The flipside to freeloading Flipboard

Publishers are finally asking more questions about distribution deals with platforms like Flipboard, which lift content for free while providing little revenue to its creators.

After happily giving away their product for the better part of a decade, some digital publishers are starting to seriously question the merit of this course of action.

What constitutes ‘giving away’ has changed over time. Originally it was usually limited to looking to cover costs by advertising alone and not charging readers. But over time it has extended to actively placing content the publisher has created and paid for on other companies channels without asking for much (or anything at all) in return.

An example of this is publishers allowing their content to be repurposed by modern aggregators such as Flipboard. Flipboard positions itself as a ‘social magazine’ and allows users to link their social media accounts to generate a unique, tailored, magazine-like experience on tablet and smartphone.

Flipboard is well backed – it has received over $100 million in venture capital funding – and plays in the very appealing to investors ‘social curation’ space. In short, it capitalises on users' insatiable appetite for content on the web without having to pay for any of that content to be created. Flipboard claims 85 million users globally and at last raise, was valued at $800 million. Not bad for a company just starting out.

While it is easy to see the benefits of Flipboard to its users, for some publishers the idea of letting it have free access to their content seems to be losing its gloss. Flipboard has claimed that its ultimate revenue model is to sell advertising against publisher content and share revenue with that partner. In this way it’s similar to YouTube, which encourages content creators to distribute their content on YouTube and, in most instances, allow YouTube to sell advertisements against this content and share a proportion with the content creator.

The problem for some with this model is most content creation companies have organised their business and cost base around not having to give 50 per cent or more to whoever is distributing their content. In most instances, they would like to sell their own advertisements and control the relationship with the advertiser. Most would also like to control their distribution channel too, and are worried about becoming a commoditised intermediary.

Last week Talking Points Memo Editor and Publisher John Marshall wrote a piece titled: ‘Are Operations Like Flipboard Scams Against Publishers?'. Below is an excerpt from the piece:

I do think these services, as they currently exist are bad for publishers. We give them the entirety of our product - news stories, updates, posts, what-have-you - in exchange for a notional thing called exposure, brand awareness, blah blah blah and in theory or at some point in the future a cut of the ad revenues these services bring in for selling ads on their platforms. The problem is there are no ad revenues that go to the publishers. Where they exist they are literally trivial.”

Marshall points out that the use of the word “scam” is most likely a little overstated, given no one forces a publisher to open up distribution on Flipboard. I agree. But the basic premise of his piece highlights that he is struggling to see the benefits of offering up his content for free to bolster a platform owned by another company. The reasons? He doesn’t control the relationship, he can’t monetise it, he knows nothing about the user and he receives minimal tangible value, financial or otherwise. For small to mid-sized publishers the margins are relatively thin – anywhere between 5-10 per cent generally – if (and it’s a big if) there’s any profit at all. There’s little room for a handler to take a cut too.

A publisher having some concerns about intermediaries like Flipboard isn’t surprising, but what is surprising is how long it has taken the majority of the industry to voice concerns around the revenue impact a service like Flipboard can have. On one hand, we have a publishing industry in a position of extreme revenue pressure, struggling to keep its head above water. On the other hand, we have a VC-backed company to the tune of $US110 million, that relies wholly and solely on the content industry's product, but can’t currently find any way to financially reward them for their contribution.

You don’t see the likes of Google, Facebook, Twitter or Instagram allowing anyone to lift their content. If a publisher wants to reference a Twitter post, they must embed it. If someone wants to embed a YouTube video, again it must come via YouTube and it must carry their advertising. It’s the same for Instagram. These companies realise that giving your content away to competitors without controlling the revenue stream is for chumps. Investors like Goldman Sachs aren’t pumping big money into Flipboard because it can help make publishers rich. They’re pumping money in because they see a relatively low overhead, high-volume business that can own the user relationship and ideally not repeat the past commercial mistakes of the content creators it currently uses to hold users attention.

Flipboard isn’t a scam, but its $US100 million in funding is a clear demonstration that investors see more future potential in its model than the current one of most publishers. Giving your product away is not considered a particularly sound strategy by many. Talking Points Memo’s move is a ballsy one but will be interesting to watch.

Ben Shepherd is a media and technology consultant. He can be found on LinkedIn and on Twitter.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles