This is probably going to be long. Just a heads up.
So if you’re here, you’re probably interested in technology or are related to me, and since the former population is much larger than the latter it’s probably fair to assume that you’re familiar with the concept of disruption. It’s certainly a buzzword in the technology sector and a rather hated one at that, but that doesn’t render it meaningless: it refers to an inevitable entropic decline, fueled equally by advances in technology and the fat, bloated intransigence of the incumbent.
You can follow the pattern of disruption across almost all sectors; Uber for taxis, AirBNB for hotels, Warby Parker for glasses. While those are all interesting cases, they’re slightly less interesting to me because I don’t work with them or think about them on a daily basis, other than perhaps the nifty pair of Ramsays I use to make sure I don’t fall down the stairs. What I do think about is media, partly as a byproduct of being a rabid consumer of content like every modern person, and partly due to sageness of Will Porteous, who I wrote about earlier as being forward-thinking enough to know immediately that my little sports analytics company wasn’t just a pile of algorithms, but rather a media company that simply served data (and derivations of) as content.
Much, of course, has been written about the disruption of the media industry. And really, you almost don’t even need it to read about it to understand it just from intuition – how do you think record labels are doing these days? How about your local newspaper? Both are prime examples of legacy industries who either didn’t grasp, didn’t care, or wildly underestimated the effect that the move to a digital world would have on their businesses. And why would they? They controlled their little fiefdom with impunity, with nary a threat in sight, for years and years and years.
Of course, with no threats and no reason to stay thin, well, those pigs got fat. And hogs get slaughtered.
(As an aside, that in and of itself isn’t really a cause for celebration, even though it tends to be held as one within the technology industry. Even if we accept the damage as collateral as industries evolve and technologies shift, there’s still a very real impact felt in all of those people who were miles away from the decision making that ended up losing their jobs. It wasn’t their fault that their management got fat, but they bore the brunt of it to a disproportionate degree and that’s not something to feel great about.)
What’s most likely unique about the media industry relative to some of the others I mentioned is that the scale is so large and technology shift is such a living thing that the disruption never really stops. You might say for example that the move to digital killed the concept of the printed magazine and the local newspaper; you’d be right. But it’s also true that the digital magazines that killed the print ones are slowly getting killed themselves, as since as the barrier to entry is asymptotic to zero, supply on the media side is essentially infinite with little replacement cost between choices. This naturally causes the value of programmatic and remnant advertising space to plummet, thereby forcing only two viable business models onto the marketplace:
Want to play the middle? You’re toast. Unless you’re commanding a massive audience, you won’t be able to generate enough ad revenue as programmatic rates plummet to keep the lights on. Even then, the goal of “commanding a massive audience” fundamentally misses the point that #1 dictates: going after quantity as a primary goal implies that you are creating content for everyone, which is another way of saying that you’re creating it for no one. Beyond that, even if you decide to eschew programmatic and go for other forms of monetization, your users will be on to you quick: native advertising is disastrous for buy-side ROI, even if you ignore the user experience issues of passing off advertising as editorial. There just aren’t that many ways to keep fooling your users to click on ads without them learning how to ignore it, hating you, or simply installing AdBlock and telling you where to stick it.
What’s interesting to me is that you’re seeing this exact same extinction happen in the TV world as well. Remember when TLC used to be The Learning Channel, and Bravo showed simulcasts of philharmonic orchestras? Those simply didn’t pull in enough viewers, which didn’t draw in enough advertising revenue, which couldn’t subsidize the continued broadcast. So what happened? It bifurcated, just like digital media. Premium services like HBO flourished, doubling-down on quality (The Sopranos, The Wire, Game Of Thrones, etc.) to create a virtuous cycle of prosperity. Niche TV channels turned incredibly broad, going to airing mass appeal content (TLC airing Honey Boo Boo, History Channel becoming all about aliens and conspiracy theories) cynically designed to drum up publicity because at least ensured their survival, brain cells and their somewhat earnest roots be damned. After all, reality TV is functionally equivalent to user-generated, low-quality content, right? Neither has the labor cost of hiring expensive writers, and therefore it’s designed specifically to be more competitive in the marketplace because it combines a much wider audience with a much lesser cost.
While I’m not around it enough nor am I of the right pay scale to consider how to fix the TV problem, I do have a couple of thoughts on how to solve the media problem on the digital side.
The first, and most important step I believe to having a sustainable media business is taking ownership of your delivery stack. No one media company is exactly like another; each one is serving different users with different styles of content, syndicated via different platforms and so on and so on. I can’t think of a wildly successful new media company that doesn’t have their own stack; in fact, it’s probably easier to think of a company like BuzzFeed (SuperPoster) or Vox/SB Nation (Chorus) as a technology company first and a media company second. They do this because they want to attack the problem their way, building the tools they need to address problems as they come up.
In the case of numberFire, we wanted an easy way to import data from our algorithms into our articles. Seems pretty simple, right? You’d be surprised. Now extend that to what a seemingly simple site like BuzzFeed has to do: it has to test multiple headlines in real-time, it has to dynamically generate a homepage based on what you’re likely to enjoy, it has to constantly monitor the content to search for signals that an article might be going viral, and so on and so on. Think any out of the box CMS can do that? Of course not. The magic of BuzzFeed isn’t just that they command such a wide audience, it’s that they make it look so much easier than it really is. Technology has a way of doing that.
(Somewhat ironically, I’m writing this right now on WordPress, which while it’s fine for a personal blog, is an awful choice for any serious media business. The fact that so many run off of WordPress VIP is borderline comical, but hey, I’m a software engineer first so perhaps that more of a reflection on me than anything else.)
The second step is to create diversified revenue streams. This one seems kind of obvious – sort of like, “Hey, have good content in the first place” – but it’s strangely overlooked. Let’s think about it another way: retail businesses are getting into the content game because it allows them to onboard people into their experience for very cheap. They’re getting people familiar with the brand by performing the digital equivalent of showing up to the town hall where everyone is congregated, walking people the front door of the store and inviting them inside. They’re moving the audience, and once they’re relatively captive, monetizing them either directly through some sale conversion, or indirectly through brand awareness.
For the media business, this means taking that exact same audience – your audience – and figuring out different ways of drawing value. The most obvious way, of course, is advertising revenue. But let’s move it beyond that. Is there something in particular that you do better than anyone else, that people might show some willingness to pay for? Build a SaaS business around that. CBInsights does this amazingly well. (So does numberFire.) What if you’ve built a strong, credible brand and developed a reputation for being a tastemaker? Put on a conference like TechCrunch. Remember all that work you did above in taking ownership of your delivery stack? Great! I bet I know a lot of people who might like to white-label that as their own.
The third step is to stay ahead, or failing that, at least stay current. In line with the first step, investing in technology to stay ahead of the trends will put you at an enormous advantage. Again, that’s obvious but you shouldn’t underestimate that power. Even if you don’t have a VC whispering in your ear about what’s coming next, it’s not all that difficult if you simply pay it some attention. You would have known to build with mobile in mind a few years ago, you would have known to consider social as a key distribution strategy years before that. You would already be distributing via AMP and in cards and be thinking about what the eventual move to VR might look like. Proactive is infinitely better than reactive, even if the negative ROI in the short-term can seem untenable.
It’s worth saying so far as a conclusion: none of this is easy. If it were, you wouldn’t see so many dead companies on the road. The scary part is that it’s most likely going to get worse before it gets better, since other than a few instance that I noted, very few traditional media companies have taken these steps in advance and thus, they’re trying to play catch up while simultaneously having their hands tied by the same entropy and poor management that got them in the mess in the first place.
What I suppose I’m ultimately saying is that it’s ugly out there, and I think that’s going to get even more ugly soon. Transformative changes in an industry – particularly those forced by adoption of new technologies – rarely happen without some serious carnage. Part of that story is the root of what makes following technology compelling, while another part of that story is unfortunately also the root of a lot of social unrest regarding jobs, the economy, and the future.
Does this mean if I were an investor that I’d forgo any investment in media? Probably not. It’s often said that a slow down in the market doesn’t really affect highly investable companies, but instead it simply raises the bar to a point where the questionable ones have a harder time. People still need to be educated and entertained, to be informed and to find community, to lose themselves in music and in writing. The market is there, but only if the new entrants think of themselves as technology companies first, and media companies second.