Where Did The Pajamas Media Money Go?

# Where Did The Pajamas Media Money Go?

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The PJM Ad Network is no more, and when you do the math it doesn’t really make sense.

First, to understand why people are so upset right now you have to know that PJM forced their bloggers to accept NO other advertising dollars if they wanted to be part of their ad network. So BlogAds, AdBrite, Google Adsense all had to be stripped from their sites. Only PJM ads could show up.

And so many conservative bloggers bought in and agreed to collectively display ads across their blogs and split the profits based on some sort of distributed model that paid out percentages of the total money made based on monthly traffic.

PJM founder Roger L. Simon addresses the situation today and in doing so attempts to put the blame on the bloggers for not creating enough value:

Actually that part of our business has been losing money from the beginning, so the people getting their quarterly checks from PJM were getting a form of stipend from us in the hopes that advertisers would start to cotton to blogs and we could possibly make a profit. DidnÃ¢â‚¬â„¢t happen. No wonder those people are kicking and screaming now that they are off the dole. I might too. [What’s their beef? I thought most of them were free marketeer libertarians or something.-ed. Go figure.]

So is Simon actually claiming that he paid bloggers more money than was coming in?

I’m sorry folks, but this explanation doesn’t add up.

If you’re not familiar with how advertising works, the most popular ad models on the internets are Cost Per Click (CPC) or Cost Per Impression (CPM). They’re pretty self explanatory and PJM’s ad network was CPM. And with CPMs, ad rates are determined for every 1,000 impressions. So let’s say Donklephant gets 100,000 page views (impressions) in a month and the ads I’m serving up pay an average of a \$1 CPM. The math is pretty easy at that point. Divide 100,000 by 1,000 and multiply that number (100) by the CPM rate (\$1). Result = \$100. Not a lot of money, but at least it covers hosting.

Well, PM claimed they had 29,000,000 impressions a month, and their “Above The Fold” ads have a CPM of anywhere from \$7 to \$4. So let’s just split the difference and say the average PJM network ad made a \$5.50 CPM.

Take 1,000 into 29,000,000 and you get 29,000. Multiply that by \$5.50 and you quickly see that PJM was pulling in \$159,500 a month or \$1.914M a year. Now, that assumes 100% ad capacity utilization, and that’s not realistic. But even at 50% capacity utilization you’re still looking at almost \$1M a year.

And this is where things start making less and less sense.

Because here’s what you do when money isn’t coming in…cut back on how much you pay your bloggers. It’s a pretty simple formula and one that every other ad network online has figured out. Also, very few of the PJM network bloggers were actually making a living off of this thing, nor did they expect to. So instead of shuttering the entire operation, Simon could have easily just cut back on how much money he was paying out.

And sure, there had to be operating costs, but running a site like PJM and an ad network is not a massive operation. The staffing model is distributed by its very nature and can easily be managed by 5 key staff and a network of part time contractors. And even if their operating costs were \$500,000 a year, with the 50% capacity utilization I was talking about before they’d have a nice tidy sum of \$250,000 of profit and \$250,000 left over to pay out to their bloggers.

So going back to why this doesn’t add up…either Simon paid bloggers more than they actually made, which is INCREDIBLY dumb, or he’s lying and just wants to focus on PJTV, which I think is probably a lot more likely. Also, the PJM news portal will remain as is with staff to support it. So where do you think the money to start up PJTV and keep PJM going came from? It doesn’t make ANY financial sense to shut off the ad network and keep the other sites going.

Going forward, will this have a chilling effect on the right-wing blogosphere now that many will be left without enough income to justify blogging? It seems to be that way for Jeff Goldstein because he’s claiming he’s out of work and will need to do something else. Still, I think conservatives were blogging before PJM and they’ll be blogging after.

Oh, and about the whole PJTV fever dream…this from the highly conservative Atlas Shrugged:

And so now the focus is Pajama Television. Have you seen the line-up? Can you rattle off the VLOG talent? Are they still charging for it?

Nuts.

Agreed. Especially if you’ve seen the stuff they’re cooking up over there. The content is AWFUL, as is evidenced by the recent JoeThePlumber/Gaza epic fail. Why anybody would pay to watch it is beyond me.

Regardless, even though I don’t agree with many PJM bloggers, I do feel bad for them. This wasn’t fair, and Simon’s incongruous explanation and then slamming them for not accepting his decision given that they’re libertarians is really classless. Because the reality of business is that when you enter into an agreement with people that states they have to give up ALL of the other revenue streams and now only rely only on you for income, well, they actually believe you’re going to manage funds correctly. Not only that, people start counting on the money you give them to plan their lives. Go figure!

But hey, now this will force them to pick themselves up by their bootstraps and find other avenues. I mean, I’m sure there are plenty of blogging jobs out there, right?

The free market will provide.

• http://www.bloggerinterrupted.com Tim Russo
• John

It’s like a dream come true. The herding and cliff-diving that marked all analysis and policy from the Right the last 8 years now expresses itself anew, in the economics of one of their mightiest blog networks.

• Thomas

Pretty funny that a conservative website operation ran out of money. Seeing any parallels with the conservatives running the country? These guys talk a huge “capitalism” game, but when it comes to doing it themselves, they’re as bankrupt as academics and economists.

• http://blog.dlewis.net Dan

I have no affiliation w/PJM whatsoever. I follow ad networks, though, having negotiated a number of contracts there. There is *no way whatsoever* that PJM was able to fork over \$4 to \$7 CPM and not do so at a loss.

If you need evidence of that, check out the history of Glam, a fashion/lifestyle network, and specifically http://www.techcrunch.com/2008/03/29/glam-makes-big-cuts-in-publisher-payments-up-to-80-drop-in-revenue/

The basic idea behind these networks is to buy exclusive rights on a blog at a premium (that is, at a loss for the network) in order to get to scale. You aggregate millions of unique visitors per month, targeting a specific demographic. Once you hit scale, everything is easier, including selling ads and finding ways to get more impressions for a lower CPM from publishers — that’s the sweet spot. Then, and only then, are you going to profit.

Given the numbers — \$4 to \$7 CPM and only 29MM pv/month — I’d be shocked if PJM were running anything other than a horrific loss. Let’s say they had a well-optimized remnant chain (\$1 CPM) and in a below average month, sold 50% at \$3 CPM. (I think those assumptions are on the high end, for what it’s worth.) Let’s also assume that they paid out \$4 CPM that month, also assuming best case scenario for PJM’s profitability. That’s a loss of 29k*\$2 = \$58,000 that month. One could imagine that happening 4x a year, with few if any significantly profitable months. Even conservatively, PJM was probably running a loss in the hundreds of thousands of dollars **just to acquire ad space**.

• http://www.donklephant.com Justin Gardner

Dan,

I didn’t say they were paying out \$4-\$7CPM to their bloggers. I’m saying they were charging \$5.50 CPM to their advertisers and most likely selling 50% of their space and then giving a portion of that to their bloggers. But your numbers are sobering if they did indeed guarantee payment, which I think we both can agree would have been HIGHLY foolish.

I’ve followed the Glam situation very closely, but I’ve also followed Break Media, which had a banner year. Either way I think the shop was obviously mismanaged in some respects.

• http://www.donklephant.com Justin Gardner

Tim…

Whoa.

Yeah, who wouldn’t want to pay \$25 a month to see those all-stars?

• http://blog.dlewis.net Dan

Justin — I heard elsewhere that the \$4-7 amount was what was passed to bloggers. Either way, they had to do something like that, as no one is going to give away an exclusive sales relationship (and assumedly, comscore credit) for nothing. Guaranteeing payment in that type of world is very common, although typically it’s done in ways which limit the hit the network may take.

One network I talked to offered \$3 CPM, guaranteed, but if you read through the contract, it didn’t quite work that way. They estimated the # of impressions you could serve for a year, and wrote you checks in four installments at that impression amount times the \$3 CPM. You agreed to send them at least that many impressions throughout the year.

But that check was as an advance against a rev share. So unless the network was able to consistently sell ads at >\$5 CPM (\$3 to publisher after share), there’d be unused parts of that advance after the threshold impression number lapsed. As this was an exclusive contract save for direct sales sourced by the publisher, all impressions after the threshold one had a value of \$0.

That may sound onerous, but for larger publishers, it isn’t. If I’m doing 10MM impressions a month, guaranteeing \$30k in monthly revenue is probably a huge win for me. And the odds of me having a month with 3x impressions is virtually zero.

On the other hand, for small publishers, it’s a big risk. Let’s say you’re doing 150k impressions/month. Guaranteeing yourself \$5k in annual revenue is great. But you could very easily have a day where one of your posts goes absolutely crazy and draws 250k itself. Or maybe your blog traffic grows and suddenly you’re doing 500k imp/mo. All that growth just lowers your effective CPM. Kinda sucky.

• Mickey D

Without going into the specifics (it would violate what’s left of my contract), I can tell you that payment was made per 1000 impressions, and that a sliding scale was used. The most paid was \$2. To reach that, one had to have over a million impressions in that quarter. Below 100K impressions, and your received nada.

What this means is that sites like IP and Malkin consumed an awful lot of the money. Good for them, bad for the rest of us.

• http://blog.dlewis.net Dan

Mickey, that changes a lot. Thanks.

• http://www.donklephant.com Justin Gardner

Mickey, first off, thank you SO much for sharing this info. It’s invaluable to figuring out what happened. Long story short, I remain convinced that PJM execs are not giving you all the full story.

Dan, this does indeed change a lot and I’ll be sharing an extensive breakdown of this situation tomorrow morning. The post is extensive, but I think it proves my previous assertion that for PJM to be running at a loss from day one is almost inconceivable from a business standpoint.

• http://www.bloggerinterrupted.com Tim Russo

justin…..those faces weren’t made for radio. they were made for the internet!

• http://www.donklephant.com Justin Gardner

Haha, well, we’re all beautiful to somebody Tim.