Tuesday 28 November 2017

The economics of blogging, and the challenges for traditional media & content creators

I started this blog nine months ago, and have since published 30 articles (excluding this post). On average, each article takes me about four hours to produce - typically about one hour to blast out my thoughts in one go (in an occasional burst of writer's inspiration), and then about three hours to iteratively re-read and edit the text (it is amazing how many times this must be done to remove typos and ensure the text flows smoothly and logically from one point to the next - as a general rule, the easier something is to read, the harder it is to write).

This means that I have spent a total of approximately 120 hours producing blog content over the past nine months - about three weeks worth of work at the conventional 40/hr week benchmark, and perhaps closer to four if typical breaks and holiday pay entitlements were included (and five if you're French).

The total cumulative pageviews over the past nine months has been approximately 8,000. I do not bother using AdSense, but if I did, I understand that the CPM (cost per thousand impressions) ad monetisation rate would be unlikely to exceed about US$2. Consequently, if I was attempting to make money blogging (fortunately I am not), my total revenues to date are unlikely to have exceeded US$16. This represents an hourly rate of about US$0.13/hour - about two orders of magnitude short of what would be required to earn an approximate minimum-wage income.

8,000 views implies that each one of my articles is currently getting a little bit more than 250 views. This number would need to rise by two orders of magnitude to 25,000 in order to generate a minimum wage income from banner advertising, and 250,000 to generate a competitive income to other potential remunerative uses of my time (when I worked as a paid securities analyst, my hourly compensation averaged about US$150 per hour worked, in my estimation). Both are exceedingly unlikely prospects (I will be absolutely thrilled if I eventually achieve a one order of magnitude improvement to 2,500 views per post - even that will likely require several years of committed effort).

Furthermore, the above includes only the time committed to actually writing. I personally spend an average of 10-12hrs a day, six to seven days a week, reading and synthesising information. I read books; the news media; equity research; corporate filings; other blogs; industry/country reports; hedge fund performance reports and other literature; textbooks; and listen to podcasts and interviews, amongst other things. All this work is necessary in order to generate the insights that lie behind the blog posts.

I have not included this time in the above calculus, as this is work I would be doing anyway as a full time investor/portfolio manager, and I view blogging as merely an occasional side project/hobby. However, were blogging my primary occupation, all of this background research would need to be included in the hourly-rate computation as well (although I would produce far more product if this was my full time occupation - probably about 5-7 blog entries a week). I work an average of about 80 hours a week, close to 52 weeks a year, so inclusive of the time committed to background research, my hourly rate would average less than 1c.

The above calculus highlights quite starkly that the economics of blogging are lousy, even allowing for the inherent scalability of the endeavour (the amount of work involved stays the same, no matter how many viewers you have). Even if my viewership goes up by a factor of 100, the economics will remain poor. If you plan to start a blog for financial reasons, I would strongly advise against it, and suggest you do not quit your day job.

Personally, I was never under any illusions that I would make money blogging, and I started this blog for other reasons - for fun, because I enjoy the craft and challenge of writing; and also as a potential longer-term networking/relationship development tool. If something like the latter is your motivation, great, but if your motivation is to make money, forget it! You are much better off pursuing work as a paid journalist.

The poor economics of blogging highlights a challenge for traditional media

The difficulties making money as a content creator on the internet are far from confined to bloggers. The same is true of most (although not all) YouTube creators. The monetisation rates are so low that the number of views needed to generate a reasonable income is implausibly large for all but the most unique and successful creators. This is also before considering creators such as Wikipedia authors, where the prospect of monetisation was never a possibility in the first place.

However, despite this reality, millions of hours of un- or under-remunerated content continues to be created every day, and at an accelerating rate (300hrs of new content is uploaded to YouTube every minute). Human beings, it would appear, have a seemingly incurable compulsion to be creative, and to share those creations with the world.

The result has been that the amount and variety of free/near free content available online has (and continues) to mushroom. This is fantastic for the world, and as a copious consumer of such content myself, I think it is wonderful (and one of my motivations for writing this blog is a feeling that I ought to give at least something back to the world, given the tremendous degree to which I benefit daily from other people's underpaid efforts). However, this trend is very bad for traditional media, and indeed any form of paid media production.

People only have 24 hours a day at their disposal, and perhaps 17 hours on average net of requisite sleep. Inside those 17 hours, people have to fulfil their daily chores; commute; earn a living; exercise; pursue their hobbies; and spend time with family and friends, leaving a relatively limited and finite number of hours to consume content/media and other forms of entertainment.

Smartphones have expanded the 'attention market' in recent years - it is now possible to listen to a podcast or autobook, check Facebook, or watch a YouTube clip while walking, shopping, waiting in line, catching the bus/tube, or exercising at the gym, for instance, whereas in the past these prospective content-consumption hours would have been 'wasted'. It is also now possible to do many of these things from your desk when you are supposed to be working (one possible explanation for the confusingly low pace of worker productivity growth in the technological era in which we live). However, the one-time boost in the size of the attention market the rapid adoption of smartphones and 3G/4G wireless network rollouts has engendered has now been largely realised.**

What this means is that the 'attention market' is inherently finite in size, and you do not need a PhD in economics to know what happens when supply continues to rise in the face of stagnant demand: the value goes down. What this means is that the average value of new and existing content ought to continue fall over time, and at an accelerating rate.

This is a challenge if you are a paid journalist (or a running a business employing paid journalists) earning say, $50-100 an hour: the market value of the end journalistic product is likely to continue to fall as audience attention continues to fragment and decline, because this professionally-produced content increasingly needs to compete with a growing array of free or near-free content online, earning well-below-minimum-wage levels of compensation (such as this blog). It is hard to economically pay someone $50-100/hr when their end product is competing with product that is free.

The effect of this dynamic has already been long felt by the print media and FTA TV, and in recent years has also begun to be felt by cable networks as well (as broadband infrastructure has reached the point where reliable and high-speed HD streaming is now viable for large proportions of the population). However, the conventional view amongst media analysts has for a long time been that while pre-existing film/TV distribution pipes will suffer (particularly satellite providers), good content will hold or even increase its value.

However, this perspective ignores the fact that the amount of new content creation vying for our attention continues to mushroom (and the amount of TV content being produced at the moment is at record highs as well), whereas our available media consumption hours remain finite. Simple economics suggests that the value of the average piece of TV content therefore ought to be falling as well, and not just the value of the pipes - particularly the value of libraries of old content, which many value investors I respect (such as Horizon Kinetics and Elevation Capital) have argued ought to underpin the value of these companies (I do not agree). These investors have been wrong on the outlook for conventional networks such as Discovery, in my opinion, for this reason.

In addition, in time, it is possible that the effects will begin to be felt by many new-media companies as well, which currently appear to investors to be exempt from these forces. As noted, the rapid adoption of affordable 3G/4G-enabled smartphones globally has rapidly expanded the attention market and been a huge boon for companies such as Facebook, but the majority of this massive growth tailwind has now already played out and will inevitably slow. Moving forward, the competition for our online/mobile/media attention will become an increasingly zero-sum game, and it could result in growth rates and profitability disappointing (Twitter is already feeling the effects, with stagnating users and user engagement, coupled with continuing GAAP bottom-line losses).

2bn people globally spend an average of 1 hour a day on Facebook. That is a lot of attention, and it is why Facebook makes so much money. But at 40x earnings, one must ask to what extent the company realistically has the ability to continue to increase its share of our attention over time off such a high base - particularly given that it is an inevitability that new and innovative online/mobile services and sources of entertainment will continue to endlessly proliferate over time, vying for our eyeballs (although for now, Facebook is benefitting from being the 'gateway' to various other sources of content; whether that perpetually remains the case remains to be seen).

Comments and question welcome,


*Touch typing, by the way, was one of the best life skills I ever learnt. The below speed test indicates I type at a rate of 72 words per minute with 98% accuracy. The ability to type at (close to) the speed of thought is essential to being a highly productive writer in my opinion.


**The advent of Level 5 fully-autonomous vehicles in coming decades may result in another one-time boost to the size of the attention market.