After Henry Blodget fired editor John Carney from his role as the editor of Clusterstock last week, some clearly felt that Blodget, the Business Insider cofounder and CEO, owed an explanation. Blodget and Reuters finance blogger Feliz Salmon got into a Tweet-spat, which culminated in Blodget serving up something like a master class on New Media Economics Friday evening. Blodget was direct, laying out the numbers behind running a web site. His arithmetic checks out-but that doesn't mean his math makes sense.
First of all, here's Blodget's numbers, laid out on Twitter and then slide-showed, with annotations.
• He starts with a $60,000 yearly salary for an editorial staffer, which he then prorates to $5,000 a month. (Check.)
• He introduces an ad rate of $10 CPM for the website at which that staffer works. (CPM is, yes, the rate advertisers pay for the delivery of one thousand ad views-called impressions.)
• He notes that a $10 CPM is more than most general news and gossip sites can hope for, but that a business/finance site should be able to do that or a little better. (True. Most sites can't sell all of their impressions; the rest of the inventory is filled by remnant networks–all those diet supplement and work at home ad-sellers are not contracting with each web site on which they appear. A network sells these extra impressions for a very low CPM–$4, $2 or even less–then takes a cut in neighborhood of 50% for serving the ads to their network members. When figuring out a site's revenue, one must first determine how much of their impression inventory they are selling for high rates and what is being filled for pennies. So if a site sells half their inventory for $10 CPM and half through a network for $1 CPM, overall their traffic is worth $5.50 CPM. A business site is probably selling directly for more than $10, perhaps considerably more so, and their network sales are on the higher end as well. Still with me? Almost through with the math!)
• Blodget then points out that benefits need to be paid. He estimates that this raises monthly compensation to about $6000. Given our nice, round and sort of invented $10 CPM number, this means the writer needs to generate about 600,000 page views a month in order to "earn" his salary. (Check. Thus concludes the multiplication and division!)
• But writers are not all one needs for a site! What about editors? What about designers and coders? The ad sales guys? The lawyer? Rent for an office? Also, according to Blodget, "food." (Yeah, I don't know either.) But coffee machines and editors, as similar as they are, do not produce content, at least not in the way that writers do. You just can't sell ads on the labor of office furniture. So in Blodget's econ class, the writers are responsible for them as well. Those 600,000 monthly page views a writer has to pull down are now 1.8 million. (OK, one little additional bit of math: that's from Blodget saying that two-thirds of his costs go to things other than writers.) And but wait, there's more! In some cases-including, apparently, Blodget's-there are even more website costs: investors expect to earn on their investment.
Felix Salmon responded at length via his Reuters blog; no lesser authorities than Gawker Media owner Nick Denton and professional blog business person Elizabeth Spiers suggest that he doesn't understand running a web business. Denton asks Salmon to "stop pretending expertise. It's becoming embarrassing." Spiers says, "Blodget sounds like someone who runs/has run a new media business before and Felix sounds like someone who's never been anywhere near the business side."
Salmon's surprise at the disparity between Business Insider's rate card and the monetization rates Blodget discussed reveals him to be unfamiliar with basic ad sales practices. ("ALL sites discount from rate card," Denton snapped at Salmon, meaning that a $10 CPM might often look like a $7 or $8-or a $4.) To oversimplify grossly–which he will, to be fair, hate–Salmon argues that Carney is a loss leader.
Think of Carney like a Black Friday flat panel television. (This my own ugly analogy, not Salmon's.) Business Insider loses a little on Carney in the hopes that they will make their money back on the stuff that is cheap to produce: slide shows, lists, pics of hotties kissing. Salmon says, with not a little derision, that serious people–like Salmon himself–will turn out for deeply researched original reporting, and that, furthermore, without the serious people, the ad rates will plummet. ("[T]he key is to maintain a high-value, high-reputation brand, which readers are proud to be associated with.")
So Salmon believes that even if John Carney isn't directly earning back his salary–his stories don't create enough ad inventory to support what he is paid–his work buoys the prices of ads across the board by bringing in a high quality audience and protecting the reputation of the brand.
Salmon wants making money to square with good (or at least smart) editorial practices. I think many of us would like that to be the case. It justifies our tastes, and flatters us as writers and readers because it casts us as desirable for being smart and savvy. Is it really the case? It is probably a lot naive, though, to believe that the ad market will move away from Business Insider-which is, after all, going to draw the business audience that advertisers want, whether the readers are "smart" or "stupid"-any time soon as the result of any particular personnel move. And it's a little overly simple to believe that one personnel move reveals very much about long term trends at the site. It is easy to see why Salmon would want this to be the case, though. Carney is, in Spiers's words, a "smart and agile writer." Good writers want their readership to "be less stupid." Perhaps advertisers have a vested interest in the reverse?
A few years ago in the comments on Business Insider Henry Blodget made the case for star writers thusly: "Gawker, et al, will soon start adding a lot of star reporters from trad media who see the light. This will bring more traffic, breaking news, and credibility. The staff will grow (as will costs), but the growth in traffic should help offset." So it seems that he at one time agreed that high quality writing and reporting drive revenue, but that he's long believed in traffic as a bottom line.
Returning to that fifth bullet point, where Blodget says that roughly two thirds of his costs go to things besides editorial. It strikes me that there is no longer very much that can be considered a fixed cost in publishing, and that there are other ways to push the curve around beyond driving more traffic. Even if better editorial doesn't push CPMs up, better ad sales might. More to the point, lower costs could allow you to make different editorial decisions. Once you open the Pandora's Box of looking at a writer as someone who does or doesn't justify his expense, doesn't every outlay become the same? Would cheaper offices decrease page views? Would a WordPress installation underperform a custom-built content management system, and if so by how much? Did that expensed lunch add 10,000 pageviews of value? Maybe Blodget could nearshore the whole operation to Boise and save!
I don't know that these specific suggestions make sense for his enterprise–although Boise would probably appreciate a top-tier financial publication with the city limits; heck, they'd probably throw in tax breaks worth at least 200,000 pageviews a month–but I am certain that he should be rethinking everything about how a media business is run. If Blodget is for metrics and accountability, every expense should be held up and examined; if two-thirds of his costs are not related to editorial, as he suggests, then editorial should not bear one-hundred percent of the responsibility for the bottom line.
Christopher Conklin actually has worked in internet advertising, so don't all yell at him at once.
I know very little about any of this, but thought this was very interesting and well-written. I will page-view this multiple times in appreciation.
Just leave this open in a browser tab and hide it somewhere. Auto-refresh will tally your appreciation.
Salmon has a point about not insulting the audience to death, though.
Also, why are we even thinking about the POS-Blodget?
Finally, Speirs is getting lumped in with Denton. They are the same beast.
Although admittedly that was a pissy and poorly-informed statement.
Just in case anyone thinks the "pics of hotties kissing" reference is a joke, check this out:
http://www.businessinsider.com/aig-asset-sales-are-forcing-bankers-to-miss-births-weddings-and-funerals-2010-3
So you see: Blodget really DOES understand economics!
Blog wars! This blog writers-versus-blog publishers argument is a fight that has been a long time in coming. Maybe both sides can come to a better understanding of the other's position (maybe I'm being too idealistic). Thanks Christopher Conklin for this post. I look forward to a spirited -- and hopefully not too personal -- discussion.
So how much does Blodget himself make off the site? Doesn't he have to justify his own compensation? Or is he somehow exempt from all this math?
"Perez Hilton"
This.
The 3.0x multiplier Henry uses is pretty broadly applied in creative industries, a point I've discussed. With the potential for more transparency in costs and billing, I'm surprised there isn't more pressure to dig into those numbers. Trouble is, people don't make the connection until too late. Everyone loves Aeron chairs until they realize that a raft of Steelcase furniture is a big part of why they aren't getting a raise (and it has better ROI, since there's upfront capital investment but keeping wages down over time a great undoing of compound growth of labor costs). BuzzFeed is bragging about their 'new 4,000 sq ft SoHo office'? What the fuck is BuzzFeed doing with 4,000 SF?
I think they've spent more than enough time in a chinatown sweatloft to justify some *physical* growth. After all, it IS the major league for tumblr-ers!
I hope they applied to the URDB for 'Most Internet 1.0 Sounding Job Listing that Doesn't Reference a Foosball Table or Kioken'.
/oldmotherfuckingschool
Also! Not wanting to be too dickish, but I've never understood the fancy office = creative outburst or whatever the justification it. The Chinatown actual sweatshop neighbors never get an upgrade, and the future of pay in media is about on the same scale.
As an editorial gnome of longstanding, I do resent the idea that writers and their pageviews are somehow "carrying" editors; I'd argue that, you know, a good editor is in fact making the writer's articles better, and thus in the long run adding to site pageviews/CPM (by improving editorial quality, burnishing the site's reputation, and thus attracting more/better audience). I'm totally baffled, though, by the idea that they're carrying ad sales folks. I mean, shouldn't an ad sales person be self-sufficient economic actor within the organization? If an ad sales rep isn't (in the long run, obvs.) making sales that are at least equal to his or her compensation, then why is s/he still employed?
Also, yes, the many typos in the above comment in which I tout my editorial credentials shame me.
Hi Josh. I agree that it is not helpful (or accurate!) to think of writers as carrying editors. But that's sort of the terminal point of Blodget's thinking, at least from my reading. I think writers deserve a better guiding principle than "Did you make your 1.8MM pages this month?" and editors should also have a clear mission, and everyone should be evaluated in a slightly more dynamic way than traffic (although I'm not some baggy-pantsed anarchist who doesn't understand the importance of traffic also).
I'm probably terribly naive though about "how things are and will be." This was my first experience being edited since, oh, sophomore year of high school when I worked the sports beat. (Heh.) The Awl editorial staff was wonderful and my writing is much better for their suggestions. Any flaws you spot are my own.
The only way people are going to use a website on a frequent basis is to create a site that they find useful or entertaining. How do you run a website that headlines John Carney but isn't useful or entertaining? That's a pretty hard trick to pull off!
I guess Blodget's plan is to (attempt to) make his site more entertaining. Which will probably make it more irrelevant to its audience. Whoops.
I can tell you this is already happening. I'm a trader, and up until a few months ago, Clusterstock was one of the first online sources I would read in the morning. It has since become so polluted with junk that I frequently let the posts pile up over days in Google Reader, and then simply mark them as read and move along to Dealbreaker (which gives me Wall Street "entertainment") and Zero Hedge (where I get the serious stuff).
I'm sorry, but I think you're wrong on the math: you're confusing CPM with RPM. TBI has much more than one ad per page. And my point was that if you add up all the ads it serves on any given page, they can reach something over $70. If Blodget's only getting $10 RPMs, that's a level of discounting most people would consider evidence of seriously depressed demand for his content, no?
Stop pretending expertise.
Hi Felix. I'm not. We didn't use RPM in my office, but we did talk about eCPM--the "effective" cost per thousand pages that a publisher was earning. We tended to play a little fast and loose with CPM/eCPM and substitute the former interchangeably with the latter. I did this here, both to avoid introducing a second term that I didn't think would help a general audience and because I use them interchangeably in my head.
Revenue at 1/4 or 1/5 of rate card would not be an outrageous discount. Rate cards are entirely aspirational. They scare away rinky-dink advertisers who would cost more in hand-holding and serving effort than they actually pay, and they occasionally rope in an unsophisticated advertiser with deep pockets. But no experienced agency pays the publicly advertised prices or close to it. Frequently deals will be along the lines of "$10K of 728x80s (at 2/3s) of the rate card price and we'll throw in the same quantity of 300x250s." (Or whatever. Spend levels where bonuses kick in, and the exact nature of the bonuses and discounts obviously vary highly from site to site.)
And network sales will really drag the average down. Network sales aren't all "push the fart button" either--major brands including the banks and insurance companies you'll see on high end sites buy remnant, at prices anywhere from a couple bucks down to 50 Cent. There are application-only networks that specialize in hooking up high-end brands and high-end sites. My personal blog would not qualify, but I think the fart button is funny anyway.
Do the advertisers care about clickthrough rates or are they simply concerned about impressions? If they want clickthroughs, you're talking about the least savvy of web users, the ones who don't care who John Carney is and are mindlessly clicking through slideshows.
I say this as someone who appreciates what John Carney does and prefer to read him, but the trade off is I have to deal with a website subsidized by gimmicks.
Unfortunately for me, the industrial complex created by ad sellers who have had their asses handed to them by buyers who have dictated that web traffic is somehow massively less valuable than someone flipping through a magazine or newspaper in 1984.
You write:
"If a site sells half their inventory for $10 CPM and half through a network for $1 CPM, overall their traffic is worth $5.50 CPM."
Now let's take an example from your comment and fit it into this framework. I'm a sales guy, and I have both a 728x80 and a 300x250 on every page. I do a deal with a big advertiser selling a package deal, where they get both spots on each page, with them paying $10 for the 728x80 and just $1 for the 300x250. What's the CPM for that page? It's not $5.50, it's $11.
From the *advertiser's* point of view, they might think to themselves that their eCPM was just $5.50, since that's the average price they're paying per impression. But from the *publisher's* point of view, the RPM for the page is $11. Big difference.
You're comparing two different examples. I was simplifying the math in my post because no one comes to The Awl for addition, but I wanted to make it clear that ads come in at different rates. "You sell an ad on these thousand pages for $10, you sell an ad on those thousand pages for $1, you've made $5.50 per 1000."
In reality most (but not all) sites will have multiple placements on each page, and the revenue from all placements would be combined to figure out the eCPM, like you say. But it's much more complicated in practice and you'd never try to figure it out that way; different ads with different rates run together for different users on different page loads in different frequencies, etc. You would just add up your revenue and divide it by pages X 1000.
Semantics (and vagaries of different ways to visualize it) aside, the point stands that the rate at which Blodget is saying that he monetizes his traffic and what his rate card states are not at all inconsistent or remarkable.
We talked eCPM for both publishers and advertisers; the difference was that publishers were counting impressions as pages served and advertisers as ads served (which could be different numbers, depending on the blog's layout). It's only in following this discussion the last few days that I've heard RPM. But different places will develop their own institutional linguistic quirks.
Yes, if you add up your revenue and divide it by pages x 1000, then you get what I'm calling RPM. And I'm saying that if his RPM is $10 and his rate card is $80, that's a VERY big discount. And that you only discount that far when you're getting a bit desperate in terms of finding people who want to advertise with you.
If those are the baseline assumptions, then yes. The desperation is extremely widespread.
Hi Anthony. Yes, advertisers care about clicks. Advertisers push for payment based on clicks, publishers prefer impressions. I've never worked in an atmosphere where clicks were sold, but the I believe that publishers' reticence comes from the fact that they have no control over how compelling the ad is, and there's a big opportunity cost associated with running a crummy ad. Again, I'm not that familiar with the ins and outs of how these deals are structured.
Even when impressions are sold, advertisers often want an out clause to protect them if the ad fails to perform.
I saw the other day (via you, ha!) a quote from Jim Spanfeller about clicks.
(Spanfeller is Chairman Emeritus of the Interactive Advertising Bureau. The IAB sets most of the standards that govern how the bulk of ads are sold, from payment terms to ad sizes. Then publishers and agencies bugger each other silly try to amend these standards to their advantage.)
Anyway, the very reduced crux of Spanfeller's argument is that it is silly for big brands to care about clicks, and that publishers are crazy to focus on clicks. Demographically, the only people who click are not desirable audiences. Think about it this way: what products do you see on TV that extoll you to "ACT NOW!"? Ronald Reagan "gold" coins minted in third world countries, devices that help you reach things without getting out of your chair, and compilation CDs for people with crappy taste. Even something like a credit card company, which actually DOES need you to call up and apply would never be so gauche as to put the number up on the screen. (I'll leave it to your imagination what this suggests about "For the cost of a cup of coffee you could help this child.")
So Spanfeller argues that human nature, which we've discerned from the last 50 years of advertising, is basically unchanged even on the internet. Most of the people who high-end brands are targeting are not going to "ACT NOW!" and it's silly to get pissy when they don't. Brands should know this; they don't expect consumers to do this in other media. And publishers who use clicks as bait shouldn't because whoever ends up engaging with the advertiser, it's not a very flattering portrait of your readership. And besides, it undersells the impact of running the ad itself to focus on action/completion metrics.
Uhh, I'm a couple beers in and added a little color. Go read his words. He also gets into how little revenue is derived from remnant networks, a point I made to Felix. Really, it's a great read if you find this stuff interesting.
Gawker's Erin Pettigrew just posted an interesting piece on how they're focusing more on branded traffic, which is their core audience, and how to grow it, rather than the less valuable passerby's.
http://advertising.gawker.com/5486668/strengthening-our-core-readership
This is a very good point, more the second part (about how clickers are an undesirable audience) than the fact that publishers have no control over the advertiser's creative. Even the best creative is going to have a low click-through rate, mainly because pretty much no one clicks anything (slight exaggeration, but not much of one). Part of the blame for advertisers' insistence on click-through traces to Web 1.0, when the nascent web industry saw accountability as a market advantage (and before we'd reached the point where no one clicks anything). The trick is to get them to see that advertising on the web - without direct response - has a branding and awareness value similar to (or better than? more cost-effective than?) print and broadcast.
Hi Christopher! This was good.
jfruh: I think you make a good point here! And also, I think lots of web sites in their youngest stages make the mistake of spending too much salary chasing CPM's they have no hope of getting. This is true both on the editorial side--the "star" factor--and on the ad sales side--not selling enough ads? Hire more salespeople!
I think this fact is sort of littered throughout the entire discussion on both sides: If at your organization, salespeople are base + commission, then the base is the fixed cost, right? The irony here of course is that one balloons ones sales department when one is convinced that one's editorial product is fine but just not "connecting" with advertisers willing to pay the rate (or, say 60 percent of the rate at least!) that you've published in your rate card. So it comes back to the same basic gut call. Hire more ad gnomes and then make your edit gnomes make hot slideshows?
Also ... once you've got them spending all their time making hot slideshows, pageviews or no, are they really still worth 60K/year plus benefits? There is a business to nearshore to Boise!
But of course, all these arguments are a bit totalizing. Felix Salmon may well be right about a new site, and wrong about a three-year-old site; and a publisher may well make wrong decisions about overhead expenditure, sales staffing, and--yes--edit staffing, that force him into a manic pageview-hunt that, dollar-per-pageview, is not actually that efficient.
That Nick Denton and Elizabeth Spiers are in on this argument is particularly interesting. Both have worked with companies through pretty much every stage of development, and didn't the two begin as partners in a weird little blog called Gawker that spent time (and very little money, at first) building an unassailable brand on pure editorial guts that turned into an empire? I guess the question is whether it's possible to do that anymore.
2/3 costs going outside the product seems like a lot in the early stages of a company to me. But I don't really know what the overall costs are either. Maybe the question is really: Can a brand be said to have reached financial maturity if it has to keep switching editorial tack to keep pace with outgoings? Perhaps branding is the long, slow, cheap startup game, and a good measure of whether it's been done right is whether the company is in a position to continue to assert its brand and reach profitability.
Of course I am taking for granted that brand-building is the first mover and profitability the second; I believe there are sites on the horizon attempting an experiment in the reverse order (Ahem! AOL!)
This is a business that desperately seeks love, yet wants to be respected in the morning, and is willing to bend over at the drop of a hat in order to prove it.
It was nice to read a piece about Web economics that didn't quickly turn hysterical. Terrific article and explanation, CC.
Now you know why they invented Twitter. Marginal revenues (0) = marginal costs (0).
Feliz Salmon? I hard know him.
I have... nothing to offer society...
(I see you corrected that typo)
The math was fascinating, but the thing that will stick with me are Blodget's non-editorial costs. Is he filling the toilets with San Pellegrino or something? That's just crazy overhead.
Ha so perhaps Carney didn't get enough PV's to float JH's salary? Just a thought.