There are many ways to lose your money on Wall Street, and one of the easiest ways is Internet content.
Many are beguiled by the quality content offered by the New York Times (NYSE:NYT) and figure that, with their new paywall, the money might start rolling in. The Times' stock has been a dog for years, but is now the time to buy?
Others are intrigued by the low-cost production of AOL and figure they must know something. This stock, too, has been a notorious market laggard -- does their purchase of the Huffington Post make them a better investment?
No on both counts.
A much better buy in the space is IAC/InterActive Corp. (IACI) and here is why.
It has to do with understanding what journalism is, whether it's online or offline. Journalism is the making of a market.
Journalism means organizing and advocating a place, industry or lifestyle. The first matters more than the second. Organizing means knowing the buyers, knowing the sellers, then making certain both sides of the transaction see you as the place where they can get together.
If you're not making a market, you're not in the publishing business. IACI understands this.
Look at their sites. Servicemagic looks more like a Yellow Pages directory than an editorial site, but it is performing the service every editorial site must take as its primary mission. It brings buyers and sellers together, and tracks their satisfaction. The same can be said of Pronto, its comparison shopping site.
Or take a look at College Humor's sites. You wouldn't think college kids buy much stuff, and they don't. But they do buy t-shirts, and one of their sites sells them. IACI makes a market and fulfills it as well.
Notice that other CH sites are focused on markets – like video games. And rather than just sell ads, notice that still other CH sites are focused on sponsorships – getting one brand in front of the selected audience. Right now that's Cheetos at SportsPickle, Time Warner's (NYSE:TWX) TNT at College Humor.
It's all about putting buyers and sellers together – know the audience, know what they like, sell that to them, and you create a market.
Parts of AOL know this. They know who their brand works for. Women, aged 25 to 45, are their target audience. Everything else they own avoids the AOL brand because that brand is poison to, say, tech geeks.
You thought this was about advertising? It's never about advertising. No one wants to buy advertising. Advertising is an expense, a piece of your marketing budget, which is all aimed at identifying your buyers, dragging them down the sales funnel, and getting them to sign on the line that is dotted. To the degree an outlet helps you find and sell for you, it has value. Beyond that, meh.
Which brings me to the Times, the dumbest company in America. Lots of great writers and photographers work for it, but management not only doesn't know who it's selling to, its paywall deliberately drives those buyers away.
This is not a blanket condemnation. Paywalls can make sense. Once you have defined your industry or lifestyle, once you have the high-value buyers reading you every day, then feel free to put up paywalls to keep out the riffraff. People who won't buy what your advertisers are selling are wasted circulation. Paywalls (and registration walls) reduce wasted circulation, but only if the right people are already reading you.
The Times, unfortunately, can't assure any seller that they have the buyers they're looking for – as they could do when their paper product had X number of readers in Bensonhurst, which you could prove with circulation addresses and newsstand sales at specific shops.
The Times could be defining a psychographic – upscale, educated Americans. For it to interest advertisers, it must draw a substantial portion of such people into its site, and it must know all about those people, so it can help advertisers sell to them, and so it can get the right advertisers.
Saying, “We work hard and you should pay me” drives out the buyers. If you have no buyers, sellers won't be interested in paying premium rates for space on your site. If you're not making a market for sellers you're not a publisher.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.