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Which media will weather the winter?

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2018 was the year that the VC-funded media bubble burst. Kevin Anderson argues that there are a number of smaller media companies playing the digital game successfully, and we can learn a lot from them.

Only the timing of the VC-fuelled digital media bust was ever in dispute, and Mic’s firesale was only the latest example a high-flying VC darling being laid low.

VCs and legacy media funds throwing piles of money into digital media seemed to be based much more on FOMA than any investment strategy with a hope of a return, and Simon Owens of this parish has already written why this was baffling to anyone not caught up in the FOMA fever. When you looked at valuations baked into the funding rounds, the investments assumed growth that simply was not possible from any known media model based on content creation. Yes, the marginal cost of serving a new digital media user can be next to zero, but the marginal cost of producing additional pieces of content is not trivial. It is so much cheaper for Google or Facebook to attract and monetise billions of customers than it is for publishers to reach millions.

Let me pick up where Simon steps off. A recession is coming, and he says, “(t)hat’s when we’ll find out which media companies can actually stand on their own two legs, without the help of easy VC cash”. Away from the hothouse glare of the VC-funded startups, there are media companies that have been enjoying double digit growth running strategies that might not be radically innovative but have delivered the goods.

Winter is here

But first, let’s set the stage. Winter isn’t coming. It’s already here and not just for the VC-funded millennial digital crowd. For many legacy print organisations, 2018 hasn’t been an easy year. As Ken Doctor just pointed out, topline revenue at Tribune, McClatchy and Gannett, was down in the third quarter by 13.6, 9.2 and 5.5 percent respectively. And those headwinds aren’t just in the US. In the UK, Johnston Press was saved from administration by a sale to its creditors.

And this is during the good times. With booming economies starting to cool in many countries, the question really has to be, what outlets and startups will weather the coming recession? (And I really think we will see some big names go to the wall in the next downturn. They just don’t have much room to manoeuvre.)

Mining a Lucrative Niche

Rafat Ali has an unsentimental view of the media business: “The media is singularly screwed”, he said in a Folio Q&A.

But he has launched two successful media startups and sold one, so is someone to be listened to. For his first act, he focused on B2B content, specifically Paid Content, long before people thought you could charge for digital. Ali’s newest venture is Skift, which covers the business of travel, and whilst there’s carnage in many parts of the media, he said Skift reached its stretch goal of 40 percent revenue growth last year topping $10 m. Right now the revenue mix is 40-40-20, from branded content, events and subscriptions. And they just have bought a subscription-based newsletter that covers the airline industry.

Ali is focused on small, nimble execution and sustainable growth. Take, for instance, their expansion to wellness. Instead of a big, high profile launch, they are testing the waters with a curated weekly newsletter written by a freelancer. It’s a small bet in an adjacent vertical, but it gives Ali and his team time to test the market and gain audience data before going quids in.

Exclusive Content and Affiliate Marketing

Another small, interesting company that has had a bit of an attention from media watchers but was vastly overshadowed by the crowd of VC-funded flashes in the pan is Penny Hoarder. Founder Kyle Taylor’s miniature media empire started as a personal blog that tracked his personal journey out of debt. He stared down the shame of debt and shared money saving and making tips as he tried to pay off student loans as well as other debt that he had racked up while working on political campaigns.

In 2016, he told CNBC, “Six years ago I was down to my last dollar, looking for change on the side of the street to buy ramen with.” Now, he runs a multi-million dollar media business in Florida which, unless you’re a student of digital media, you have probably never heard of.

Taylor has spoken about attending a conference of other financial publishers. One of the speakers asked the crowd the net worth of their target audience. As the speaker went from one percent to the 99, hands continued to go down, until he asked who was targeting people making less than $50,000. Taylor’s hand was the only hand still up.

Almost all the VC-funded media companies are or were targeting well-off millennials, but Taylor has tapped into a much larger, but less well-heeled demographic. However, it is a demographic that is attractive to a range of financial companies, such as banks and credit card companies.

That is half of the magic of Penny Hoarder: building an audience on a focused offering. The other half is that they have built their business model on affiliate or performance advertising. Like the New York Times’ vaunted acquisition Wirecutter, Penny Hoarder makes 95 percent of its revenue from people clicking on affiliate links, and then getting a cut of the sales.

In 2017, it topped Inc.’s rankings for the fastest growing media company in the US for the second year running.

Reader Revenue and Membership

Of course, one of the most dramatic shifts in media over the past few years has been away from advertising-dependent business models and towards reader revenue. Everyone inside and outside of media has jumped on subscriptions. If I were so inclined, I could buy a subscription for bed linen or even a monthly sub for cat toys for our two moggies. There is a bubble bigger than Bitcoin in the rush to lock in steady customers.

I think the subscription model works well at a national scale or for specialist content like Rafat Ali’s premium niche business newsletters, but I’ve seen firsthand that it doesn’t necessarily scale down to local general interest journalism.  

I actually think that membership might be a better model for local media, and I say that working for a successful member-driven local media organisation in the US. NPR, public radio in the US, and PBS, public TV, get the majority of their funding from voluntary contributions from members. But you can also see the model in action in the recently successful campaign by De Correspondent to raise $2.5m to launch a global English-language site. It raised $2.6m from 130 countries around the world with an average contribution of just $30.

The wider use of the membership model not yet been forced to weather a recession, and public media leaders in the US will tell you that when you’re relying on voluntary contributions that they can take a hit in a downturn, so it will be interesting to whether the media groups pivoting to the member model have the durability they need.

Weathering the Winter

Rafat Ali said in his interview that media coverage tends to focus on covering “bigness”. I get it. Everyone wants to launch the News Corp. of the 21st Century or at least The Economist for millennials, but that title fight has been decided and Google won it. (I’m not so certain about the durability of Facebook.) But there are a number of smaller media companies that are running and winning successful digital playbooks, and they will be the ones to watch over this winter.