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The State of Digital Media: Passion, Goat Rodeos, and Unicorn Exits….

By - August 09, 2012

Earlier in the week I was interviewed by a sharp producer from an Internet-based media company. That company, a relatively well-known startup in industry circles, will be launching a new site soon, and is making a documentary about the process. Our conversation put a fine point on scores of similar meetings and calls I’ve head with major media company execs, content startup CEOs, and product and business leaders at well known online content destinations.

When I call a producer “sharp,” I mean that he asked interesting questions that crystalized some thoughts that have been bouncing around my head recently. The main focus of our discussion was the challenges of launching new media products in the current environment, and afterwards, it struck me I might write a few words on the subject, as it has been much on my mind, and given my history as both an entrepreneur and author in this space, I very much doubt it will ever stop being on my mind. So here are a couple highlights:

* We have a false economy of valuation driving many startups in the content business. Once a year or so, an Internet media site is sold for an extraordinary amount of money, relative to traditional metrics of valuation. Examples include The Huffington Post, which sold for a reported 10X annual revenues, and, just this past week, Bleacher Report, which sold for even more than that ($200million or so on revenues, from what I understand, that were less than $20mm a year).

Such lofty multiples (typical media businesses  - yes, even Internet media businesses – trade at 1.2 to 3X revenues) can make Internet media entrepreneurs starry-eyed. They may have unrealistic expectations of their company’s value, leading to poor decision making about both product and business issues. The truth is, truly passionate media creators don’t get into the media business to make huge gains from spectacular unicorn exits. When it happens, we certainly all cheer (and perhaps secretly hope it happens to us). But the fact is, we make media because we don’t know what else to do with ourselves. It’s how we’re wired, so to speak. (There is another type of media entrepreneur who is far more mercenary in nature, but I’m not speaking of those types now).

Let me explain why HuffPo and Bleacher Report were sold for so much money: They happened to be in the right media segment, at the right time, while growing at the right rate, just as a large media-driven entity was struggling with a strategic problem that threatened a core part of its business. And that particular site happened to solve for that particular problem at that particular time. These major “strategic buys” occur quite rarely (though smaller, less pivotal strategic buys happen all the time – just for far lower multiples).

Media companies don’t like to pay more than their spreadsheets normally dictate. But if word comes from Time Warner’s CEO or its board that “ESPN is kicking our ass in sports” and “do something about it, pronto,” well, that’s when lightening might just strike. As for the Huffington Post, let’s be clear: AOL was a huge media business that faced a massive problem with audience retention, thanks to its declining dial-up business. The HuffPo brought a large and growing audience, not to mention some serious social media and content-platform chops. Right place, right time, right product, right team.

Now, both these businesses were leaders in their fields, they redefined news and sports coverage. And that’s why the acquirer with the major strategic problem bought them – they were the best at what they did. They met a large media company that had lost its way, and magic ensued. I applaud them both.

But if you’re building a content business in the hopes the same lightening is going to strike you, well, I too salute you. But that’s not really a plan for building a lasting media brand. At some point, you’re going to have to come to grips with the reality that making media is what you do for a living.  Making media companies that you hope to sell is not a lot of fun for anyone who cares deeply about making media.

*The current distribution and production landscape for media companies is an utter goat rodeo. Speaking of no fun, man, let’s talk about what we in the media business call “distribution” – IE, how we get our product to you, the consumer of our work. To illustrate what a total mess digital distribution has become, allow me to create a simple chart, based on the medium in which you might choose to create your media product. Note that I whipped this up in the past half hour, so it won’t be complete. But I think it makes my point:

And my point is this: If you are starting a digital media business today, you face a fractured, shifting, messy, business-rule-landmine-laden horrorshow. Your fantasy is that you can make one perfect version of your media product, and deliver it across all those tablets, Kindles, smart phones, PCs, Macs, and so on. The truth is, harmonizing your product (and, even more importantly, your consumer’s experience and your monetization) across all those platforms is currently impossible. Compare that to starting a website in 2002, or launching a magazine in 1992 (that’s when we launched Wired). The business rules were established, and you could focus, in the main, on one thing: producing great content. (Speaking of Wired, it had a great exit, as historians may recall. But again, it was a exit driven by the strategic need of a bigger company: the media business went for a typical multiple, despite how “hot” the brand was. What got the unicorn valuation was Wired’s Hotwired business, specifically, its search share….)

We’re in a messy transition phase right now, where the focus can’t only be on content, it also has to be on the *how* of distribution, production, and business terms. And that’s retarding growth and innovation in media businesses.

But I have hope. There’s a massive business opportunity inside this mess, one that I’m investigating, and I know others are as well. More on that as it develops. Meanwhile, a maxim: Most media businesses fail, always have, and always will. And most folks who make media already know this, which means they are close to batshit crazy anyway. But over and over and over, we keep making content, regardless of how ridiculous the landscape might be. And that, I am sure, will never change.

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14 thoughts on “The State of Digital Media: Passion, Goat Rodeos, and Unicorn Exits….

  1. Anuj Agarwal says:

    You missed Google Glasses in the second column. May be not today but in few years :-)

  2. Jeff Pesek says:

    “There is another type of media entrepreneur who is far more mercenary in nature, but I’m not speaking of those types now”

    I’d like to hear more about this…

    • johnbattelle says:

      I’ve worked for these companies and publications. Not worth the time to write about!

  3. datron says:

    Let me see if I understand what you are saying…

    1.  The big splashy acquisitions are quite rare, can’t be duplicated, and shouldn’t be what pulls folks into this space if they want to make a career of it, and,
    2.  When a new platform or distribution medium comes along, the first few years the entry barriers are a little higher and the opportunities immense, while the standards quite a bit less so.  As that platform or distribution medium matures, the entry barriers can drop while the opportunities are many fewer and the expectations much much higher.  And to add to this in the current age the breadth of the media landscape means making your presence felt in each one of them will likely put a strain on your brand / image.

    What I wonder, and I know I didn’t get 2 quite right, is whether given the increasing pace of change, if the landscape being unsettled will be much more the norm going forward.  And if that is the case, its not only unrealistic to want the reach you suggest, but may not be in your economic interest (unless you already have such mass distribution that being everywhere is expected of you).  Perhaps the days of making choices which means choosing what to ignore will be more and more valued as a skill in this rich and varied wild world. Again, just wondering…

  4. Chris McCoy says:

    A natively social (via structured topics and a user’s relationship to those topics) content management system is the key. Quora and BuzzFeed are best solutions in the marketplace, thus far. WordPress, Tumblr, Disqus too unstructured in its user-to-object relationships to replicate.

    I think the long-term answer here is an open CMS platform architected to support social data, taggable social identities, a smart news stream, and an API that will interoperate with all distribution platforms of the web/mobile/device ecosystem.

    • johnbattelle says:

      I’m not seeing what you’re saying. Say more?

      • Chris McCoy says:

        *I made some edits
        Would love to discuss over coffee sometime. 

        In summary, content creators need a better CMS that lets them get into the game of social, natively serve up social ad units, do social commerce, and deeply interoperate with major social CMS’s out there for extra distribution.

        Atomic unit of content on the web is the conversation. I think content on the web needs a better platform for conversations (for the readers), while enabling content creators to monetize natively with non-ad vehicles (social commerce, etc.). 

        Disqus is wonderful tool for conversations but they own all the data. Content creators should. After all, they create most of the value on the web as it relates to attention economics. Not the sharers. 

  5. [...] The State of Digital Media: Passion, Goat Rodeos, and Unicorn Exits…. | John Battelle’s Sear… [...]

  6. [...] run into a number of folks these past few days who read my piece last week: The State of Digital Media: Passion, Goat Rodeos, and Unicorn Exits…. Some of you have asked me to explain a bit more on the economic issues regarding media startups. I [...]

  7. [...] run into a number of folks these past few days who read my piece last week: The State of Digital Media: Passion, Goat Rodeos, and Unicorn Exits. Some of you have asked me to explain a bit more on the economic issues regarding media startups. [...]

  8. Jetwell says:

    Great article, similar issues with your article called ‘Musings on Streams..’. You are thinking on this big then, great challenge. The problem IS the business model as your chart neatly shows. The development costs for various devices would not be stopping the crazy entrepreneur.
    Every content consumed using the Flash player could potentially be creating a log and thus generating information about the user’s content consumption, be it an article, game or movie clip. Some of these content would be paying in a global virtual currency which would be kept by Adobe in a global database for all users who would opt-in. So for instance, a game made by Coca-Cola would be paying the user 25 cents worth of virtual currency, call ‘key-points’ which she could spend on a good article or game. Users’ key-points would be kept by Adobe, tracked via their Flash players. This is similar to a credit card loyalty point program, except here there is a Flash player with unique id instead of a credit card number.

  9. Jetwell says:

    Great article, I agree that the problem is the business model as your chart neatly shows. The development costs for various devices not necessarily be stopping the crazy entrepreneur. One crazy guy contacted Adobe about inserting a payment system into the Flash player, that existed on 98% of all computers. Every content consumed using the Flash player could potentially be creating a log and thus generating information about the user’s content consumption, about an article, game or movie clip. Some of these content would be paying back the users in a global virtual currency which would be kept by Adobe in a global database for all users who would opt-in. So for instance, a game made by Coca-Cola would be paying the user 25 cents worth of virtual currency, say, ‘key-points’ which she could spend on a good article or a game. Her’ key-points would be kept by Adobe, tracked via her Flash player. This is similar to a credit card loyalty point program, except here there is a Flash player with unique id instead of a credit card number.

    This kind of models now have trouble working on all devices and platforms, not because it is technically difficult, but also Apple and Fb do not let them prosper. One fine magazine like Wired can exist now only if the founders can solve issues on both of these aspects.

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