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This Company Broke the Online Ad Model for Fun and Profit

An advertising executive and a rock-and-roll musician figure out how to make money in publishing by using an old-school business model.
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Attend an online media conference and you're bound to meet a lot of depressed people. Rates, driven by an effectively infinite supply of inventory, have politely obeyed the law of supply and demand and fallen into the pits. Even major outlets like the New York Times can get clobbered by "struggles in both print and online advertising."

In that atmosphere, a newcomer like Joel Babbit, CEO of Mother Nature Network, would likely do well to stay mum. Because Babbit's baby, an environmental news site, is doing well, thank you very much. Finally having hit 10 million visits in April, according to Google Analytics, the four-year-old site is also in the black--between $300,000 and $500,000 in profit last year--and expects between $5 million and $6 million in revenue in 2013.

What did Babbit and his partner Chuck Leavell, keyboard player for the Rolling Stones, do to merit the money? They focused on quality of content and a business model that didn't assume a broken form of advertising as its foundation.

The Environmental Missing Link

Babbit may have been new to publishing, but he was well versed in media, having spent decades in advertising agencies. Over time, he saw a growing interest in environmental information. "Clients would be talking about allocating more money to environmental messages and creating campaigns about their environmental responsibility, he says. "At times I would have no idea what they would be talking about."

He'd try to research what was clearly becoming a mainstream topic, but found that most everything was written for scientists, policy wonks, or political partisans. He met Leavell, who was deeply into environmental issues, and started to see that a site with news and clear information on the environment could be a hit. Babbit was well connected and, after conversations with a former head of the ad agency Young & Rubicam, the CEO of Georgia Pacific, and a childhood friend who was part owner of the Atlanta Falcons, he literally had $6 million in start-up money within 24 hours.

That money would help fuel development and a staff of 32--28 of which are staff journalists updating the site multiple times a day. But, as too many start-up examples have shown, initial capital is nothing without a way to ultimately make money. Eventually all the good intentions and stories posted, no matter what quality, would fall apart because there would be no money to keep the operation going.

The media business was already over-populated when it came to getting ad dollars. "It's just so ineffective," he says. "It has to be at its all-time low. [You also] have an overwhelming majority of Internet publishers where there's no way in the world they're going to make enough money putting out a product with the traditional CPM [cost per mille, or thousand views] product."

Hello Past, Meet the Present

So instead of the current state of ad models, Babbit looked back to an older period of media, when companies would be the single sponsor for entire radio and television programs.

As television production became more advanced, and more costly, companies could no longer routinely sponsor an entire program, so the model moved to the commercial segments we know today. But that doesn't mean it continues to be the most sensible approach as media moves online. The newest direction seems to be so-called content marketing. But there's a problem.

"Almost no corporate site, none of them, gets any traffic at all," Babbit says. "They do these great articles, they have people do tremendous videos for them. The quality is exceptional, but nobody goes to corporate sites. The question is not whether they need content and good content; they know that, but they can't just put it on their site. They need to create sites or buy sites that are lifestyle oriented and not Microsoft.com and Loreal.com or Cocacola.com." Or they can sponsor sites like MNN.com.

Babbit put together the past and present and settled on sponsorships. Companies could become the sole sponsor of a given section for $300,000 for a year, though they would get no veto power over material, even if it covered them unfavorably.

"I bet I have not ever had a sponsor presentation where I'm trying to sell the sponsorship and someone says, 'Let's just assume some disaster happens. Is it possible that would be reported on the same page we're sponsoring?'" Babbit says. "My answer is it's not possible, it's definite. And if we didn't do that, you wouldn't want to be our sponsor because we'd have no traffic and no credibility."

Apparently the whole approach works. The site sees a 90 percent sponsor renewal rate.

Last updated: May 10, 2013

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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