Yet another new media model

January 14, 2010: 6:00 AM ET

Online publisher Stratfor provides news and information people are willing to pay for.

George Friedman is not in the business of journalism. He wants to make that clear. But while traditional media organizations are on the decline, Stratfor, the Austin, Tex.-based global intelligence company he started in 1996, is on the rise as readers look for alternatives to the ailing international sections of their daily papers.

Stratfor publishes online analysis of global events. An increasing number of respectable thought leaders and mainstream publications are relying on the company's briefings. Its subscriber base is growing. And earlier this month, Friedman brought on journalism veteran Robert Merry as publisher. Merry covered Washington for the Wall Street Journal for 12 years before moving to the Congressional Quarterly, where he spent his last 12 years as president and editor-in-chief.

Stratfor's big bet is that while news organizations may be declining, people still need to understand the news and they'll be willing to pay for that analysis.  While News Corp. (NWS) Chairman Rupert Murdoch debates this in public forums, Friedman simply charged for the company's analysis of international news and security issues starting shortly after the company launched its website in 1999. "We weren't as sophisticated as others were," explains Friedman. "We knew we needed revenues to keep the business going."

Stratfor's only business is subscriptions, and it relies on two types of customers. The bulk of its readers subscribe through corporate accounts. Companies like American Express (AXP) or Microsoft (MSFT) buy licenses for groups of employees. Individual subscribers comprise a smaller group with a subscriber base of just 24,000, but Friedman says this is where Stratfor is seeing fast growth. Stratfor's list price is $349 for a year, but discounts bring it as low as $99, making it competitive with publications like the Economist. Friedman boasts an 80% renewal rate among these subscribers.

Bringing new meaning to the term "paid content"

So what differentiates traditional journalism from Friedman's briefings? Stratfor offers an interesting alternative model for how to gather news and create analysis profitably. A staff of intelligence analysts makes sense of world events and formulates predictions. These analysts are mostly younger people who attend several semesters of an analyst development program and then may be hired on. Writers are older and more experienced. Much of the news comes from sources, many of whom are paid by Stratfor.

To insure their sources are solid, Stratfor employs a monitoring system. To pick up sources in Lebanon recently, the company brought in six prospects and then dropped four after watching the intelligence they reported over time. "We reward them for their honesty," Friedman explained. Much like traditional journalism, he also aims for an ideological balance, insisting that the company's intelligence is not shaped strongly by one point of view.

Having self-funded the company, Friedman says Stratfor is profitable. For now, he's investing most of those profits in building the business itself. This is where Merry comes in. "Newspapers started eroding the value of the content instead of enhancing it and charging for it on the web," Merry says. "They put themselves on a trajectory that was destined to be catastrophic." He sees potential in Stratfor's model. Having tripled revenues while he was at Congressional Quarterly before selling it to the Economist Group last year, Merry hopes to repeat the performance.

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About This Author
Jessi Hempel
Jessi Hempel
Senior Writer, Fortune

Jessi Hempel is a New York-based technology writer for Fortune. She has written extensively about digital media, online advertising and social networking. Before joining Fortune in July 2007, Hempel worked at BusinessWeek and most recently served as their innovation department editor. Hempel is a graduate of Brown University and received a Masters in Journalism from The University of California at Berkeley.

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