In an interview with CNBC, Gary Hoenig, general manager for ESPN The Magazine, says the economic downturn put advertising in the hot seat:

... the overdependence on advertising is a real crutch for media and this is an opportunity for us to actually get to the consumer and say, "Hey, what are you willing to pay for"?

The advertising conundrum is something I've run up against throughout my career. In an odd way, my focus on Web content forced me to confront the detriments of advertising earlier than my print and broadcast comrades because Web ad rates have always been low. The rest of the industry is learning what Web folks already know: ad revenue kinda sucks.

When I started to conceptualize a sustainable model for online content businesses -- a project I've been working on for quite a while -- I pushed advertising to the back burner. It's still present, and money can certainly be made in the online ad realm, but it's a rickety foundation for a content business. That's why I diversified the revenue streams across naturally scarce products (education, consulting, research, in-person events), sponsorships, and advertising. The aggregate is far more stable than advertising alone.

And speaking of that sustainable model for online content businesses project: each section includes a comments area, and I welcome all suggestions and criticisms. The model's fundamental concepts aren't original, and I'm certainly not positioning this as anything revolutionary. Rather, it's a collection of ideas, theories and guidelines that I collected over the years and arranged into a structure. What it becomes and where it goes are up in the air, but I found the organization and writing process quite useful. The framework helps me parse the vast number of perspectives and innovations I run across.

I tend to side with Chris Anderson, Mike Masnick and other free proponents, but Malcolm Gladwell makes salient observations in his review/counter-point of Anderson's new book, "Free: The Future of a Radical Price." The following excerpt deflates grandiose notions of free economies revolutionizing society:

Anderson begins the second part of his book by quoting Lewis Strauss, the former head of the Atomic Energy Commission, who famously predicted in the mid-nineteen-fifties that "our children will enjoy in their homes electrical energy too cheap to meter.

Anderson wants to take "too cheap to meter" seriously, because he believes that we are on the cusp of our own "too cheap to meter" revolution with computer processing, storage, and bandwidth. But here is the second and broader problem with Anderson's argument: he is asking the wrong question. It is pointless to wonder what would have happened if Strauss's prediction had come true while rushing past the reasons that it could not have come true. [Emphasis included in original.]

I appreciate Gladwell's perspective because he's anchoring the free discussion in reality. Free isn't a cure-all, nor does it apply to every market or product. But in my sandbox -- digital content -- it absolutely factors into the gameplan because virtually all digital material can be copied infinitely with no degradation. When you're dealing with an infinite good, you have to acknowledge the limits and opportunities of giving that material away because a certain percentage of the consumer population is going to take and copy it anyway. You can spin your wheels with DRM and lawsuits, or you can accept the reality and find ways to use freely distributed content to convert readers/viewers/users into customers who pay for related, naturally-scarce products. To me -- and to most non-utopian, normal folks -- free isn't a cultural movement, paradigm shift, or religion. It's a tool.

What I find most interesting about the iPhone App Store gold rush is the way Apple is combining its platforms -- online, mobile, traditional advertising -- to benefit the company and external developers.

From the New York Times:

IBird was one of three applications that appeared in the [advertising] spot, and while it got only about seven seconds, that was all it needed to become the No. 1 "reference" app in the iPhone App Store, a software star among the 35,000-plus applications now crowding the store's shelf. [Link added.]

On a broader level, the more I study the interaction between the Web, audiences and revenue streams, the more I'm convinced that platform, naturally scarce products, and attention are the most important resources in the digital realm (they're important off-line, too, but geography and other physical elements shift the dynamic).

I know economists would smirk at my elementary platform-scarcity-audience analysis, but there's another component here: sustainable digital businesses arise when all three elements are present. That's one key difference between Twitter -- which has platform and audience, but no scarce products -- and Apple.

Hand-Picked Related Links

• iPhone Ads (Apple)
• Coder's Half-Million-Dollar Baby Proves iPhone Gold Rush Is Still On (Wired)
• iPhone Developers Go From Rags to Riches (Wired)
• There's Gold In Them iPhones (Newsweek)

As the Seattle Post-Intelligencer joins the ranks of the online-only, Gawker's Hamilton Nolan makes the case for media outlets "doing less with less":

Instead of clinging to its old model unto death, a newspaper could ask itself: How much of this crap in our paper do we actually need? How many papers need a food section or a fashion section? None, really, if they don't bring in ad money. The Seattle P-I is focusing on what it needs: Seattle news and commentarianism. Local papers could cut back to covering local governments, sports, and crime. The number of US papers that can truly justify publishing a book review, or a weekly magazine, or extensive movie coverage can be counted on fewer than one hand's worth of fingers. [Emphasis included in original post.]

Every media form -- newspapers, magazines, TV shows, etc. -- is covered in fat, and it's high time organizations cut the blubbery detritus from their offerings. But I've got misgivings about the Seattle P-I's new set-up, even though its proposed lean-and-mean model seems sound:

The message is that Hearst executives believe they can produce the essence of what they do now -- a local-news product, with a personality, that offers unique, high-quality content -- with 20 journalists who both cover news and curate everything else on the internet to give their readers a package that gives them a sense of what is happening in their town.

Here's the rub: it's infinitely easier to aggregate other people's coverage than to create your own (the blogosphere's exponential growth is driven by this essential truth). Yet, for all the frustrations and costs incurred from crafting content, original material is one of the Web's naturally scarce products. It has built-in value.

The P-I's editors are going to face their own Dagobah challenge: can they resist the dark lure of aggregate first, report second? Can they follow Jeff Jarvis' advice and "cover what you do best and link to the rest"?

Hand-Picked Related Links

• New rule: Cover what you do best. Link to the rest
• The Upside of the Seattle Paper's End
• Hello and Goodbye to the P-I
• The Realities and Opportunities of Web Content Business Models
• The 10 Major Newspapers That Will Either Fold or Go Digital Next