Posted by Tom Foremski - April 27, 2008
I was speaking on two panels, the second one included Neil Chase, VP of Author Services at Federated Media (FM) Publishing. He is a former journalist at the New York Times.
On the panel he introduced himself and FM Publishing saying that the company "ran a network of blogs." Interesting phrasing since I thought that FM Publishing sold advertising for a number of top blogs, including Techcrunch, GigaOm, VentureBeat, UberGizmo, etc.
After our panel I asked Mr Chase if he had seen my recent news analysis of the online ad/blog market and that ad networks such as FM Publishing might start to acquire content companies because that was a quick way to boost revenues and also stop the larger sites from leaving FM's advertising network. FM recently raised $50m, and this looked like a war chest to me.
"We just got the money last week so we haven't yet put it to work." Mr Chase said. He said that FM was unlikely to acquire content companies, (although he later said that if there were some good opportunities FM would make an acquisition.)
FM was interested in making an investment in content companies, taking a 10 to 15 per cent stake in exchange for a multi-year advertising contract.
This confirmed some earlier reports that FM had hinted it might take stakes in key content companies.
"If some of the blogs want to take some money off the table so that they can put their kids through college, we would be able to help them do that," Mr Chase said.
Also, if a journalist was looking to leave and start a blog FM would help set them up in exchange for a larger share of the advertising revenues.
He said that FM wasn't worried about its blog sites leaving the network and there were plenty other blogs to work with.
FM has started to see some effects from the recession, some clients are taking longer to make a decision on advertising deals.
FM can make its money go further by taking a 10 to 15 per cent stake in a content company. And also tie up advertising revenues for two to three years into the future. It's a good strategy.
But the blogs in its advertising network overlap in coverage--that's why it can sell advertising across an aggregated audience. If FM has stakes in some of its blogs it becomes a competitor to the others--it has a vested interest in favoring one blog over another. It can channel ads to sites in which it has an ownership stake.
This could lead to a loss of blogs to a rival ad network and make it difficult to recruit new publishers.
But taking a minority stake in a blog leaves FM open to a substantial dilution of its ownership as the blog company grows and takes on new investors--unless it has a board seat.
Most blog owners are novice entrepreneurs and they should be careful about the terms of an FM investment and seek expert counsel. Taking a nice chunk of cash now is a welcome reward for their hard work but they should make sure there is no remorse further down the line.
[BTW I took a look at UberGizmo and FM was running public service ads on the site while TechCrunch was getting lucrative Intel ads, showing that not all sites are treated equally.]
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