revenue from subscriptions rose by 5 percent last year, that is a tiny drop in a rather large bucket. As Reuters writer Felix Salmon noted recently:

“In a dying industry, the sensible thing to do is to maximize your revenues before you die. Paywalls might well make money for newspapers. But that doesn’t mean that newspapers aren’t dying. Quite the opposite.”

Note: Some readers have pointed out that Mutter’s chart compares U.S. newspaper revenues to Google’s worldwide advertising sales, which is true. According to recent eMarketer estimates, Google brings in about $15 billion in ad revenue in the United States. So not quite as much as the newspaper industry, but close — and that figure is rising, while newspaper revenue is still falling.

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As the NY magazine piece points out, word of mouth is the holy grail for advertisers: customers talking about your product (or something related to your product) without you paying them to do so is the ultimate recommendation. Madison Avenue legend David Ogilvy said it was “like manna from heaven, but nobody knows how to do it on purpose.” In a nutshell, that’s what Jonah Peretti has been trying to do ever since he himself went viral in 2001, after a stunt he came up with involving a Nike shoe and some bad press for the company’s foreign manufacturing.

This is fundamentally the same reason advertisers are interested in social networks like Facebook and Twitter: because they are hoping to figure out how to both create “social” advertising messages and target them in such a way that they don’t really seem like advertising, thereby encouraging users to share them. The only problem is that no one really knows how to do that (Note: We’re going to be talking about sponsored content and other monetization methods with BuzzFeed president Jon Steinberg, among others, at paidContent Live on April 17).

How does virality work? No one really knows

Everyone can recognize a viral campaign when they see them after the fact, but no one quite knows how to produce them in any kind of scientific way. Microsoft researcher — and Peretti friend — Duncan Watts has studied this area more than just about anyone, and he and the BuzzFeed founder (who co-authored a paper in 2007 on the topic for Harvard Business Review) both have algorithms that try to describe the process. But Watts admits it is far more chaotic and difficult to predict than those algorithms suggest.

“We have this very Newtonian view of causality,” Watts, a square-jawed Australian, shouted over the din. “Like, billiard balls hitting each other, that’s the most complicated thing that we can wrap our heads around.” But his research suggests that the commonly understood, Gladwellian model of virality, with its linear progression through influencers and tipping points, doesn’t really reflect the way viral messages spread.

Even Peretti, who has gained a reputation for being able to engineer virality, seems to concede that it is harder than most people think. The New York magazine piece says the BuzzFeed founder became visibly irritated when told that some advertising industry critics don’t see the site’s sponsored content as being that valuable — with one ad agency executive arguing that showing readers “a bunch of cats” isn’t really helpful when it comes to doing actual marketing. “Could you make a list of cute animals that gets 5 million views? It’s actually really hard,” Peretti shot back.

Some advertisers are resistant to the idea

So one reason why BuzzFeed’s attempt to reinvent advertising is going to be a lot harder than it looks would be simple resistance from the ad industry itself: for all of Peretti’s talk about how sponsored content can bring back the creativity and storytelling aspect of advertising, many agencies and other players don’t seem convinced that putting their brand name on a piece about dogs who look unimpressed is going to help them move more product. The BuzzFeed founder may see this as short-sighted, but it is still a hurdle.

Another barrier is related to this one: namely, the fact that some of BuzzFeed’s sponsored content winds up doing the exact opposite of going viral. According to the NY magazine story, some of the content that Virgin America and other brands spent hours creating in collaboration with BuzzFeed — tinkering with it until they were convinced they had engineered it to be as viral as possible — more or less fell flat and disappeared without a trace. One post had just 350 shares on Facebook, which is the equivalent of a damp squib in social-networking land.

“Other campaigns running on the site… showed smaller results: Geico, 140,000 views; GE, 65,000 views; Pepsi Next, 44,000 views. These numbers don’t quite match the hype around native advertising, which might be why ad agencies sound much less enthusiastic about the medium’s transformative potential than publishers do.”

It’s also expensive — and potentially risky

A third hurdle to BuzzFeed’s ambitions is implied by both of the others, and that is the cost of producing the kind of content that the site wants to lure advertisers into sponsoring. All of the meetings that the NY magazine piece describes, in which a dozen or more editors work on posts and then decide which ones to market heavily (a process that somewhat ironically includes the use of ads on Facebook and elsewhere) makes for an expensive process.

And one final hurdle is the one highlighted by blogger Andrew Sullivan in a series of posts about the evils of sponsored content and of BuzzFeed’s approach in particular: namely, that the site will be unable to maintain the trust of its readers if it blurs the line between editorial and advertising too much. The NY magazine story describes several posts that could easily be mistaken for ads — even though they aren’t — and other posts that began as non-sponsored content and then were more or less recreated as advertising for specific brands.

BuzzFeed has $20 million in new financing, and New York magazine estimates that based on what it charges for a piece of sponsored content, the site could make as much as $40 million in advertising revenue this year. But building a profitable business based on the creativity of human beings in an area as unpredictable as online content — while retaining some credibility — is not an easy task. Just ask the traditional media industry.

Post and thumbnail images courtesy of Shutterstock / Everett Collection as well as Flickr users Nils Geylen and 401K, and Shutterstock / Eldorado3D

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As my colleague Eliza Kern noted in her post on the new features, Twitter has given third-party apps the ability to add “deep links” to content inside a tweet, so that — for example — if a user includes a link to a photo from Path or Flickr and someone reading that tweet has the Path app or the Flickr app installed on their device, clicking the link launches that app and takes them directly to the content (a link to a download page for the app can also be included).

Twitter can help with app discovery

The benefits of these new features are clear, as Fred Wilson from Union Square Ventures (one of Twitter’s backers) and others have noted. For services like Path, one of the hardest problems is discovery — in other words, letting people know it exists, and also making it easy for users to find interesting content within the app. Twitter’s new Card features provide a potential solution for both of those problems, and since the social network has an active-user base of close to 250 million, it could give some services a substantial boost.

Really excited to integrate the new @twitter cards into @circa. This will be a game changer for app distribution.

—
Matt Galligan (@mg) April 03, 2013

The downside of this approach should also be obvious, however, especially if you notice that among Twitter’s partners for these new features there are names like Path and Flickr, but no Instagram. Why isn’t the largest photo-sharing service included? Because it is owned by Facebook, and Twitter cut off the app’s access to a key feature last year — namely, the ability for users to find Twitter friends who also use the service — and Instagram subsequently removed Card support. The company also cut off Tumblr’s access to the same feature, even though Tumblr was an early partner on the Cards rollout.

This is the fundamental difference between Twitter’s current approach to being a platform and its previous approach. In the early days of the service, up until mid-2011, Twitter seemed happy to be at the center of a more or less open ecosystem — one which allowed virtually anyone to make use of the company’s APIs to display or make use of tweets. Many services and apps (including Instagram) grew by piggy-backing on the network in this way.

Then came what one Twitter investor has called a “holy s*** moment”: Bill Gross — founder of what was then called Uber Media — started buying up Twitter clients (including an attempt to buy Tweetdeck, which Twitter ultimately acquired) and appeared to be preparing to launch his own network, one that would make use of tweets combined with a third-party advertising model.

Twitter’s control is a double-edged sword

These moves by Gross and others posed a clear threat to Twitter’s ability to monetize its growing user base — something that was becoming more and more crucial given the multibillion-dollar market value the company had developed after several rounds of financing. So the company started tightening the screws around its network: restricting access to the API, changing what were display “guidelines” into “requirements,” and generally exerting much more control over who got access to the company’s data.

Such decisions caused a firestorm of controversy in the third-party developer community, with some complaining that Twitter had “killed” their businesses. Now, the company is clearly trying to repair some of that damaged goodwill by offering third-party apps and services preferential access to the network, and features like Card deep links — replacing the open ecosystem approach with one that is more a velvet rope: only official partners allowed.

This approach makes sense for Twitter, since it needs to generate revenue from its network, and presumably intends (or theoretically could) collect fees from partners for the additional features they are getting with Twitter Cards, which can also include music links and other content. And as noted above, it makes sense for apps and services like Path to cut a deal in order to get more reach — but just like building integration into Facebook or Apple or any other controlled ecosystem, developers should be aware this is a double-edged sword.

In other words, such an arrangement will likely look like a win-win so long as Twitter thinks you are beneficial to its network. The minute it sees you as competition, it will suddenly become lose-lose — and whatever you have invested in that ecosystem will vanish.

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I confess I’ve been rather fascinated with the Register ever since Spitz and his partner Aaron Kushner acquired it last year and almost immediately started implementing some fairly dramatic changes. Unlike some newspaper owners, they didn’t just start cutting costs to try and save money — the way Advance Publications has with newspapers like the Times-Picayune in New Orleans, for example (media analyst Ken Doctor has called Kushner the “anti-Advance”).

Serve your readers — everything else is secondary

Instead, Kushner and Spitz started spending money on the newspaper, pouring tens of millions of dollars into the Register newsroom — which is now a staggering 50 percent larger than it used to be — hiring reporters and editors, and launching almost a dozen new sections.

However you look at it, that’s a substantial commitment to the principle Spitz and Kushner operate on, which is that serving subscribers is the only thing that matters — not advertisers, not free readers on the web, not the “social conversation” around their content. Just readers who pay. In a sense, it’s a more extreme version of the philosophy that led Andrew Sullivan to launch a subscription-based site with no advertising (although Sullivan, who will be at our paidContent Live conference on April 17, allows for casual web reading).

As a number of media observers — including me — have pointed out, if you are going to put up a paywall, your content had better be exceptionally good. Spitz says he and Kushner are trying to boost the value they are offering to readers by putting resources into the paper (although whether enough people see that value in the same way remains to be seen).

A strong commitment to a vision

If you think of the media industry’s approach to the web as a spectrum, the Daily Mail is at one end, with a totally web-native and non-paywalled strategy: like BuzzFeed or any number of other web properties, the Mail is going to live or die based on viral content, millions of readers and digital advertising. The Orange County Register is at the complete opposite end: no free content whatsoever, a hard paywall and no interest in viral content or social media (readers can always email Register writers if they have something to say, Spitz told me).

To be clear, I think the anti-social aspects of what the Register is doing are bad — not just for the newspaper, but for society as a whole, since discussion around news events has public value, and engaging with readers has journalistic value. And I’m not sure I buy the argument that print-advertising revenue will rebound and even grow if the Register puts more money into the paper. I think the advertising industry is being disrupted just like the media industry is, and I’m not convinced the genie will go back in the bottle quite so easily.

That said, however, at least the Register isn’t trying to suck and blow at the same time, the way so many other newspapers are. Spitz and Kushner aren’t trying a little bit of this and a little bit of that, and hoping that they can be both web-native and print-focused at the same time — they are unabashedly committed to their view, and they are pouring everything they have into it, and that deserves some respect.

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A hard paywall is a cornerstone of that model, said Spitz — who along with Kushner acquired the Register and various associated local papers last year. While many publishers have put up walls that are somewhat “leaky,” in the sense that readers can get in via social-media links and also get a certain number of free articles per month, the Register‘s paywall will be about as hard as they get — non-paying readers get nothing (although they can pay $2 for a 24-hour pass if they don’t want to sign up for a full membership). Says Spitz:

“I fundamentally don’t agree that a newspaper should be in the business of giving away its content to everyone who wants it, regardless of whether they are paying for it — McDonald’s doesn’t give away its burgers, and Boeing doesn’t give away airplanes. When it comes to life and death matters (fires, floods, earthquakes) we have built a mechanism where we can unlock any article and any section, and we will do that as a public service. But do I believe as the owner of a newspaper company that I have a public duty to give my content away for free? I absolutely do not.”

Content is for paying customers only

As part of its commitment to charging for all of its content, the Register has also cut back dramatically on the number of blogs written by reporters or editors on various topics: according to Spitz, the paper used to have over 100 and it killed all but 10 of the most popular ones, a move that at least some of the paper’s writers don’t seem all that pleased with. But the Register executive said it is part of the fundamental focus the paper’s owners have — which is that the only thing that matters is the subscriber, not the advertiser or the larger social “conversation” around the news.

But doesn’t blogging and using social media to engage with readers have value apart from just driving traffic to the website? Doesn’t that have value for journalism and the media in general as well? Spitz says he isn’t convinced:

“If you’re asking me whether I’m a big fan of crowdsourcing and open interaction between the writer and the audience, I wouldn’t say it’s the best thing in the world. Journalists get their information from lots of different places, but do those conversations need to be out in the open through what we call social media? I’m not convinced… I don’t know that I get a whole lot of value from one of our reporters tweeting something so that someone can read our stuff who is not a subscriber.”

Investing in the product is crucial

Unlike a number of newspapers that seem to have thrown up paywalls more out of desperation than anything else, without investing much in the content, Spitz says he and Kushner believe that in order to justify charging for their content they have to make it worth paying for — so the pair have invested tens of millions of dollars in hiring new reporters and editors, launching over a dozen new sections for the paper (both online and print) and adding other features. Spitz says the head count at the Register has increased by more than 300 people — or close to 50 percent since the pair acquired the company last summer — and the number kf newsroom staff has increased by close to 60 percent.

“Our fundamental insight is that the business itself in the newspaper space has been operated for 75-plus years as an advertiser-first, subscriber-second business. We think that’s incorrect, and that they should be run as a subscriber-first, advertiser-second business — and when you make that shift, you see that a lot of other decisions fall from it. The last thing you want to do is cut off more eyeballs if you’re in an ad business. But if you change that foundation and say it is really a subscriber business, then the first thing and the second thing and the third thing you think about every morning is how do I deliver more value to subscribers.”

Spitz and Kushner have also launched a number of features aimed at making their subscribers — whether in print or online — feel special. So in December, every subscriber got an envelope containing a check for $100, which they could donate to whatever charity or interest group they wanted in exchange for free advertising in the paper. Spitz says that move alone cost the company $12.5 million.

If there is value, advertisers will see it

But doesn’t relying more and more on subscriber revenue mean that a newspaper like the Register is doomed to shrink, since advertising revenue — both in print and online — continues to decline? Not necessarily, says Spitz. Unlike the vast majority of industry insiders and observers, the Register‘s owners believe that not only can the decline in print advertising revenue be arrested but revenue from print ads can actually increase, provided advertisers see the kind of engagement they want from readers who are paying for the product.

“Fundamentally, we don’t agree that it is the natural course for print revenue to decline, in fact we think that is at the heart of the problems in the industry… we are modelling for significant increases in print revenue for 2013, and we’re on budget for that for January and February… we believe that as you have more and more engaged subscribers, advertising becomes more valuable.”

Spitz admits that to some extent the Register is unique, since it is one of the few large-scale regional newspapers that doesn’t have much competition from local TV networks and other sources. And he says the model that the paper is relying on also might not work for national newspapers and other outlets, since there are so many free sources of similar content such as CNN. “While I’m a hard paywall advocate, I think it’s smart for USA Today not to go to a paywall — their content is just not differentiated enough,” Spitz said.

It’s more than a little ironic that the two men who seem to be the biggest fans of print and the biggest proponents of making people pay for news aren’t even from the industry, and have never worked for nor run a newspaper. But can they fight the forces that have driven many of their newspaper-owning colleagues into despair, and in some cases financial ruin?

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Update: The Business Insider founder said on Twitter that the site turned a small profit in the first quarter, although he wouldn’t say how much.

@mathewi Don't have exact numbers yet (quarter just ended). More than we made in 2010 ($2k). Not enough to pay us like TV talent (sadly)

—
Henry Blodget (@hblodget) April 01, 2013

Much of what Blodget says about his business to the New Yorker also appeared in the slide presentation he published as part of his experiment in “opening the kimono,” as he described it. The site has about 24 million unique monthly visitors, according to Google Analytics, which puts it ahead of traditional outlets like the Financial Times and BusinessWeek — although comScore says it only has 9 million (Blodget says the discrepancy stems from BI’s large non-U.S. audience).

On Twitter, Blodget called the $3 million worth of red ink that Business Insider racked up in 2012 an “investment” rather than a loss. According to the New Yorker piece, the site has only spent about half of the $13 million it has raised in financing, which came from investors like Kevin Ryan (Business Insider’s chairman and co-founder of the Gilt Groupe) as well as IVP and Marc Andreessen. Ryan tells Auletta that for $7 million “we’ve created the new Wall Street Journal.”

Although Blodget mentioned in his recent presentation that programmatic ad buying and other forces are putting increasing pressure on advertising returns for publishers, the New Yorker piece says about 85 percent of Business Insider’s revenue still comes from ads, with the rest coming from conferences and its proprietary research arm. The site has also been experimenting with various forms of “sponsored content,” including sponsor-focused slideshows.

Not "lost!" Invested! And, yes, about to fill out AARP card RT @emilybell @pkafka... BI lost $3m last yr, HB is 47. allthingsd.com/20130331/henry…

—
Henry Blodget (@hblodget) April 01, 2013

Blodget describes the site’s approach — which focuses primarily on short, newsy pieces that often feature salacious details about and/or slideshows of celebrities — as being “halfway between broadcast and print,” and tells Auletta that it is designed to be “conversational.” He also argues that the model of aggregating content from other sites is sharing rather than stealing, although others have disagreed about that interpretation rather strongly.

And what does the future hold for Business Insider? An unidentified board member tells Auletta that he expects the site to be acquired, and Blodget says it “either will become part of a larger enterprise or become the larger enterprise.”

Bonus fact: Blodget, who played tennis while at the upscale Phillips Exeter Academy, plays doubles with his father — a successful banker — and the two were recently ranked nationally in the Super-Senior Father/Son Tournament.

Post and thumbnail image courtesy of Flickr user TechCrunch

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As Arment explains in his blog post about the change, the need to open up his magazine’s content more for sharing was brought home by the response to a recent piece he published by Jamelle Bouie on the topic of race and technology writing. As with most of the essays in The Magazine, the writer was free to publish on his own blog as well, which he did — and while The Magazine’s version got plenty of readers, the response to Bouie’s piece after it appeared on his own site was substantially larger:

“We allow authors to republish their articles on their own sites (or anywhere else) just 30 days after we publish them. Bouie did exactly that, as many of our authors have. Only then did his article explode into the huge discussion I suspected may result from it — and The Magazine wasn’t a part of it.”

The magazine was cut off from the social web

The Magazine wasn’t part of this broader web and social-media discussion because Arment initially showed only a short excerpt at the website — as well as a download link for the iOS app — when readers shared a story. As the publisher points out, since his magazine doesn’t rely on advertising at all but gets its revenue entirely from subscriptions, a web presence with full content seemed like a fairly low priority, if not an outright negative. Arment calls this “the biggest mistake I’ve made with The Magazine to date.”

“You’d share a link, and everyone would just see the truncated teaser. Some of them would subscribe and see the rest, but most would get turned off by the truncation and just abandon the effort, as we web readers tend to do. Most people with big followings would quickly realize this and, understandably, avoid linking to our articles.”

This is similar to the problem (one of many) that News Corp.’s iPad-only magazine The Daily ran into when it launched: it didn’t even have a website, per se, so initially users who followed a shared link from a subscriber would get a static page. In the early days of the app, in fact, readers were actually sent to an image of the page from the app — something that was impossible to click on or otherwise interact with. The sharing experience was so broken that many likely never bothered.

Where should the freemium line be drawn?

Arment’s problem is a microcosm of the tension that publishers everywhere are experiencing, from the New York Times to the smallest local paper. While some media companies — including News Corp. with some its British papers — have chosen to go with what are called “hard” paywalls, where virtually no content is provided to readers for free, almost everyone else is trying to find a happy medium between that and no subscription barrier or paywall at all.

The NYT started by providing 20 free articles, and giving anyone who came in via a link on social media a free view, a so-called “porous” paywall approach many other newspapers have adopted. But the paper recently cut the number of free articles in half. Andrew Sullivan, meanwhile — who recently launched a standalone blog funded solely by subscriptions — has made virtually of his content free via RSS, but imposed a click-through wall for readers on the site.

The issue for everyone from Sullivan (who will be appearing at our paidContent Live conference in New York in April) and Arment to the New York Times is how much they need to be part of the social web vs. how much they plan to rely on reader subscriptions. A hard paywall essentially means a publication will be supported solely by existing readers, plus a few new sign-ups here and there — but newer or smaller publishers need the word-of-mouth that sharing brings in order to build awareness (and older brands might as well).

As traditional advertising continues to decline in value — something that has taken both the New York Times and the Financial Times to the point where subscription revenue now exceeds advertising revenue for the first time — more and more publishers are going to have to confront this tension between paying and sharing. And in all likelihood, there is no single right answer.

Post and thumbnail images courtesy of Flickr user Giuseppe Bognanni and Shutterstock / Daniilantiq

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