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Innovation economy

Media entrepreneurs test new ways to get the message across

By Scott Kirsner
February 1, 2009
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Boston was home to the first American newspaper. A Medford radio station was among the first to try selling advertising to support its programming, in the early 1920s. Researcher Ray Tomlinson was working in Cambridge when he sent the first e-mail over the Arpanet, the predecessor to the Internet, in 1971.

Each innovation created a huge industry, and changed the way we communicate.

Now, at this moment of tumult in the media world, entrepreneurs in Boston and the wider New England region are trying to develop the next successful models for conveying information. But even as advertisers and consumers spend an increasing amount of money and time on the Internet, building a profitable digital media business isn't exactly a cinch. Some local start-ups have already had to reduce their staff, and others will find themselves hunting for additional funding later this year from reticent investors.

"The big question right now is, how much do you have to spend to get a big enough audience?" says Bob Davis, a venture capitalist at Lexington-based Highland Capital Partners. "In traditional media, there were dozens or hundreds of outlets. Online, it's measured in millions. There's lots of competition for ad dollars, and you need massive scale before you can break out."

As a result, many New England start-ups are trying to avoid relying on standard types of Internet advertising, like banners that span the top of a page or short text ads that appear in the right-hand column.

In Portland, Maine, Erik Schwartz and Nic Wolff are developing a new take on podcasts, the digital audio programs that they regard as too complicated for most mainstream consumers.

"Podcasts have to go from the content creator to iTunes to my PC and then finally to my portable device, whenever I decide to sync it up," says Schwartz. "By the time you do that, they're a few days old, which doesn't work well for news."

Their start-up, Foneshow, tries to simplify that process. A consumer can sign on to a free content channel, such as "CNN Marketplace Update" or "Here & Now" from WBUR-FM. Whenever new content is published, a text message is sent to a user's cellphone. To hear the programming, the user clicks on a phone number in the text message, and initiates a call. While listening to the audio, pressing buttons on the phone's keypad can pause it, skip ahead, or go back to the start. No downloading or syncing is required.

A short ad appears at the bottom of every text message, but the real opportunity, Schwartz says, will be a spoken advertising message at the start of every program.

"It might say that this show is sponsored by Geico, and if you'd like an insurance quote, just press five," he says. "We can connect the call, and that's a new way for Geico to start talking directly to potential customers."

Those ads haven't begun running yet, but Schwartz says they will within a few weeks. The ads will be priced in an auction, in much the same way Google sells its keyword ads, so that the advertiser who is willing to pay the most gets the slot.

"What we're really moving toward," he says, "is narrowcast media, where the user is in control of his listening environment, and he gets ads appropriate to him, based on listening habits and demographics and a whole pile of other things."

While Foneshow raised a first round of funding in 2007 of just over $1 million, Schwartz says they're currently seeking more.

In an old brick-and-beam building on Boston Harbor, the 14 employees of GlobalPost, another start-up, are supervising a network of 65 correspondents in 45 countries, who produce dispatches on international news for the recently launched website. At a time when many TV networks and newspapers have closed foreign bureaus, GlobalPost plans to add another half-dozen correspondents this year, in places such as Australia and Argentina. (Correspondents work on a $1,000-per-month retainer, and get a stake in the company.) The company has so far raised $8.5 million from individual investors; the eventual goal, explains chief executive Philip Balboni, is $10 million.

Balboni says the company will rely on three revenue streams. One is the advertising on the site. A second is syndication deals with newspapers and other websites that will use GlobalPost's stories. The third is a membership program called Passport, which will ramp up next month. For a $199 annual subscription fee, Passport members can join conference calls twice a month with GlobalPost correspondents, suggest story ideas, and receive text alerts about breaking news.

"It's for people who want to support high-quality journalism," Balboni says.

Gather.com and Helium.com are two local sites that invite writers and photographers to contribute content, rather than starting a blog of their own. (Or perhaps in addition to one.) Active participants in the Gather community can earn "Gather Points" that can eventually be turned in for gift cards at places such as Target or Starbucks; popular Helium writers can earn cash. Helium has raised about $17 million in venture capital funding - about twice what Gather has banked - and the site boasts about twice Gather's traffic, which is 1.1 million unique visitors per month.

Though both sites say their advertising revenue is on the upswing, neither is profitable yet. Gather cut its staff by 15 percent last year, and Helium eliminated 30 percent.

"In late September, I looked at the tea leaves and said, 'This is ugly,' " says Helium chief executive Mark Ranalli. "Let's take our lumps."

Both Andover-based Helium and Boston-based Gather will likely be hunting for more money this year. Gather chief executive Tom Gerace says, "We were planning to turn profitable on the cash that had already been invested, but with what happened over the last couple quarters, we may need to bring in more." He says profitability is "well within our reach."

Forrester Research analyst Shar Van Boskirk says she expects online advertising spending to continue growing in 2009, though at a slower rate than it has in the past. "Online is more measurable, and less expensive, and it's a medium where consumers are spending a lot of time."

That tailwind will provide a nice push for digital media entrepreneurs, but it won't be enough to carry everyone to the promised land of profitability.

Scott Kirsner can be reached at kirsner@pobox.com.

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