{"id":26170,"date":"2020-03-03T06:40:00","date_gmt":"2020-03-03T06:40:00","guid":{"rendered":"https:\/\/mediamakersmeet.com\/?p=26170"},"modified":"2021-03-18T18:37:29","modified_gmt":"2021-03-18T18:37:29","slug":"time-to-rethink-the-media-funding-model","status":"publish","type":"post","link":"https:\/\/mediamakersmeet.com\/time-to-rethink-the-media-funding-model\/","title":{"rendered":"Time to rethink the media funding model"},"content":{"rendered":"\n

OPINION<\/span><\/strong><\/p>\n\n\n\n

It\u2019s time to speed up and scale innovation in independent media.<\/p>\n\n\n\n

Despite years of philanthropic support, relatively few players have managed to grow and become sustainable. Even fewer have scaled.<\/p>\n\n\n\n

That is largely driven by structural problems in the current financing model and industry design.<\/p>\n\n\n\n

Social impact investing<\/a>, which combines the tech\/venture capital (VC) startup funding model with the need to deliver against social goals \u2013 could be a way to address structural challenges and increase the number of truly innovative projects out there.<\/p>\n\n\n\n

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Source: Reinventing Media Business forum Facebook page<\/figcaption><\/figure>\n\n\n\n

There are signs something is changing in the industry. Indeed, recent years have seen new approaches and some genuinely innovative thinking on behalf of donors (who fund many of the smaller and mid-media startups; obviously public, oligarchic and corporate media are a different story).<\/p>\n\n\n\n

Great media accelerator programs have been launched since 2018, including the EJC\u2019s Engaged Journalism Accelerator<\/a>, Sembra Media\u2019s Velocidad<\/a> accelerator for Latin America, and MDF\u2019s Media Manager Academy<\/a> which targets CEE media (disclaimer: MDF is the parent organization of The Fix<\/em>).<\/p>\n\n\n\n

Initial results are promising, but we will only be able to judge fully over the coming year(s), once the participating media scale the solutions and reap the fruits of their hard work.<\/p>\n\n\n\n

Meanwhile, it is pretty clear the sector has underdelivered in terms of fundamental innovation. A look at other industries (e.g., finance, which is being disrupted by a crop of fintechs, or project management with its Trellos, Slacks and Asanas), underscores how gradual and piecemeal innovation in media has actually been.<\/p>\n\n\n\n

One of the main reasons is that financing and talent are both in short stock, industry-wide, but also because the current system has three big structural problems.<\/p>\n\n\n\n

Problem #1: A lot of current funding models disincentivize revenue generation<\/strong><\/h4>\n\n\n\n

Here\u2019s a not uncommon story \u2013 Media X comes up with a great new editorial pitch, reaches out to donors, and gets funding. After a while donors start talking about sustainability, Media X more or less enthusiastically agrees.<\/p>\n\n\n\n

That\u2019s when the problem starts. To \u201cincentivize\u201d making money, donors approve a plan to reduce funding by, say, 10 or 20%, with the media expected to compensate the gap with commercial revenues. The plan typically foresees a phasing out of support over several years.<\/p>\n\n\n\n

While this might be fine in theory, in practice donor-supported media run into a moral hazard problem \u2013 if they don\u2019t deliver the same and other donors step in to not let a given project collapse.<\/p>\n\n\n\n

Arguably worse is this essentially throttles good ideas. Consider this in the context of a different industry: if a company develops a novel business model and proves the concept at a small scale (i.e., passes the \u201cproof of concept\u201d phase), they then typically receive MORE funding in order to scale their solution.<\/p>\n\n\n\n

Indeed, a global industry is devoted to solving this problem. High-risk, early stage start-ups receive small amounts of angel or seed funds, those who manage to pass through successive hoops then go on to raise larger and larger amounts of funds, culminating with a Series A and B and so on.<\/p>\n\n\n\n

A great example in the media world is Gimlet<\/a>, a podcast production company founded in 2014. Gimlet initially received $1.5 million in seed funding (including crowdfunding) that it used to prove the viability of the model. <\/p>\n\n\n\n

It then went on to raise $6 and $15 million in Series A and B, respectively. That money helped it scale and boost profits, eventually leading to a sale to Spotify for $230 million in 2019 (note: there was no donor funding in this case).<\/p>\n\n\n\n

While there are some successful cases in the donor world, usually the logic goes the other way  \u2013 resulting in lots of barely surviving or chronically ill projects that can\u2019t get off the ground to hit their full potential.<\/p>\n\n\n\n

There have been some innovative ideas \u2013 such as creating funds that would match commercial revenue generated by media start-ups \u2013 so as to re-align incentives, but most have stayed at the conceptual phase.<\/p>\n\n\n\n

Problem #2: There\u2019s a massive gap for companies to go from infancy<\/strong><\/h4>\n\n\n\n

It\u2019s easy to start a media company. Too easy in fact. With volunteers and free platforms you can do it for next to nothing, and many people do.<\/p>\n\n\n\n

At this stage it’s relatively easy to find financial resources. Lots of donors are interested in something new and exciting, crowdfunding works pretty well, and with low overhead, bootstrapping is an option. With small teams and lots of quick wins, running such companies is also relatively easy.<\/p>\n\n\n\n

The problems start once media need to scale (see graph below). All of a sudden you need a stable and growing source of finance, the company needs to build or buy tailored systems to manage everything from people to payments, managing teams all of a sudden becomes more complex.<\/p>\n\n\n\n

Most media die at this phase. That\u2019s probably not completely wrong. After all, part of entrepreneurship and innovation is letting go of less-promising ideas. But many media don\u2019t actually die \u2013 they end up living a sort of half-life, too poor to grow, too well-resourced to call it quits.<\/p>\n\n\n\n

Perhaps worse, we lose many projects that could be viable. Even when donors change to provide the highly prized core funding, it rarely allows media to actually move onto the third phase, where organizations have the resources to build the infrastructure they need and scale their models to the right level.<\/p>\n\n\n\n

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Problem #3: The industry \u201cdoesn\u2019t do\u201d fundamental shifts<\/strong><\/h4>\n\n\n\n

Incrementalism is under-rated. Taking a decent idea and refining it over and over again until it’s truly game-changing is incredibly powerful \u2013 basically the green energy revolution in a nutshell.<\/p>\n\n\n\n

But there is something to be said \u2013 particularly in the world of start-ups \u2013 for Hail-Mary moves or fundamental pivots. Youtube started as a dating service for people to upload videos, Slack was initially a socialization video game. There are thousands of such stories (though not all successful).<\/p>\n\n\n\n

While VCs and tech-industry boards can actually push companies to pivot, media leadership tends to be wary of such moves.<\/p>\n\n\n\n

Many projects start (and die) wearing strategic handcuffs, mostly because they a) need to be a classical news outlet, b) are wedded to a narrowly defined social mission, c) have rigid KPIs\/ goals that define success, d) have fundraised based on a long term plan they need to report against, e) have donors that don\u2019t agree to experiment, or f) fear the social stigma for failing.<\/p>\n\n\n\n

Some reasons are valid, others less so. The problem of tinkering with new media business models is that often by the time you figured out something that actually works, you cut out the \u201cmedia\u201d part.<\/p>\n\n\n\n

But many more opportunities are missed because we shut down thinking about pivots preemptively. Some donors now take a more enlightened approach, but most prefer to stick to the book, while media managers themselves are too eager to go along with the plan and massage numbers or try to redefine success.<\/p>\n\n\n\n

Moreover, let\u2019s say you manage to pivot and have a \u201cproof of concept,\u201d you\u2019re back to problem # 1.<\/p>\n\n\n\n

So why is social impact investing the right way to go<\/strong><\/h3>\n\n\n\n

Media, particularly the news-y wing, has a poor track record of adapting to technological change. We lost the distribution and ad game once already to the likes of Google and Facebook.<\/p>\n\n\n\n

That threat looms large yet again \u2013 perhaps most vividly in the world of podcasts, which have been particularly open and profitable for independent production companies.<\/p>\n\n\n\n

Apple already dominates distribution, Google is developing its own service, and a series of start-ups like Luminary are banking on Netflix-type subscription models that will deliver superior choice and quality to consumers, but will once again leave content producers at the mercy of platforms. <\/p>\n\n\n\n

Independent players are at a risk of being left behind. While most media start-ups lack credible prospects for the hockey-stick (i.e., exponentially growing), revenues that a VC typically looks for, another alternative is possible.<\/p>\n\n\n\n

So how do you get the kind of capital that will allow companies to actually compete? And perhaps more importantly, how do you make sure you help media become profitable and scale rather than subsist?<\/p>\n\n\n\n

The VC industry has a unique track record of turning ideas into billion dollar companies. A lot of ingredients go into that success, but some of the big ones are: taking board positions on companies VCs invest in, aggressively pushing companies to find and refine their competitive advantage (and refine their business model until it works), taking on bigger risks in the hopes of getting bigger pay-offs, testing ideas and then scaling through big capital raises (pretty much the opposite of what happens in media).<\/p>\n\n\n\n

The problem is that the model, while able to inject millions into companies, typically focuses on the bottom line and rejects such issues as social mission that media care about.<\/p>\n\n\n\n

Recent years, however, have seen the rise of so-called social impact investing. The idea is simple, take a private-sector, quasi-VC approach to growing companies and innovation, but factor in the social impact \u2013 basically adding a proxy to their return on invested capital metric (to slightly oversimplify the story).<\/p>\n\n\n\n

The ecosystem has been growing and now includes a variety of seed, mezzanine and later-stage funds (very simply, funds that pay successively bigger amounts but require more proof the business model works and opportunities to scale it). Till now, however, most of these focus on ecological, inequality-related or similar areas.<\/p>\n\n\n\n

It\u2019s time to include media in the social impact category \u2013 factoring in the impact of a healthier media landscape on policy and democratic institutions, to name but a few. <\/p>\n\n\n\n

Importantly, by baking in social objectives, this form of investing can tilt the balance towards companies with an actual mission, rather than those just looking out for their bottom line.<\/p>\n\n\n\n

It\u2019s not a silver bullet, In the best case, this might end up putting a monetary value on the work of media \u2013 giving birth to new business models. In the worst, it would at least increase the chances for entrepreneurial and innovative media.<\/p>\n\n\n\n

Jakub Parusinski, Editor, The Fix<\/strong><\/p>\n\n\n\n

This op-ed was originally published in The Fix<\/a> and is re-published with kind permission. The Fix is a solutions-oriented publication focusing on the European media scene<\/em>. Subscribe to its bi-monthly newsletter here<\/a>.<\/em>
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Photo by Jp Valery<\/a> on Unsplash<\/a> <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

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