Former MySpace chairman buying up niche content

By Bambi Francisco, MarketWatch Last Update: 10:00 AM ET Nov 16, 2006

SAN FRANCISCO (MarketWatch) -- In 2005, Richard Rosenblatt, then chairman of MySpace, sold the popular social-network site to Rupert Murdoch's News Corp.

Today, Rosenblatt is on to his next gig. The company is called Demand Media, and it's what Rosenblatt describes as a new-media company.

Rosenblatt has raised more than $200 million in the past few months, giving Demand Media a valuation that about matches the $580 million price Murdoch paid for MySpace. Rosenblatt plans on using those funds to buy up niche Internet companies, a strategy that several old- and new-media companies are pursuing.

We're probably not going to see megadeals, such as America Online's purchase of Time Warner back in 2000, but there is no doubt that Big media is serious about staying competitive in the new-media landscape.

 

From News Corp.  to CBS Corp., which just hired former Allen & Co. investment banker Quincy Smith to acquire Internet technologies and content, 2007 may very well shape up to be the year of the acquisition for Internet media content.

 

I've written many times about companies that are and could be attractive to Big Media, but in this column I'm going to focus on what Rosenblatt is interested in.

Here's my interview with Rosenblatt. Check out my blog for my video interview with Rosenblatt at the Web 2.0 Summit.

Bambi Francisco: Define what a new-media company is.

 

Rosenblatt: A new-media company provides tools and technologies that allow for cost effective publishing and efficient distribution of content. Beginning in 1995, there was an emergence of new-media companies that went beyond traditional media companies by publishing their content in real time and having the flexibility to change it on the fly. MySpace led the next evolution by empowering users to publish their content in a mass way. Demand Media is continuing to expand on this content revolution by coupling user generated content with professional content and allow them to speak to enthusiasts in a given vertical. As such, their content is not only pushed to a broad audience, but a targeted and relevant group. As part of this strategy, they are also getting paid for their publishing efforts.

 

B.F.: What's so new media about a company that's buying up niche content? Isn't that what cable companies have? You're just broadening out the niches?

Rosenblatt: The difference is that we start with niche verticals but add a suite of proprietary new-media tools that transforms the vertical into a fast-growing, user-generated, focused, community vertical with unique, compelling and constantly refreshed content. The other main difference is that we are doing things much more efficiently than traditional media companies. We do not have the same cost structure or approach to producing content, getting distribution or selling advertising. We get content from our users for little to no cost, we leverage partners to sell our ads so we do not need our own ad sales force, and we get a significant amount of traffic from "direct navigation" through our portfolio of domain names.

 

B.F.: You have $100 million to spend. What type of content companies are you seeking to buy? And how much do you want to spend on each property?

Rosenblatt: We are looking at enthusiastic categories that pass a rigorous set of proprietary and confidential requirements. For example, we purchased ehow.com and have relaunched into beta www.wehow.com which demonstrates many of the new media principles we described earlier.

 

B.F.: Why did you need to raise $200 million? That seems like a heck of a lot of money to build content on the Web, which doesn't take that much to build these days.

Rosenblatt: As I said at the Web 2.0. Summit, go big or go home! We think there is a great market opportunity to build the next-generation media platform by combining domains, niche content properties and unique tools and technologies. Size and scale matters, and the capital allows us to secure a market leadership position quickly.

 

B.F.: There are many content companies emerging, with a user-generated component, what kind of user-generated content play would you stay away from, and what are you drawn to?

Rosenblatt: We like all types of user generated content but we feel that (1) there is too much (2) it is not vetted enough and (3) it is not categorized well by vertical. Our goal is to provide users with the best tools to express themselves, allow them to easily search and find what they are looking for based on the vertical they are interested in, and allow them to get to the most relevant content based on its quality as determined by other users. We like user generated content that allows users to express themselves and showcase their personality. We like to focus on things that creating user generated content that has lasting value.

 

B.F.: Are you interested in video UG [user-generated] content companies? If so, what are you looking for? If not, why not?

Rosensblatt: We are interested in video content as one way that users express themselves. We have an announcement coming soon that will show how we are uniquely addressing this market.

 

B.F.: Why don't you like the wiki model? Explain why you won't let people edit others in the eHow/weHow service. (Maybe I misunderstood you at the conference. If so, just please explain your views on wikis.)

Rosenblatt: I do like the wiki model as one component of providing users information. We think it needs to be combined with professional/expert content and individuals self-publishing without the ability for the community to change. By combining all three, the viewer can get three perspectives on the topic they are trying to get information on.

 

B.F.: What did you learn from MySpace about how to make online properties a hit, and how are you applying that to Demand Media.

Rosenblatt: Give the users the right tools and technologies combined with the right incentives to publish and they will do the hard work for you. Understand and focus on the user. Launch features fast and often. Always listen to users and solicit their feedback.

 

B.F.: Do you have plans to work with MySpace as a distributor of your content?

Rosenblatt: Yes, my relationship with MySpace continues to be strong, and I hope to work with them as well as a number of other traditional and new media companies.

 

B.F.: Will MySpace have problems drilling down into niches?

Rosenblatt: I am not privy to their specific plans but they are a very smart and capable group and it will depend on where they decide to focus.