• by Diane Mermigas , June 1, 2009

Who would have thought the digital media revolution would bring imploding conglomerates and enterprising startups to the same place? They are struggling to reinvent themselves and forge profitable business models in the untamed interactive jungle. Not all will or should survive, but there are steps they can take to get in the groove.

The rampant dysfunction from interactivity has been painfully evident in public remarks by top executives from across the media spectrum at last week's D7 conference. The principal dilemma: how to monetize the consumer engagement that is exploding outside of corporate reach.

Twitter co-founders Evan Williams and Biz Stone openly conceded they still lack a business plan and are still exploring paid authentification and power accounts, intro tweets, real-time search, a Twitter-inspired TV show and other enhanced features. The microblogging wonder has issues: half of Twitter subscribers are not using their accounts even once a month, and the Twitter guys say they want to model their 3-year-old company after Microsoft (a software concern) and Apple (a hardware company).

Jonathan Miller, News Corp.'s new digital chief, echoed broad industry consensus that some form of micropayment and subscriptions are inevitable, although challenging to institute in a market feeding on free access and sharing.

John Malone, the iconic deal-maker and Liberty Media founding CEO, lamented being unable to apply online the concept of bundling transport and content he used to create pay cable so everyone could make money again.

Web entrepreneur Mark Cuban lambasted Google for undermining the potential of online video as the rightful and so-far insipid heir to TV, "a medium that actually has revenue."

The problem with television-centric solutions -- save for live big events and sports -- is that broadcast networks can barely give away their content for free on ad-supported channels. NBC's prime-time ratings recently slipped to an in-season record-low 4 rating, reaching fewer TV households than the NBC-Fox-ABC-owned Hulu.com, which may break even this year in a search to monetize its third-largest online video user base.

Like its broadcast peers, the peacock network is doing all it can to save itself: from Conan O'Brien's self-effacing on-air promos about the "new" technology called television (that lets you watch PC and cell phone video in a comfortable chair) to shrinking its prime-time schedule by moving "Late Night" host Jay Leno into the less costly, more lucrative 10 p.m. slot. The move will save NBC more than $10 million in annual production costs (compared to hour dramas) and more than $300 million in the annual development of failed series. The bottom line: NBC Universal CEO Jeff Zucker says he's sticking with cable's dual revenue stream.

Facebook founding CEO Mark Zuckerberg accepted a $200 million investment from Russia's Digital Technologies to buy time developing forms of video chat, advertising and subscriptions that are best suited for its 200 million users -- nearly three-quarters of whom are outside the U.S. Skeptics say such investments allow Facebook to morph its user base without having to generate real revenue. Even with an estimated $10 billion private valuation -- nearly double the public value of CBS Corp. -- Facebook doesn't have a viable business model.

While Facebook, Twitter, News Corp.'s MySpace, Hulu and others explore payment platforms, ad networks, video chat and search mechanisms to generate digital fortunes, Google already is pumping out more than $8 billion in annual cash flow with interactive businesses like AdWords. It soon will be joined by Wave, a real-time communications and collaboration platform integrating conversations, documents, photos and probably some marketing and commerce.

Google means to keep itself in the center of the connectivity universe, leveraging its dominant reach and resource arsenal to keep other media players on edge. The only other player with such formidable cross-platform influence is Apple, which has made third-party applications more lucrative than many of the services and content for which they are produced.

Maybe Digital Technologies knows something the American players don't as the largest Internet investor in Eastern European markets and Russia, where it owns 70% of all page views monetized with micropayments across its portfolio of successful online companies. Tencent, China's largest Internet portal and messaging service, generates more than 80% of its revenues from the sale of digital items and casual games, which are absent from or barely represented on Facebook and MySpace.

Social networks may be the only road to new revenue streams now that the Pandora's Box of free content, services and connections is forever open. Here are 10 ways they can survive and thrive:

*Nurture innovation and entrepreneurship at every level.

*Reduce and eliminate legacy costs (even Yahoo and AOL have them), and find new interactive ways to use existing resources.

*Quantify and qualify your reach and effectiveness by aggregating metrics and connections.

*Sell connections first; content and services second.

*Experiment with social-network services, such as selling digital items and casual game applications.

*Marketing should be relevant to individual consumers, advertising should be e-commerce, and both should be sold against social network connections and search results.

*Align with and brand applications that can generate unique interest and value for your user base.

*Enable and sponsor virtual user introductions and recommendations.

*Embrace refined search as a way to take consumers closer to what they want -- not what you think they should have.

*Find a financial way out other than IPOs, despite an early rebound from the pits. Flipping assets won't work. The first player to forge new revenue-generating models wins.