• by Ashkan Karbasfrooshan , Op-Ed Contributor, June 27, 2011

In business, scaling can be defined as growing

-      Productivity, without adding the commensurate amount of resources (labor), and

-      Revenue and profitability.

You Need Money to Buy Time Before You Scale

All businesses strive to be scalable, but many that appear scalable turn out to be anything but -- and vice versa.  Nowadays, thanks to cheap hardware, open source software and social media marketing, technology companies can be launched with a fraction of the investment once required.  Content companies, however, still require material investment to scale.  In video, the only things that most content entrepreneurs have to show for, other than bruised egos, are shattered dreams and wasted millions. 

This article certainly isn't about kicking anyone when they're down, but recognizing that production, distribution and monetization scale differently -- which  will help you win over time.

Investors (Sometimes) Just Don't Understand

Of course, it's not just content companies that fail to win over investors: Pandora's Tim Westergren went through more than 300 failed VCs pitches  before a successful IPO; before the $1 billion valuation, AirBNB's CEO Brian Chesky didn't get calls back from 10 of the 20 angels he pitched.  My rejection count sits somewhere between Chesky's and Westergren, and as much as I'm sure it's me/us, sometimes I can't help but ask: "Could it be them, the investors?"

Distribution - like Technology - Is a Zero-Sum, Scalable Game

To be fair, investors actually do get it by and large.  Indeed, they do, when the venerable The Atlantic opines "Why Content Isn't King": "In a media culture committed to the proposition that 'Content is king' ... the dirty little secret is that content aggregators, not content creators, have long been the overwhelming source of value creation."

The Light at the End of the Tunnel... (Might Not Be an Oncoming Train)

These days, those who control the advertiser relationships understand that with a) distribution across various screens blurring the lines of advertising and b) a flight to quality content among advertisers, content is more important than ever. 

Among those controlling the ad budgets:

1) Broadcasters have all of the content in the world.   The problem is, despite what they claim, the economics don't really justify embracing ubiquitous distribution. What you will see instead is some kind of controlled/limited availability across many platforms, provided it's "black" -- proverbially speaking.

2) Portals have been moving from curating/aggregating to creating for the longest time.

3) Publishers are by definition content creators, so there's nothing new there.

Which leads us to 4) ad networks and ad rep firms.  We have already outlined why ad networks and ad rep firms will want to own content, especially with the rise of video and emerging flight to quality.

Hmm... Maybe Content is King After All

What we will look at today is the increasing number of firms that are proverbially "forcing" their investors to embrace content as the only strategy that will provide a return on their investment:

-      Publicly-traded ValueClick bought Investopedia last year.  ValueClick CEO Jim Zarley said that Investopedia gives ValueClick "great content, organic traffic and established advertiser relationships in the important financial services advertising vertical."

-      Google's YouTube acquired Next New Networks to help it better manage the burgeoning site's content producers.

-      After raising a warchest of $40M from 2005-2008, Wetpaint pivoted in 2010 from a UGC wiki-platform to a content creator itself, in an effort to drop the UGC offerings and produce something marketers actually wanted.

-      Most recently, ad network Video Egg merged with blogging platform Six Apart, renamed itself Say Media and is now focusing on "connecting brands with passionate audiences."  Video Egg has raised $34 million while Six Apart raised $23 million, pegging Say Media's total capital raised at a cool $57 millon.

The point I am making here isn't "See, told you, content is king." Content and distribution are the yin to one another's yang.  By now that should be clear. 

Rather, it's that those who built the first layer of the Web were technologists who didn't understand or care about content.  They cared about the pipes instead.  Now that the pipes are built, it's all about the content that is running through them.  That is the only thing marketers actually care about. 

More importantly for the sake of this article: those who built the companies that convinced investors since 2005 that they could scale are asking their investors to trust them as they all pivot in one way or another straight into content creation.  That trend is blazingly clear today.

As a content entrepreneur who's more passionate about creating the next Rolling Stone magazine instead of the next Intel, or the next MTV cable network instead of Microsoft, that's not quite as good as "I told you so" - but I guess it will have to do.