RonAmok!

For the past few months, I’ve been seeking alternative ways to quantify the value of Social Media through studying the financial statements of publicly traded media companies. I found something interesting while looking at the FY2009 balance sheet of  Media General, Inc. One of its line items,  FCC licenses and other intangibles – net, lost 66% of its value in just two years! That’s $426 million! Gone! But where did it go?

Here’s how the item is described in the report:

FCC broadcast licenses are granted for maximum terms of eight years and are subject to renewal upon application to the FCC. The terms of several of the Company’s FCC licenses have expired, however the licenses remain in effect until action on the renewal applications has been completed. The Company filed all of its applications for renewal in a timely manner prior to the applicable expiration dates and expects its applications will be approved as the FCC works through its backlog. The Company’s network affiliation agreement intangible assets are due for renewal in a weighted-average period of three years. The Company currently expects that it will renew each network affiliation agreement prior to its expiration date. Costs associated with renewing or extending intangible assets are insignificant and are expensed as incurred.

Let’s think about this for a minute. Media General is a company that owns 18 television stations, 21 daily newspapers, and publishes over 200 specialty publications. It’s broadcast business unit is required to purchase licenses from the Federal Communications Commission in order to transmit programming. FCC licenses are scarce resources, meaning that if Media General owns one, its competitors can’t, creating a competitive advantage that Media General has assigned a real financial value to through its balance sheet.

Compare and contrast Media General’s broadcast business with those of us who publish content online. We have no such restrictions. We don’t need to purchase FCC licenses and therefore are not subject to their trappings, such language restrictions, geographic limitations, public service announcements, and bidding wars that translate into hefty operating costs. Add the cost of broadcast equipment and radio towers, and we, the digital content producers, have a huge competitive advantage over traditional broadcast companies just by comparing our respective distribution costs.

Historically, traditional media companies have made their money by investing in two things: building their audiences and owning the distribution channels to those audiences. In the past, the combined value of these pieces was large enough to sustain a profit through renting access to them through advertising. Unfortunately, the value of today’s broadcast assets may have dropped to a point where the rent (advertising) won’t cover the mortgage (distribution costs) anymore.

And lastly, let’s revisit the question asked earlier: “Where did that $426 million go?” Did it just vaporize into thin air? Maybe not. I contend that its value was absorbed into the digital distribution channel, where it sits, waiting for smart companies to take advantage of it…companies that believe that Audience is an Asset.

Tags:Audience is an Asset Ron Ploof ronamok FCC licenses

The biggest struggle that C-Suites have with social media is trying to figure out how it fits within their organizations. For example, if you’re a specialist in marketing, they understand what you do. If you’re an expert in PR, they can tell you where your desk is located. But if you’re skilled in the art of social media, C-Suites scratch their heads while determining where to pencil your name onto an org chart. Do you belong in sales? Customer support? Information Technology? Product development? HR? Accounting? Legal? Since social media cuts across all of these organizations, the answer is frequently the subject of debate.

I don’t blame them for their confusion. It seems that whenever they ask about social media, the explanation involves unfamiliar terms (blogging, podcasting, twittering, Facebook wall entries) rather than the long term objectives that these activities support. C-Suites want to invest time and money into social media, but won’t until someone can explain the business case using terms that are more than ten years old.

Recently, I’ve been searching for a tall thin concept that helps C-Suites understand the role that social media plays within their organizations. If I’m successful, it will answer all of the lingering questions, including those such as ROI, objective, strategy, goals, and tactics.

My research has oriented me toward Audience is an Asset–a concept that an audience built through social media channels is a corporate asset with real financial value.

Over the next few posts I’ll be sharing with you some of the insights that I’ve been gathering while studying the balance sheets of traditional media companies.

In the mean time, I’d love your thoughts.

Photo Credit: a r b o

Tags: audience is an asset audience as an asset ron ploof executive executives c-suite financial balance sheet

I’ve been toying with a theory for the past couple of weeks and wanted to share it with the Social Media community for comment. It involves calculating the business value of Social Media.

Typically, the Social Media/ROI debate is split into two camps:

1) those who seek to calculate the dollars directly generated from the dollars invested into Social Media activities, and

2) those who argue that Social Media activities should be considered a cost of doing business, such as management, human resources, or investor relations–departments who give up their profit and loss (P&L) lives daily for the benefit of the entire organization.

I’ve been thinking about the problem from a different perspective. What if we’ve been trying to force-fit Social Media onto the wrong financial statement? What if, instead of making it a line item on an income statement, it actually belongs on a balance sheet?

Accountants also Tally Intangible Assets

Corporate assets come in two forms: tangible (office equipment, real estate, etc…) and intangible (patents, trademarks, personnel, goodwill, etc…). Wikipedia describes intangible assets as “…nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place.” As someone who believes that Social Media activities do indeed create marketplace advantages, I decided to pursue a theory that Social Media is an intangible asset. But before I could move forward, I needed to figure out what “asset” I was measuring.

Audience as an Asset

The entire advertising industry is based on the value of an audience. Whether called “eyeballs,” “listeners,” “viewers,” or “circulation,” publishers and broadcasters are happy to rent access to their audiences through the use of column inches or thirty-second spots. Both describe access to their audiences as “inventory,” a common term that shows up on non-publishing balance sheets all around the world. So, what if we considered the audiences that corporations build through their Social Media activities as an asset to track?

I dug through some financial statements to see if publishers assign some sort of asset value to their circulations and found that the New York Times’ balance sheet carries a $661 million intangible asset called “goodwill.”

Just for kicks, I decided to compare its goodwill numbers from FY2007 and FY2008.

Although one data point doesn’t determine a trend, the result was enough for me to continue exploring the concept of audience as an asset. If audiences are assets to publishers, can the audiences that companies earn through their Social Media efforts (communities, RSS subscribers, website visitors, etc…)  be considered a corporate asset, like that of a patent, or any other intellectual property?

Investors Assign Value to Audiences

In May 2006, Google paid $1.65 billion for an 18 month old video sharing site called Youtube. Although the website had no revenue stream, it routinely logged 12 million monthly unique visitors, thus translating into Google paying $137.50 per unique monthly visitor.  And according to statements made last month, Google gave us another hint as to how they valuated this audience. In a recent interview, Google commented that it knowingly overpaid for YouTube by $1 billion, after considering the steep growth rate of those monthly uniques. Taking this new information into account, Google’s own bean counters valuated the 2006 YouTube audience at $54.17 per unique monthly visitor with a premium of $83.33 per unique as upside!

Analysts Assign Value to Audiences

For the past two years, Techcrunch has been trying to calculate the value of social networks. The common denominator in its financial model? Audience. In its 2009 calculations, Techcrunch values a unique user for the United States, UK, Australia, and Denmark at $132, $213, $148, and $144 respectively, based on each country’s advertising expenditures.

Businesses Value Other People’s Audiences

There’s a term in financial circles called OPM, meaning “other people’s money.” Well, businesses have been paying for access to other people’s audiences (OPA) for a very long time. The advertising industry is built on the fact that businesses value access to OPAs so much that they are willing to rent them…even if it’s for only a day.

Sprinkles Cupcakes is a five-year old Beverly Hills-based bakery that produces cupcakes that its loyal customers describe in terms usually reserved for religious experiences. Along with its website, the company also maintains a Facebook fan page, complete with 77,600 fans.

Question: What is the value of this audience to the company?

One way to calculate the value is to compare it with the value of OPAs. For example, The Los Angeles Times would charge Sprinkles $972 per column inch for a one-time access to its print audience. If Sprinkles wanted to purchase a non-discounted full page ad, it would cost them $125,388 (at 129 inches per page) to deliver its delicious message to the paper’s 657,000 daily readers.

In this example, Sprinkles is paying $0.19085 per LA Times reader for a single day. But with its own audience on Facebook, Sprinkles doesn’t need to rent OPAs. Assuming conservatively that a Sprinkles Facebook fan equals an average LA Times reader (a FB fan should be worth much more!), then the Sprinkles’ Facebook audience might be valued at $14,809 (77,600*0.19085)

But that’s still not the full story. Sprinkles has access to its Facebook audience 365 days per year–at no incremental cost per new message delivered. Today, Sprinkles is taking advantage of this economics of influence by using the channel to deliver daily challenges such as:

Sprinkles uses vanilla from Madagascar! The first 50 people to whisper “Bourbon Islands” at each Sprinkles receive a free vanilla cupcake!

Is it possible that the value of the Sprinkles Facebook audience could be calculated through saved advertising costs? Might it be considered a corporate asset of $5.4 million ($14,809 * 365)?

Seem a bit too high? Let’s use another yardstick. Online banner ads can be purchased around the net for between $20 and $100 per thousand (CPM) impressions. Using these numbers, conservatively, every Sprinkles message sent to its Facebook audience might be the equivalent of renting OPAs to the tune of between $1,552 and $7,760 per day. Over the course of 365 days, such an asset could be worth between $566,000 and $2.83 million.

Wrapping it up

Social Media is about creating content so compelling that your customers will not only return to consume it, but that they’ll forward it to their friends. These returning visitors can be considered an audience.

Businesses have always understood the value of audiences, having budgeted for access to other people’s audiences through advertising. But now, with access to New Media platforms such as blogs, podcasts, online video, or Social networks such as Facebook, businesses now have the opportunity to develop their own audiences.

Perhaps the value of corporate audiences should be calculated as investors do: at $54.17 per present monthly visitor with an upside of $83.33. Maybe they should be calculated through an algorithm based on advertising spends, falling somewhere between $132 and $213 per unique visitor. Or perhaps your accountant is more comfortable with considering what your company could sell its audience to itself for, giving the audience a value of 19 cents per reader per day, or somewhere between 2  and 10 cents per impression/fan per day.

Whatever the method of calculation, can we come to some sort of agreement that the audience your company has built through its Social Media efforts is a cherished corporate resource that gives your company competitive advantage?