What’s Next for Digital Media Startups?

Lately, it seems like digital media companies have seen better days. We’ve seen a big run of restructurings across the industry including Vice, Bleacher Report, Mashable and BuzzFeed, to name a few. I believe this challenging time will force companies to explore new business models and revenue streams, which should strengthen the overall health of the industry in the long term. In this blog post, I will provide a quick recap on what’s happening to digital media companies at a macro level following Facebook’s algorithm change, while also providing examples of how digital media companies are successfully implementing non-advertising based business models here in Los Angeles.

Facebook Changes its Algorithms

You may have heard, Facebook has changed its algorithms to emphasize user engagement, particularly one-on-one conversation, resulting in a de-emphasis of public content, like posts from publishers. The result? A significant decline in referral traffic volume. According to a Parse.ly report, traffic from Facebook is down 25% from February 2017 to October 2017 for approximately 600 publishers, with one in five seeing a 50% decline.

And the situation is getting worse. A report by Chartbook shows that publishers have seen a 15% decline in Facebook referrals since October 2017.

Why Does Facebook Matter?

Half of US adults get their news from Facebook according to Pew Research, and roughly 30% of all external page views are driven by Facebook, according to Chartbeat — with Google driving a similar percentage.

Surprise: Owning your distribution really matters and relying on a third party distributor leaves you at their whim. So, many digital media businesses that generate revenues purely from advertising are taking a hit. Brands, of course, smell blood and are driving CPMs way down while requiring minimum views, on many occasions, forcing digital media companies to supplement their declining organic reach with paid advertising, impacting margins further. This is not a good story.

Exploring Non-Advertising Based Business Models

Does this mean “doom and gloom” for all digital media companies? No! For companies that rely solely on advertising revenue, they will need to focus on building audience on their owned and operated (“O&O”) properties and creating engaging content on social media in order to mitigate the impact from the changes in Facebook’s algorithm.

Companies should also look to diversify their revenue base. Here are a few examples of the business models and approaches we’ve been most impressed with in the LA market:

Traditional Subscription Model: A Proven Success

Some digital media companies utilize a subscription-based revenue model where users pay a fee to access content. Some of the traditional players like the New York Times have seen significant growth in digital subscribers by utilizing this business model. Mammoth Media, an emerging company here in LA, offers its users access to its library of text based stories for a subscription fee of $2.99 a week via its app Yarn. It’s an approach reminiscent of Netflix, but for text-based stories. The founder’s underlying thesis, as described in a recent blog post, has always been to own its fate when it comes to distribution and monetization.

Commerce Data — An Unmatched Asset

Clique Brands, an LA based company, has made a concerted effort to leverage data from its media businesses (like Who What Wear, Byrdie and College Fashionista) to launch products. Its data set is a rich one, driving sales for over 20,000 products per month (via affiliate marketing). This data is then leveraged to launch products, like JoyLab, an activewear collection in partnership with Target. And what’s the best proof point that they are on to something by playing in the intersection of content and commerce? Amazon invested in their last equity round of financing. Clique’s CEO, Katherine Power, recently shared more info on her team’s approach in this interview — definitely worth a read.

Leverage Intellectual Property

Many local digital media startups are leveraging their IP to sell episodic or long-form content to various networks like Facebook, Snapchat, Twitter, Amazon, Hulu, Twitch, HBO, Showtime and Netflix, to name a few. Companies like ATTN, Crypt TV, and Jukin Media have seen success pursuing this strategy.

Get to Your Online Audience — in Person

Companies like Crooked Media have been very successful in engaging their online audience in person via live events. Crooked’s “Pod Save America” has been touring across America to sellout crowds while giving its fans a unique opportunity to connect with the hosts. This undoubtedly generates new fans and a deeper engagement with existing fans.

So in conclusion, hang on folks. Even though there is a lot of negative news out there, we believe there are still some promising digital media companies in LA, the majority of which are not solely relying on advertising revenues.