Publishers: It’s time to give up the ghosts of scale
They look friendly, cheerful, and appear to come bearing plenty of candy. But beware the ghosts of advertising scale.
Bad news has dominated the media industry of late. In addition to the latest round of high profile dismissals for sexual impropriety, the media industry is recoiling from more rounds of layoffs. While industry contraction is sadly nothing new, these reductions are unique in impacting both traditional outlets and the brightest digital upstarts. You likely know the grim statistics: Buzzfeed and ESPN announced the layoffs of hundreds of employees; meanwhile, Vice, Mashable and the aforementioned Buzzfeed were due for a reckoning by their investors. In my home country of Canada, it was announced that 36 community newspapers will be shut down resulting in the loss of almost 300 jobs. The Atlantic’s Derek Thompson has done a great job of outlining the casualties in this post.
These reductions have been accompanied by hand-wringing that digital media companies made a fatal error by accepting venture capital. This is placing blame in the wrong place. Yes, perhaps VCs demanded quick returns, but it should not be held responsible for the revenue models these media companies chose to pursue.
The job losses are real. The void being felt as a result of these cost-cutting measures is real. But nobody can argue that we didn’t see this coming. Last spring, I wrote a piece attempting to apply professor Clayton Christensen’s disruption theory to digital publishing. Using that lens, the theory predicted that a tipping point was near, and the days of publishers chasing advertising scale were over. Instead, journalism was entering a new phase: the SaaS or Stories as a Service era.
If news organizations want to regroup, mobilize, and capitalize, its leaders, myself included, need to re-educate investors about how we will achieve meaningful returns by “pivoting to readers,” as so eloquently phrased by Thompson, instead of chasing the ghosts of scale.
By having readers pay for their journalism, and by using the corresponding readership data, publishers will have to listen to what their readers really want. Instead of catering to advertisers and the scale they demand, news organizations can focus on accountability metrics like loyalty, retention, and churn that closely resemble SaaS businesses instead of having a singular focus on CPM-driven ad businesses.
Investors are quite willing to fund SaaS-based companies.
Research conducted by CB Insights shows that since 2009, VCs invested $9.81 billion in SaaS-based companies:
Yet, if you take a closer look at where these SaaS investments have occurred, only $24.5 million, or less than half of one percent, has gone into the media/publishing space:
The companies facing heat for taking VC money chose models that were fundamentally driven by the pursuit of advertising as their primary revenue stream. When the bottom fell out on advertising revenues, it then required these companies to pursue mass scale. But that was the choice that these founders and CEOs made, it wasn’t one forced upon them by their investors.
There are others out there who chose a different path and who are now achieving sustainable growth. Just ask early investors in The Athletic or Skift. Both sites are proving out successful models while accepting venture capital.
Venture capital is by no means perfect. It comes with its own risks, rewards, and prejudices, many of which have been outlined in concrete terms by the brilliant founders of the Zebra movement. (NB: Count me among the proud Zebras. If you haven’t already done so, read this and this). But venture capital isn’t to blame for the latest round of bad news in the media industry, it was the promise of growth and scale through advertising that was the flaw.
We need investors to buy-in to the SaaS: Stories as a Service era of media startups if we want to find a path forward for sustainable, independent journalism. It’s a healthier model that may be harder to scale up, but is also much harder to tear down. As an investor, wouldn’t you rather have guaranteed, reliable and growing returns year-over-year paid for directly by your customers instead of relying on third-party platforms and ad agencies who can change their mind when it’s time for the next platform pivot?
Those who live by the sword, die by the sword. I’d rather forego the ghosts of scale and pursue a healthy relationship with our readers for the gift that keeps on giving for investors, founders, journalists and most importantly, citizens.
