by Christopher Conklin
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.
â€¢ He starts with a $60,000 yearly salary for an editorial staffer, which he then prorates to $5,000 a month. (Check.)
â€¢ 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.)
â€¢ 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!)
â€¢ 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!)
â€¢ 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.