ISO digital media’s Holy Grail

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The ever-evolving challenges — and potentially lucrative opportunities — in digital media were on display in Baltimore Thursday for a roomful of venture capitalists, who are always on the hunt to bet on the next big thing.

“Engagement” was one buzzword heard repeatedly at the second day of the Mid-Atlantic Venture Association’s Capital Connection conference, where a panel of digital media executives — including the senior vice president of digital operations at The New York Times — analyzed the shifting habits of consumers and what that means for publishing and advertising.

Another was “change,” as Advertising.com founder Scott Ferber, in a separate talk, discussed the radical shift his new company, TidalTV, was forced to make over the past year to survive not only the fast-moving changes in Web media but also the worst U.S. recession since the Great Depression.

Capital Connection is MAVA’s annual showcase for technology startups seeking anywhere from $1 million to $15 million in funding. This year’s conference features 40 companies making pitches to VC firms, as well as 11 mid-to-late-stage technology companies and an array of guest speakers from the digital media, online education and cybersecurity worlds. About 500 people were expected to attend.

Facebook and Apple’s iPad, executives said Thursday morning, are just two things that may be showing beleaguered newspapers and broadcasters a way out of the business wilderness. Readers and viewers have flocked to the Internet for free content — and undercut advertising rates — and expensive production and distribution costs have squeezed profits for traditional media.

Mobile technologies and new ways to target and contextualize online advertising are other developments that hold promise for digital media, especially as the Internet moves from a search-based one — think Google — to a platform dominated by social interaction, as seen with the hugely popular Facebook.

There are also “simple publishing technologies” like Twitter to consider and services such as Foursquare that merge social media with aspects of video games, said Martin Nisenholtz, senior vice president of digital operations for The New York Times.. All are exerting significant influence on how The New York Times delivers its online product, and also what users expect from its content,

“This is not really a sideline to our business anymore,” he added.

In 2007, Ferber was certain there was a lucrative opportunity in a concept called “TV Everywhere.” The venture would tap what was then a $70 billion television advertising market, he said, by taking TV to computers and mobile devices.

Ferber — who’d sold his first company, Baltimore-based Advertising.com, to AOL in 2004 for $435 million — quickly forged deals with the Discovery Channel and other broadcasters for programming he could offer for free on his website.

Then his company, TidalTV, was hit with the launch of Hulu.com, an on-demand programming website formed by NBC, ABC and Fox. Then the financial crisis hit in fall 2008. TidalTV, which had pulled together $15 million in venture capital, had six months of cash on hand and no sustainable business model.

“We’ve got to kill this concept of a destination site,” Ferber said he decided of his original plan for TidalTV. Instead, the focus would shift to “right ad, right time, right person” — using proprietary technology to more effectively deliver video ads to people, based on location and demographics.

Ferber said that in the last year, TidalTV has outperformed Advertising.com in that company’s first 12 months of business, and it wouldn’t have been possible if he hadn’t been willing to embrace change. He also closed a $16 million Series B round of venture capital in February.

“The success of this strategy is pretty clear to my investors,” he added.

Investors and entrepreneurs are paying close attention to how some other high-tech business strategies play out in the region.

Millennial Media, for example, is a Baltimore-based firm developing an advertising network for wireless devices. The company has raised $40 million in venture capital, in part because mobile consumers have shown a willingness to pay for content, CEO Paul Palmieri said during the panel discussion.

He cited Apple’s iTunes service as an example. Consumers pay 99 cents for a song – and $2.99 for the snippet of that very song to have as a ringtone for their cell phone.

“There’s something magical about mobile,” Palmieri said. “Anybody who’s on the Web should find a way to emulate mobile and go after it.”

For the New York Times’ Nisenholtz and Neil Patel, publisher and CEO of The Daily Caller, a new political website, that magic formula has a heavy dose of engagement — grabbing and holding onto readers with content that makes them stay on their websites.

The New York Times is betting that its online audience is loyal enough to pay for content: The company said in January that it would soon begin charging for access to its articles and other features.

The challenge, Nisenholtz said, is “creating that emotional bond that causes people to want to convert to paying customers.”