… Facebook bought the thing that is hardest to fake. It bought sincerity.

– Paul Ford, writing about FaceTagram in New York Magazine

Who wants to bet on a Web company with lots of users but very little revenue? The same people who bet on it before. Spark Capital and Union Square Ventures have poured another $5 million into Tumblr, which lets people quickly and easily set up lightweight blogs.

Three-year-old Tumblr doesn’t charge its 4.5 million users for the service. It doesn’t sell advertising on the page views they generate. And it is only now beginning to generate “meaningful” revenue, says founder David Karp. (That’s Karp, flanked by two employees, engaged in some kind of new-fangled xtreme sport, on the cover of this week’s New York Magazine)

But this hasn’t dissuaded Spark and Union Square, the sole investors in the company’s C round, as well as its B round in 2008.* The company has raised $10.2 million to date.

So now what?

Karp, who turns 24 this summer, says his company has “carved out a real and substantial niche” in the last year, and he brandishes numbers to bolster his case. The service, for instance, is now generating one billion page views a month. Here’s a chart! (Click to enlarge.)

But until recently, Tumblr’s growing popularity hasn’t done much beyond racking up big infrastructure bills. Now Karp says the company is changing this by rolling out a series of paid services.

The Los Angeles Times has a nice summary of new services, and Karp says there are a “dozen more in the pipeline.” But the short version is that these are primarily bells and whistles–like digital “stickers” you buy for your friends at a buck a pop–that passionate Tumblr users may like, but don’t need.

This is a switch from the company’s earlier plan to bundle lots of must-have features into a “Tumblr Plus” subscription service aimed at its most passionate users.

The new strategy is a little more seat-of-the pants, but the bet is that it may be easier to coax money out of people a couple dollars at a time.

Not coincidentally, this is the same model that’s working out very well for social gaming companies like Zynga, which is also funded by Union Square Ventures (and to a lesser degree OMGPOP, which is backed by Spark).

Zynga is reportedly profitable, and many have it pegged for an IPO in the near future. I don’t see that in Tumblr’s cards, but if Karp and crew were interested, I can see them attracting interest from the likes of Google (GOOG) and Yahoo (YHOO) sooner than later.

Maybe sooner in Yahoo’s case, if it can’t snap up another company whose CEO also graces New York Magazine’s cover this week.

*“Inside rounds” like these are supposed to be no-nos in the VC world because existing investors traditionally want to find new money to validate their wagers. For the counterargument, consult Tumblr investor Bijan Sabet’s blog (hosted by Tumblr, of course).

My colleagues are lapping the last one up, with good reason: The OK Go are fun to write about, because they make cool videos and because lead singer Damian Kulash is very quotable when he talks about the state of the music business and his band’s relationship with EMI.

For instance, here’s a stinging part of his exit interview with New York Magazine today:

Q: What other problems were you having with EMI?
A: ?The issue is that they just don’t have any money. The reason a band signs with a label is because they can provide start-up capital, and their business model has sort of collapsed. There was lots of little bones of contention, like when there were chances for us to promote things and they just didn’t have the money to do so. It was a lot easier to be generating the budget ourselves or through corporate partners.

EMI has issued a boilerplate quote wishing the band success–it’s going to create its own label–and leaving it at that.

And EMI does have real money problems. In part because everyone who sells music right now has money problems and in part because private equity fund Terra Firma paid too much and took on too much debt when it bought the label three years ago.

But here’s the thing. If EMI’s executives allowed themselves to speak candidly, they would likely point out that while the OK Go made great videos, it didn’t seem to make music that many people wanted to buy.

Soundscan says the band has sold all of 500,000 albums in the U.S., both in physical and digital form, in its three-album tenure at EMI. That’s 488,608, to be exact. Plus another 25,000 single tracks.

That’s not awful. But it’s not the kind of sales that would inspire a big label to spend big money promoting an act. Even when the industry’s business model was still intact.

But the band really does make nice videos that people like watching on Google’s (GOOG) YouTube. If it can figure out how to turn these into dollars, it’s all set.

OK Go–This Too Shall Pass from OK Go on Vimeo.

Eve Epstein, an eight-year veteran at the site who has run the edit side for the past three years, is moving from New York to Los Angeles. She’ll stay with DailyCandy, though, as creative director of Swirl, an online sample-sale site that wants to take on the likes of Gilt Groupe.

The move is one of several high-profile changes at DailyCandy within the last few years. The biggest, of course, was when Bob Pittman’s Pilot Group sold the company to Comcast (CMCSA) for $125 million in the summer of 2008.

CEO Pete Sheinbaum moved on last May, and his role was eventually filled by Hearst Digital’s Beth Ellard in August. In December, the company began paring back some of its local editions and laid off some staff in the process. And assuming the deal with GE (GE) and NBC Universal goes through, DailyCandy will end up as part of that combined company (unlike other Comcast digital assets, which will stay with the mother ship).

Here’s a release from DailyCandy that the company was kind enough to provide to me when I called up to confirm the hire. Take note, fellow publicists! This is excellent service!

DailyCandy, the free lifestyle daily e-mail newsletter and website, is hiring Janet Ozzard, editor of New York Magazine’s The Strategist, to be the company’s new Editor-in-Chief. Janet is replacing Eve Epstein, who left DailyCandy to become the Creative Director of Swirl.com, DailyCandy’s new sample sale site which launched in beta late last year.

“New York Magazine’s Strategist section is widely regarded as some of the best content in publishing today,” said Beth Ellard, GM for DailyCandy.  “Janet brings significant editorial experience, strong leadership skills, and a fresh, innovative perspective to DailyCandy, and she will be fantastic in her new role as Editor-in-Chief.”

Janet will be starting with the company in early March.

The publisher hasn’t said how much it will charge readers and isn’t offering many other details for now. But subscribers to the print edition will be able to access the site for free.

By adopting the “metered model,” the New York Times (NYT) is emulating the Financial Times, which lets readers peruse up to 10 stories a month before forcing them to buy a subscription to the online paper.

That model isn’t all that different from the subscription strategy employed by News Corp.’s (NWS) Wall Street Journal: While much of the Journal is theoretically behind a pay wall, it’s a fairly permeable one designed to give both casual readers and search engines access to the content. (News Corp.’s Dow Jones owns both the WSJ and this Web site).

Both are have-cake/eat-cake strategies: Generate as big an audience as possible to sell to advertisers while extracting a second revenue stream from hard-core readers. The Times, which is reportedly generating $100 million a year from Web display ads, wants to do the same thing.

The paper has tried a pay wall before. In 2005, it rolled out “Times Select” whereby it cordoned off access to op-ed columnists like Thomas Friedman and to archived stories and other features. That strategy generated around $10 million a year. But it was considered a failed experiment, and the Times dropped the wall in September 2007.

Now, of course, $10 million a year sounds like a nice boost for a paper that lost more than $35 million in its most recent quarter and saw print ad revenue plummet throughout the year.

A New York Magazine story published on Sunday predicted the timing of the announcement, even though New York Times executive editor Bill Keller told me the piece was “long on speculation.”

The New York Times Announces Plans for a Metered Model for NYTimes.com in 2011NEW YORK, Jan 20, 2010 (BUSINESS WIRE) — The New York Times announced today that it will be introducing a paid model for NYTimes.com at the beginning of 2011.
The new approach, referred to as the metered model, will offer users free access to a set number of articles per month and then charge users once they exceed that number. This will enable NYTimes.com to create a second revenue stream and preserve its robust advertising business. It will also provide the necessary flexibility to keep an appropriate ratio between free and paid content and stay connected to a search-driven Web.
Through 2010, NYTimes.com will be building a new online infrastructure designed to provide consumers with a frictionless experience across multiple platforms. Once the metered model is implemented, New York Times home delivery print subscribers will continue to have free access to NYTimes.com.
“Our new business model is designed to provide additional support for The New York Times’ extraordinary, professional journalism,” said Arthur Sulzberger, Jr., chairman of The New York Times Company and publisher of The New York Times. “Our audiences are very loyal and we believe that our readers will pay for our award-winning digital content and services.”
“This process of rethinking our business model has also been driven by our desire to achieve additional revenue diversity that will make us less susceptible to the inevitable economic cycles,” said Janet L. Robinson, president and CEO, The New York Times Company. “We were also guided by the fact that our news and information are being featured in an increasingly broad range of end-user devices and services, and our pricing plans and policies must reflect this vision.”
More details regarding the metered model will be available in the coming months.

[Image credit: etoile]

There are lots of media companies anticipating the tablet–the entire magazine industry, for instance–and Apple (AAPL) will eventually want all of them on board. The wondertablet is supposed to be a showcase for media, after all.

But very few media companies seem to have any kind of real information about the device. And only a small number will have new stuff to show off at next week’s unveiling.

Like who? Here’s a starter list of likely and unlikely suspects:

• The New York Times is a good bet. Executive Editor Bill Keller riled up the Web with a passing reference to an “impending Apple slate” in October, but wouldn’t say more. Last week, I asked Keller again about his paper’s Apple plans, and he stayed mum again. So did Martin Nisenholtz, the paper’s digital boss. “No comment” doesn’t equal “we’re cooking something up,” of course. And I’m not convinced that an Apple demo would be directly tied to an announcement about a new pay wall strategy, as New York Magazine speculated Sunday. But I do expect to see something from the New York Times (NYT) at next week’s launch.
• Don’t expect much from the big music labels. Jobs courted Big Music when he opened up the iTunes store in 2003. But label sources I talked to this month said the company had only recently begun briefing them about the tablet, primarily as a “courtesy.” Recall that Apple already has the labels on board with the “iTunes LP” format, which would lend itself quite nicely to a tablet. One label official told me Apple has expressed an interest in selling higher-quality audio files via iTunes, and I’m sure the labels would be happy to do so if they can charge a premium for them. But that discussion doesn’t seem to be tethered to the tablet.
• Do expect to hear about “enhanced e-books.” In the past, Jobs has been dismissive about dedicated e-readers like the Kindle from Amazon (AMZN) and reading in general–“people don’t read anymore.” He has apparently changed his mind about the latter opinion: The Wall Street Journal confirmed earlier stories yesterday with a report that News Corp.’s (NWS) HarperCollins is negotiating to bring some of its titles to the platform. Presumably other publishers–all of which are eager for viable Kindle competitors–want in, too.
• Video? Duh. But who? The most obvious suspect here for an initial launch would be Disney (DIS) and its affiliates. In part because Jobs is both the company’s largest individual shareholder and a board member. But also because Disney CEO Bob Iger has made a point of trying out new digital distribution strategies. Here’s a nonstretch: Disney’s ESPN is already negotiating with Microsoft (MSFT) to bring some of its programming and games to the Xbox 360. What about something similar for the tablet? UPDATE: ESPN won’t be announcing anything in conjunction with Apple next week, says someone who knows.
• Time Inc. won’t be there, according to people familiar with Time Warner’s publishing unit. The same likely applies to rival Conde Nast.

A crucial point here is that if the tablet works with the iTunes store–and it should–it is most likely that all of the Apple’s existing iTunes media partners will automatically be on the new device from the start whether Jobs showcases them next week or not. That is: If you can buy “Cars” and watch it on your Mac, iPhone or iPod, then you should be able to watch it on your tablet, too.

But we’re in pre-Apple announcement mode now, and simply porting old media to a new device just won’t sate our needs! So consider this report a work in progress, and a speculative one at that. I’ll be updating if and when anything new comes to light.

That’s part of the pitch that Evercore Partners has been making to investors on behalf of McGraw-Hill (MHP), which wants to dump BusinessWeek.

The New York Times’s Stephanie Clifford gott her hands on the offering memo Evercore has been circulating to potential bidders, who are supposed to submit offers by today. Reportedly in the mix: Bloomberg; ZelnickMedia; New York Magazine owner Bruce Wasserstein; OpenGate Capital, which bought TV Guide last year for $1 plus debt; and Platinum Equity, which is bidding for the New York Times’s (NYT) Boston Globe.

In a story published yesterday, Clifford reviewed the magazine’s financials, which are miserable. Ditto for the magazine’s Web site. Today she points out Evercore’s plan to entice buyers: A ready-made layoff plan that would lop off 20 percent of the magazine’s staff.

The Evercore memo says the layoffs are actually “in process,” an assertion that seems to surprise BusinessWeek’s staff, which has seen no sign of layoffs. So best to interpret these numbers as suggestions, not plans. That said, here are Evercore’s suggestions:

In editorial, 55 of 217 positions are supposed to be eliminated. Of sales, 9 of 69. Of marketing, 6 of 26. Of technology, 8 of 33. Of circulation, just one of 19. And in the “other” category, 6 of 57. That’s a total of 85 eliminations among 421 jobs – about 20 percent – leaving 336 BusinessWeek employees.

“BusinessWeek will establish a leaner, entrepreneurial staff without affecting the brand, positioning of the franchise or revenue outlook. The eliminations of editorial staff are primarily in editorial support operations (makeup and copy desk), but also include a reduction in the number of journalists to reflect the smaller folio size of the publication. The positions eliminated in sales are primarily for sales support, but also include some consolidation of integrated sales account managers. The remaining positions eliminated are in other business support functions.”

A logical question: If these cuts are so easy to make, why hasn’t McGraw-Hill made them? I know that this strategy isn’t uncommon in auctions: Many moons ago, Time Warner (TWX) held off making cuts at its music unit so that a new buyer could do it itself, and that’s exactly what Edgar Bronfman Jr. and crew did once they got their hands on Warner Music Group (WMG). But the practice still baffles me. Anyone?

Now we know. BusinessWeek’s Jon Fine talks to people who have seen the black book for BusinessWeek, which McGraw-Hill (MHP) has indeed put on the block. The numbers are brutal. Fine:

The data state that BusinessWeek lost around $20 million on revenues of $147 million in 2008, and that slightly smaller losses are projected in 2009 on revenue of around $135 million. These losses do not, however, include key corporate overhead items, such as rent and certain infrastructure-related costs. When all those items are factored in, the total loss figure essentially doubles, said two executives who saw the data.

Not surprisingly, those numbers seem to have scared off every traditional publisher that might be a logical buyer. The list of nonacquirers includes Time Warner’s (TWX) Time Inc., News Corp. (NWS) (which owns this Web site), Bloomberg and Thomson-Reuters (TRI).

So who does want this thing? Fine suggests that Open Gate Capital, the private equity firm that bought TV Guide for $1 plus debt last year, may be up for a similar transaction. Another possibility: Billionaire Bruce Wasserstein, who’s already shown a penchant for high-profile properties, like New York magazine.

Twitter has added Benchmark and Institutional Venture Partners to its list of investors, the company announced via a blog post today. Spark Capital and Union Square Ventures, which had previously invested in the company, have re-upped as well.

No details, of course, from Twitter about its current valuation. Last month the company was looking at raising $20 million or so at a valuation of $200 million to $250 million, and I’m told the new value is on the high side of that range.

The last time Twitter raised money, a little more than a year ago, investors pegged its value at just under $100 million. What’s changed since then? Well, it still doesn’t make any money. But it has many more users: The company says active users have increased 900 percent in the last year; comScore (SCOR) says the site’s home page now attracts 2.6 million unique a month, up 1,362 percent over the last year.

Anyone who’s ever read anything about Twitter knows that the company still has no revenue and/or business model–I just mentioned it one paragraph ago! So no need to go into that here. But for the record, note that co-founder Biz Stone, at the end of his funding announcement, says the company will indeed use some of its new money to go make…money: “We are now positioned extremely well to support the accelerating growth of our service, further enable the robust ecosystem sprouting up around Twitter, and yes, to begin building revenue-generating products.”

And for a nice summary of the company’s promise and peril, check out this week’s New York magazine. Money quote, literally, from CEO Evan Williams: “We have a product, and we’re working on it,” Williams said, with more than a hint of exasperation. “The money will come.”

But that’s what New York Magazine, which laid off a few people at the end of last year, is doing with its core writing staff. Last week, managing editor Ann Clarke summoned the magazine’s staff writers one by one into her office: “We need to talk about your redefined ‘deal,’” read an ominous email she had sent out in advance.

The new definition, apparently, involves getting paid less. The cuts don’t appear to be the same amount for each writer; magazine spokeswoman Serena Torrey confirmed cost-cutting but wouldn’t elaborate:

As a private company, we don’t discuss details of revenues, salaries or expenditures. It’s true that we’re cutting some costs where we can, though the vast majority of those adjustments do not affect company employees directly. Where we can find efficiencies in terms of limiting, say, freelance labor or hours worked, or by renegotiating deals, we’re certainly doing that.

Given the economic climate, every responsible business is streamlining operations. We’ve been very successful because we’ve been an efficient, forward-looking company in the past, and we’ll continue to make careful decisions about the future to ensure our strength.”

All of which makes plenty of sense to me. New York Magazine owner Bruce Wasserstein may be a billionaire, but you can’t blame him for wanting to cut back–his industry shrank by 12 percent last year, and the high-end local ad market that New York depends on will be particularly fraught this year. And better, I suppose, to get paid less than to have no job at all.