Publishers Are Buying Digital Start Ups for New Revenue Sources

It's no secret old publishing businesses like those run by News Corp. (NASDAQ: NWSA  ) have been struggling for years to find ways to adjust to the rapidly changing media environment as consumers continue to gravitate toward digital platforms as their preferred way to consume content.

To that end, News Corp. and The E.W. Scripps Company (NYSE: SSP  ) have both acquired digital properties focusing on digital video content. News Corp. just acquired Storyful, dubbed the first social news agency, for $25 million, while a week before E.W. Scripps bought online news outlet Newsy for $35 million.

News Corp. was spun off as a stand-alone company from what is now named Twenty-First Century Fox (NASDAQ: FOXA  ) earlier in 2013 . It includes book publishing and newspaper companies, among other businesses. Twenty-First Century Fox includes the Fox News Channel, the broadcast TV network, and the 20th Century Fox movie studio.

Twenty-First Century Fox
Since operating without the publishing arm of the company, Twenty-First Century Fox has done very well. First-quarter fiscal 2014 revenues for the overall company came in at $7.06 billion, according to its earnings report. 

Affiliate revenue climbed 17% and advertising grew 11% year-over-year. Affiliate fees were led by the domestic market, where it grew by 10% in the first fiscal quarter. Leading channels included Fox News, FX and RSNs. Domestic advertising revenue rose 6%, and international ad revenue soared 21%, though it was offset by currency movements.

What is especially interesting about the acquisition of Storyful by News Corp. is if it will sell product to Twenty-First Century Fox, and if that will significantly benefit both companies in the years ahead, when digital video becomes a major revenue growth engine.

What is Storyful?
Billed as the "world's first social news agency," Storyful fits that description nicely with the services it offers. The company searches social networking sites for user-generated videos, which it then "verifies, acquires and distributes" to its various partners.

Essentially, it takes the concern for reliability and accuracy out of the equation so media companies can confidently post the content on their various platforms. As of mid-December, user-generated videos that Storyful has verified have received approximately 750 million views for 2013.

The second benefit of the acquisition of Storyful is its ability to identify videos that have strong potential to go viral and secure the rights to the content before it does so to generate revenue. This is where the company's value comes in.

Advertisers have said they're willing to pay more for premium digital video, which is the most lucrative of all digital ad forms on a per ad basis. Digital video ads will lead the way into the future, and when included with mobile devices, will be the impetus of the industry for years to come.

Once a video takes off, those positioned the best will reap huge rewards. News Corp. gets that with Storyful, and with its size will be able to scale it out quickly as it commits resources to it.

I like how this is changing the business model of News Corp. It isn't trying to unrealistically shore up its paper publishing arm, but instead is focusing on alternative revenue streams associated with digital advertising and content.

Newsy and E.W. Scripps
Scripps is doing something similar in that it will increase its digital video ad-supported footprint via the acquisition of Newsy. The difference is that it won't be a stand-alone business like Storyful, as it'll operate as a more regional and local news outlet for its partners' and Scripps' video content.

It is also focusing on the changing news consumption habits of consumers, who are increasingly using mobile devices as their screen of choice. Again, combining mobile and digital video in a way that can be monetized is the key future growth engine of the industry.

What Newsy basically does is provide comparative videos from a variety of news sources in order for viewers to get a grasp on the entirety of the story.

The good news for E.W. Scripps is Newsy has a strong brand and should bring immediate growth to the bottom line of the company. It already has partnerships with Microsoft, AOL, and a number of other companies, although it hasn't been made clear yet if those partnerships will continue in the future.

Future of publishers
It looks like News Corp. and E.W. Scripps are showing investors what old-school publishers have to do in order to not only survive, but to grow in the digital age. The fact that they can identify the importance of premium video in the digital advertising space is good news for shareholders.

Continue to do your own homework on this subject and these companies, and remember that those doing well in the mobile and digital video ad sector will be the growth leaders of the future.

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