I am pleased and honored to have been included in this article about the struggles of venture-backed media startups to grow and achieve profitability in the current environment. This is relevant and timely because of the well-documented struggles of companies such as Vice and BuzzFeed. But it also should trigger a broader consideration of the overall media economy. I believe that the big disruptive factor for media companies is that they are surrounded by competitors with offset economics: the platform companies on one side and venture-funded startups on the other. These competitors play by different rules and have different resources than media companies. It’s as if media companies need to play according to the rules of football but the other side can use chain saws and flame throwers.
This is a big deal. The Platforms are the FAANG companies (Facebook, Amazon, Apple, Netflix and Google). They have put themselves in between media companies and both their readers and advertisers. It’s important to remember that these companies are in an arms race among each other. I am pleased to say that Jeff Rayport and I first identified this threat in February 2011 in a post on the HBR blog (who Rules the Web Now [hbr.org]). Over the past ten to fifteen years, Facebook, Amazon and Google have seized the top of the click stream. They then keep or distribute that traffic to best serve their own purposes. Because they are fighting each other, they jealously squeeze all possible revenue out of the traffic. Google has increasingly referred traffic to their own pages and product listing ads. The first organic (free listing) is now below the fold on the first page of results. As a consequence, it now gets about half as much traffic as the top organic listing got three years ago. Facebook has regularly “partnered” with outside companies and then cut them loose. They did this with game companies, apps and now media companies. FB asked media companies to put their content on FB but have then cut them off. Amazon is now competing with Google for valuable commercial searches at the top of the funnel. Collectively, this means that media companies have lost direct contact with most of their readers.
On the other end, the internet display business has moved away from the historic model of aggregation and estimation (we have an audience of xx million people, 25% of whom think that they will buy your product next year) in favor of the individually addressable consumer and programmatic advertising. FB and Google now control about two-thirds of internet advertising and they are gaining share. They can use data to specifically target consumers. AMZN, which is a distant player, will still do about $2B in ad revenue this year (fact check that). Media companies get fewer and fewer RFPs directly from clients. More ad dollars are passed through exchanges and the platforms.
2. Venture funded competitors
Companies like Vice, BuzzFeed, Mic, Little Things were not actually committed to making money in the media business. Their premise was that they could achieve escape velocity with their audience and revenue growth and either go public or get acquired. Look at SNAP which got a huge valuation ($19B?) without a plausible business model. These businesses are substantial (revenues in the hundreds of millions of dollars) and have large audiences. But they are optimized for growth NOT profitability. In the case of SNAP, the investors and managers have made billions and passed the risk on to the public market investors. In effect, there has been a huge transfer of wealth from investors to the public. The public has gotten more and better content than they would pay for or that ads could support. It was therefore not a priority to make money. The valuations were based on the expectation of future growth—they were going to grow into their excessive valuations.
These companies correctly identified weaknesses in the product offerings of incumbent media companies. Their current corrections, shouldn’t mask the fact that audiences have responded well to these sites.
So what’s happening? The growth rates are slowing down. BuzzFeed, as we discussed and was mentioned in Vanity Fair, eschewed traditional display ads in favor of “native” ads. This was attractive to advertisers because they suspected that readers had learned how to skip ads. “Native” ads are woven in to the content stream by BuzzFeed employees. This is incredibly labor intensive and places more demands on the clients. It doesn’t scale well. BF is now moving back towards standard IAB display units.
3. What do media companies need to do?
Traditional media companies cannot afford to gloat over the troubles of startups. they need to continue to fix what ails their own businesses. In that regard, everything old is new again. . Media companies need to figure out who to be important to their readers and to marketers. They have gotten lazy based in many cases on some sort of implied franchise—either geographic or topical. It will be difficult for them to survive without a balanced revenue stream that includes reader payments, perhaps events, e-commerce referral fees, etc.
It’s as if traditional media companies play according to the rules of football but the other side can use chain saws and flame throwers.
Digital media has become all about the head and not enough about the heart. Magazines, newspapers and television have always been tactile and emotional. Once upon a time, a publisher would drop his magazine on a marketers desk and it landed with a thud. Readers looked longingly at cars or clothing displayed in high resolution on a glossy page. Marketers took pride when they saw their ad on a right hand page far forward. And, when they had a good ad in a good place in a good publication, they showed it to their boss.
Digital media though is all about numbers and spreadsheets. Particularly in this age of programmatic, campaigns are run in the ether. Analysts can produce campaign reports that “prove’ that the ads ran in good places and were seen. But there are rarely those moments when a marketers “knows” in their gut that their message is touching a real live buyer. And, at some fundamental level, they fear that they are being conned.
The mega-platforms (GOOG, AMZN and FB) are the lords of scale. All about tech. Nothing about touch.
Smart publishers need to use events both as a revenue stream but also to extend their brand and bring their readers and viewers to life for marketers.
I have long been a fan (and investor) in Skift. Their founder, Rafat Ali, has been a friend for a number of years and is one of the publishers that I respect most in the industry. We first met when he was building Paid Content, a leading source of news about internet media. I was an early supporter and investor in Skift, his attempt to revolutionize the business of news about the travel industry.
From the earliest days, Rafat has leveraged the power of events to build the Skift brand and help make Skift very important to thought leaders in the travel industry. He recently wrote this excellent article about how this has been accomplished.
There are a number of other great examples. Outdoor Project, where I am also an investor and board member, has hosted a series of summer block parties in cities across America for the past few years. In addition to being a profitable revenue stream, these events bring outdoor industry companies face to face with their consumers. When a marketer is standing on the street outside a hip, micro-brewery surrounded by five thousand customers they feel that their message is getting across.
My friend, Mark Zusman, founder of Willamette Week has also taken an interesting approach to events. Willamette Week is a respected weekly publication (they’ve even won a Pulitzer Prize) that covers both the news and politics of Portland but also the arts, entertainment and culture. Mark has amplified his brand through two successful events, TechFest Northwest and MusicFest NW. I have watched TechFest grow over the past few years in both importance and sophistication. More than just a platform for egotistical entrepreneurs, VCs and fan boys, the event has offered thoughtful discussions of role of technology in society. They’re bringing interesting and important voices to the table.
My last example is Spirited Media (and, yes, I am an investor and board member). Through their brands Billy Penn, The Incline and Denverite, they are bringing vibrant, compelling news to Philly, Pittsburgh and Denver. Their goal is to create an engaged community of younger readers around these brands and events are an important part of that effort. Through their “Who’s Next?” awards, they showcase the emerging generations of leaders in their cities. Events bring these people, other leaders and top companies together with the news brand as the hub. These gatherings demonstrate the importance and vitality of the media and give the brand depth and richness.
As I often say, the core strategy for profitable publishing is to invest in being important to readers and marketers. Smart events is one way to accomplish this.
Most publishers realized several years ago that business as usual doesn’t work any more. However that realization hadn’t initially come with any useful ideas about what would work. It was easy enough to complain about the rise of the platforms, the cannibalization of audiences, and erosion of the premium display business. My project for the last seven or eight years has been to identify the components of a profitable publishing strategy for the creators of quality content. I have done this through investments, board work and consulting.
In a sense, my project began after Harvard Business School professor Jeffrey Rayport and I created a presentation for the Online Publishers Association in early 2011. That organization is now Digital Content Next. We were probably the first to identify the competitive juggernaut of the Big Four web superpowers: Google; Apple; Facebook; and Amazon. We summarized that presentation in this article Who Rules the Web Now? which was published in the Harvard Business Review blog. Once we had fully embraced the reality of their dominance, the question was what could publishers do about it.
Obviously, weeping and wailing and gnashing teeth might feel good but it doesn’t pay any bills. The reality is that there is also little hope that consumers will lose affection for the Big Four or that the federal government will do anything useful. In short, we are on our own.
I was recently given the opportunity to speak to the AdMonster Publishers Forum about my work on identifying the components of a profitable 21st century publishing model. My conclusions are based on my work with a variety of mid-sized and smaller publishers as well as conversations with the executives who operate larger media properties. Here is a copy of the slides that I shared: AdMonsters-Media Investing PCH Final .
More than anything, it’s essential that publishers form deep relationships with both readers and marketers. As a group, we have lost the battle for scale. Our reach pales in comparison to the number of people that Google, Amazon or Facebook reach every day. Additionally, they have more and more meaningful data that can be used for targeting. For those important reasons, they are vacuuming up ad dollars. But the essence of strategy is to turn your opponent’s strengths into weaknesses, We need to think as if we have a black belt in judo–use their momentum against them.
The platforms are all about scalability. Low touch. High volume. Inch deep. Mile wide. They want to offer standard programs at scale to marketers and a clean sheet of paper to consumers. Publishers must counter breadth with depth.
Everything starts with the reader. Platforms may have data but publishers must have a visceral understanding of the reader’s dreams, fears, wants and desires. Platforms may do well with the intellect. Publishers must do well with emotion. Publishers must communicate that they like and care about their readers. They must aspire to have their readers care about them in return. This is an admittedly high bar. It’s a much higher bar than most publishers have attempted to clear. Yet that relationship is the only long-term counter to the platforms’ advantages of scale.
When that relationship is established, publishers then have the ability to bring marketers into the mix. Platforms run ads. Publishers can bridge brands over to their readers within a relevant context. This is more than native advertising. It’s more than inserting Vibrant links on random words. It’s about helping brands to understand why their audiences would be interested in the marketer’s products and how to explain the product to the consumer. These programs will live both within the confines of a standard IAB ad unit and beyond.
When done properly and clearly disclosed, this type of advertising becomes a welcomed part of the content package not an intrusion.
This is usually where publishers complain. This is hard work. It requires investment. It’s not the way that we’ve usually done things. It’s not as easy to scale. All true. But that’s also why this approach is hard for platforms to copy.
Within the deck that I have provided, I share some examples of how this has worked for the companies in our portfolio. You will see that I am a huge fan of events. Again, I know that events are hard. But they also elevate marketing from an abstraction that typically only lives in spreadsheets to a real world experience in which flesh and blood consumers and marketers actually converse.
Over the past six years, Skift has become an important and trusted voice within the travel industry. Their global travel forums have become “must attend” events for the top executives within that industry. As a result, Skift is now seen as an essential partner and influencer. This stature informs all of their conversations throughout every level of travel companies. They are now a partner–not just a vendor.
Outdoor Project has built a strong , growing and engaged community that has contributed more than 7,000 adventures to the site. Outdoor Project has used their summer street fairs to bring their readers together–and to bring them to life for brands. It’s one think to share analytics and research about a young , vibrant audience of outdoor enthusiasts. It’s another thing to have 5,000 of them jammed into the street in front of a brewery in Portland or Austin or Denver. Marketers enjoy being in large crowds of customers.
At the other extreme, Topix has rebuilt the company and its strategy to fully leverage the platforms. By drawing audience from Facebook and others and monetizing via programmatic, Topix has become one of the fastest growing publishing companies in the business. No direct sales force. Revenue per employee above $1.5M. Highly efficient.
Purch has become important to its readers and marketers by helping to streamline purchase decisions and bringing buyers and sellers together.Marketing programs with Purch clearly drive results. Marketers pay attention when they hear the cash register ringing. Publishers have historically avoided responsibility for conversions and sales. In the cold, cruel world of modern publishing that’s a luxury that we can no longer afford.
I will write a separate blog post that will talk about Spirited Media‘s efforts to create a local news product that younger readers not only read but care enough to pay for.
There are no silver bullets. What I am working on is a tool kit from which publishers can draw ideas that fit their audience and model. But in the end, every publisher must commit to being important to its readers and its marketer partners.
I can’t pretend to be objective about Topix or the job that Chris Tolles, their CEO, has done. I am part of the team and Chris’s number one fan.
After a strong ten year run as a news aggregator and community discussion board site, the business was challenged by changes in the marketplace. Rather than bitch and moan as some managers would and have done, Chris and his team re-engineered the business. It’s now several times bigger and much more profitable than it was prior to the turnaround. It’s also beautifully aligned with where the media and ad business is heading. They’ve done the hardest thing, built a profitable, fast growing media business that’s funded by programmatic ads. The secret is that Topix has always invested in technology. I have had a front row seat from the Topix Board of Directors.
Here’s a link to the Inc.Com Profile About Topix
Horan MediaTech Advisors is excited to announce that we have invested in local news startup, Spirited Media, and that Peter Horan will be joining their board of directors. Although many are concerned about the future of local news, we believe that now is the perfect moment to invest our cash and our effort into a very promising startup run by a team that we love. Although we are just formalizing our relationship with Spirited Media, we have been working closely with Jim Brady and his wife/partner, Joan since the earliest days.
We fundamentally believe that we can create a model for great local media that will engage readers, be profitable and grow. We also believe that, over time, the model that is working in Philadelphia, Pittsburgh and Denver, can be rolled out across the country. You can read more about the company in this Wall Street Journal Article about Spirited Media .
The old truism is that “all politics is local”. It’s pretty much also true that “all news is local”. People innately care about what’s happening in their neighborhood and their town. With the collapse of many newspapers, there has been a tremendous void. I don’t want to waste much time describing the trials and tribulations of the newspapers business. Enough electrons have given their lives documenting that saga. But I will say that they have been caught in a downward spiral that has left readers–particularly younger readers–without local news coverage that they can care about.
The relevant part of the decline of newspapers is that declining revenues has resulted in staff cuts which in turn resulted in less news being covered. The product became less relevant and compelling. Which has resulted in readers becoming bored and moving on.
Spirited Media, under the leadership of Jim Brady, believes that people are hungry for great local news. Jim is a GREAT editor with a resume that includes early work with the Washington Post’s digital team, TBD (part of Politico) and Digital First Media. He’s also the current public editor for ESPN. I don’t know anyone who has worked harder to figure out what a winning model for local media is in a digital age. He’s also a very close friend.
Jim has also assembled a great team of investors and advisors including Gordon Crovitz, Kevin Ryan, Charlie Hale of Hale Global (owner of Patch), and Joanne Lipman, Chief Content Officer at Gannett.
So what are we doing that’s different?
- Be laser-focused on creating content that readers LOVE and maybe pay for
- Have lots of style and attitude
- Build a balanced revenue model that is not advertising dependent
- Integrate an events strategy that strengthens readers’ ties to each other and the medium
- Focus on younger readers
- Keep the cost structure of a lean startup
- Mobile. Mobile. Mobile
Horan MediaTech Advisors is focused on helping media companies identify profitable business models within the 21st Century publishing ecosystem. We have a hands-on approach and a wide base of experience. We currently work with and/or have invested in Purch, Topix, Skift, Outdoor Project, GearJunkie and Zoom Media.
The WSJ article characterizes Spirited Media’s mission as “fighting” the collapse of local media. But this is not the Battle of Stalingrad. This is a joyous effort to figure out the future. We are very glad to be joining the team.
I have recently believed that executives should watch more disaster movies and read fewer business books. Granted, I think that most business books are simplistic and redundant, but my biggest beef is that they do little to prepare executives for the titanic changes that seem to be occurring with greater rapidity. Instead they wallow in trivial incrementalism. In a sense, they pat executives on the back and pass out participation ribbons for making layups.
Is it the best of times? Or the worst of times? Are ad tech and performance marketing companies crushing it? Or are the on the edge of a precipice? There are people arguing all sides of the question and an ocean of data to support any viewpoint.
The relationship between media owners and their readers and viewers continues to get more complicated. For many years advertising was the unavoidable tax that subsidized media. Now, with the rise of ad blockers and increasingly stringent privacy laws, consumers are becoming much more astute about the value of their time. Jun Group, where I am on the board of advisors, has developed compelling ad products that provide smart incentives for consumer engagement.