If any consensus came of the 2016 election, it might be that the current state of our fractured media is inhibiting social progress. Ironically — and against the odds — that situation may be creating an opening for investors and social entrepreneurs looking to create change that is both impactful and profitable. A months-long study of the media landscape that began as a 2017 Media Entrepreneurship class, taught by Ann Grimes, at Stanford’s Graduate School of Business, has led us to conclude that — contrary to conventional wisdom — investing in new “purposeful” media models can be a path toward both positive social change and financial reward. This is a path that select investors, notably Emerson Collective for example, are quietly yet boldly pursuing. Purpose can become a competitive advantage, one that drives a new “purpose-for-profit” model.
It’s risky business…
It’s no secret that the U.S. media has been disrupted by polarized politics and new technologies. The media also has been turned on its head by broken business models. To be sure, media investing is a risky business.
Heidi Patel, Managing Partner and co-Founder at Rethink Impact, a new $112 million impact investment fund, and Lecturer in Management at Stanford’s Graduate School of Business, sees media as an uncertain investment space, regardless of the potential returns, whether financial or in terms of impact.
“Media is similar to the food business in that you constantly need to refresh a perishable inventory and there is a high cost to run the business at scale,” she says. But our observations indicate that increasingly going forward, when it comes to economic value the most successful companies are relying on a new sort of supply chain, one built on relationships and human values. Companies that want sustainable profits and transformational impact need to grow — and keep — that supply chain.
Until recently, the currency of attention has been the driving force. In fact, ‘the attention economy,’ (a concept pioneered by authors Thomas H. Davenport and John C. Beck, and more recently explored by authors Tim Wu, and design ethicist Tristan Harris, among others), has driven the operational and revenue models of Facebook and the major platforms to date. However, the currency of attention is being replaced by a different and potentially more valuable currency, an emerging “trust economy.” The companies discussed below are innovating their associated business models, technologies, and brand-building efforts in response. The process is not an easy one, but is one, we contend, with considerable upside.
Here’s the playbook…
Where media was once a product to attract, collect, and sell eyeballs to advertisers, it can now be a way to connect directly with specific audiences, demonstrate an understanding of the underlying values of those audiences, and serve those audiences’ needs.
This marks a sea change in the way we have traditionally defined the media industry. What’s more, when a company develops a deeper relationship with its audience by creating and distributing media that is in line with the values of that audience, as well as the fundamental mission or higher calling of the company, “purpose” and profits fall in line.
Such “purposeful media” can take many forms, but successful profit from purpose companies — especially in the media space — almost always follow a strategic roadmap that leads to a virtuous cycle that strengthens financial returns and missions. Consistent purpose sustains profits. Profits ensure impact. Profits and purpose become intertwined. For impact investors and social entrepreneurs looking to create change, a purposeful media strategy can be the difference between causing ripples or tidal waves.
Of course there’s an elephant in the room. In the wake of revelations about the scale of fake and misleading news and activity on Facebook, to be sure, Mark Zuckerberg has emphasized the mission of Facebook to become more purposeful, “to give people the power to build community and bring the world closer together.” Media, both generated by Facebook’s users as well as its publisher partners, is the glue that holds these communities together, once those communities have been self-sorted through common interests. History will tell us whether all of Facebook’s insight into the who, what, when, where, how, and why of audience and community dynamics will be directed to truly help people, or if it will be used only to sell more targeted advertising and pull us deeper into the algorithmically-driven filter-bubble phenomenon.
Amidst the changes in the media industry catalyzed by Facebook, and perhaps as a direct response to those changes, the most successful media start-ups we analyzed appear to follow a certain playbook: Grow an audience, learn who that audience is, identify its unmet needs, create engagement by connecting to its values, layer in media, develop and leverage technology accordingly. They appear to fall into three paradigms, outlined below.
I. Media-as-a-Service: Companies that caught our eye have begun to employ a new communications strategy that media experts like CUNY Journalism Professor Jeff Jarvis call ‘media-as-a-service,’ where the ‘service’ is the hyper focus of providing an audience with the ability to experience their values and identity reflected back at them within the content. That mix of audience values and company values mediated through well-tuned content is what provides layers of connection for communities and companies.
>LinkedIn: LinkedIn is a case in point. The value of its revenues, driven by subscriptions and recruiting tools, is directly related to the quality of content as social currency created by the audience itself. With the purchase of publishing platform, Pulse in 2013, LinkedIn incorporated media as an afterthought to its core service of matching job hunters with potential employers. LinkedIn developed a community of its own content creators — so-called “influencers” — that led to more community, more engagement, more revenue, and eventually led to its $26.2 billion acquisition by Microsoft Corp.
>Next Door: Over 150,000 neighborhoods across the country are connected through Nextdoor. The site, a private social network for neighborhood communities, is almost the anti-Facebook. Now valued at nearly $1.5 billion, and having raised $285 million since it launched in 2010 (most recently $75 million series G earlier this month), the site demonstrated its mission of connecting communities most recently with Hurricanes Harvey and Irma, surfacing news and information, help hotlines, donation how- to’s, and more. In August, Nextdoor announced a new partnership with the Bay Area News Group. By layering in content from the East Bay Times and San Jose Mercury News, the site adds a dash of local news that reflects and informs the values and concerns of local Bay Area communities. Nextdoor has built out its recipe for purposeful media but also could be creating another purpose by developing a runway towards a new and profitable business model for ‘dying’ local news organizations.
>BuzzFeed’s Tasty: In the wake of BuzzFeed’s monetization challenges, it’s no wonder they are looking for creative options to diversify their revenue base. A food-focused BuzzFeed channel that creates instructional food videos, Tasty, looks to turn the media model on its head with the recent offering of a kitchen appliance: a smart hotplate. What is interesting isn’t necessarily that a food-focused channel is selling appliances, but rather how the breadcrumb trail tracks back to the original inception of Tasty in the first place.
The playbook: BuzzFeed created a plethora of comedic, memesque video content aimed at millennials. It discovered that millennials prefer more types of content than just cat videos. It launched new verticals catered to reflect the audience, starting with a legitimate journalism organization, and later to niche verticals like food that creates interest from advertisers. It then pivoted to the launch of an appliance developed from insights gathered from the Tasty audience, and in partnership with GE Appliance’s First Build Team. The journey from memes to hardware innovation makes a strong case for why and how to listen to your audience.
We believe this approach can work for social ventures as well. Imagine if the Tasty playbook were to be applied to a solar or microfinance initiative? What kind of transformation in the world could be catalyzed by products that are developed through listening to the needs and understanding the values of underserved audiences around the globe?
II. Platform as Purpose: Technology companies also are coupling insights from audience behaviors by harnessing big data, artificial intelligence, machine learning, and VR in the creation of purposeful platforms. New innovative publishing companies, such as Axios, among others, can be platforms too.
>Banjo: Banjo is one company disrupting the social media landscape in a “purposeful” way. The Las Vegas-based company has built a unique technology solution leveraging AI, machine learning and camera-based technology for purposeful ends. As a new type of social media aggregation platform, Banjo captures and categorizes data based on location, real- time virality patterns, and has the ability to therefore distinguish what is “true” and what is “fake” in the chaos of the social media world.
Banjo, too, has layered on traditional media, through partnerships with NBC and other media outlets. And it has capitalized on an emerging media ecosystem, one that is focused on the idea of authenticity, truth, and speed. When the audience doesn’t trust what they see and hear online, the need for factual information becomes more and more valuable. Banjo aims to positively disrupt the social media landscape in this way and has the war chest to do so having raised $100 million from Softbank in 2015.
>Within: When content and delivery are intertwined through a technology — like Virtual Reality — that facilitates a deeply empathetic connection for a viewer, we see potential for a truly purposeful experience. Jeremy Bailenson, director of Stanford University’s Virtual Human Interaction Lab says his research shows that VR causes more behavior change, more engagement and more influence than other types of traditional media. “Virtual reality is not a media experience. When it’s done well, it’s an actual experience,” Bailenson says. Picking up on that theme, Los-Angeles based Within, VR Distributor, and Here Be Dragons — Within’s sister VR production studio — are mediating a deeper human connection using virtual reality. The start-ups innovate at the content format and delivery stages of the media value chain. Many of the films or experiences produced by Within have been branded content partnerships with The United Nations, The New York Times, National Geographic Documentary Films, GE, and Tom’s. Within recently raised $40 million in Series B funding led by the Emerson Collective.
> Axios: aspires to be a best in class subscription and high end research news businesses founded to fix the way news is navigated, narrated and monetized with cutting edge technology at their core. Axios, which just took in an additional $20M in new funding, is taking a particularly modern approach to defining the agenda in ‘purposeful’ content by creating a hybrid approach to blending the subjects of technology, politics, and vertical interest areas (such as energy) that is fundamentally aligned with today’s world. Because its news and content is so original, so aggregated, and so high end, it is not vulnerable to the phenomena of commoditization and fake news permeating and bastardizing the industry. Its pricing model, and unit economics, are also not subject to the law of diminishing returns of high volume story-churning news organizations, such as Huffington Post, who must constantly churn out higher and higher volumes of their relatively commodity-like stories for diminishing yields.
>LaserLike: LaserLike, a very early stage AI company, is still in stealth mode. The company appears to be intelligently employing AI to continually scour the web for things readers like, bringing them the most interesting content. Founded by top Google engineers, backed by Google News founder Krishna Bahrat, data scientists and AI specialists, LaserLike appears to be reverse engineering the Facebook ‘filter bubble’ algorithm approach, by finding content that is relevant, but unexpected, and unlike what you, or critically your social feed, might have fed to you. It’s an indication that the social network peer-pressure based approach to news and interests is ripe for disruption.
III. Media that Matters: To be sure, legacy media has to date been “rescued” in part by non- profit business models, major philanthropists and deep-pocketed social investors. While the influence return here can be high, the economics and associated business model proven more challenging, unless retooled like the following.
>Participant Media: Jeff Skoll’s film company is the 800-pound gorilla of media with a mission. Films like An Inconvenient Truth, Lincoln, The Help, and Spotlight have each garnered Academy Awards and have made significant impact in national conversations regarding gender, ethnicity, climate change and child abuse. But, as Skoll has acknowledged, Participant Media has yet to turn a profit. A recently executed restructuring of the company following a review by McKinsey has smartly reorganized Participant into a more integrated, holistic impact entertainment company. With the acquisition of digital shorts impact innovator SoulPancake at its core, new content is likely to generate higher ROI.
>First Look Media: First Look Media, created by Pierre Omidyar, the billionaire founder of Ebay and now major impact investor through the Omidyar Network, brands itself as a multi- platform vehicle for the voice of ‘truth and independent media.’ Originally launched as a journalistic endeavor, it has gone through several incarnations, and now has distinct, targeted media brands dedicated in different ways to purposeful storytelling, change-making and civic engagement. In the past, Omidyar Network has championed independent organizations Change.org and Global Voices, among others, with minority investment or grant capital.
>Emerson Collective: With Laurene Powell Jobs’s recent purchase of The Atlantic, we begin to notice a pattern. Do-gooders with deep pockets looking to make an impact on the behaviors of billions of people understand the persuasive and influential nature of both entertainment and news media, and they are willing to put their money where their mouth is, especially if the ROI looks promising. After years of scraping by, The Atlantic found a sustainable business model through native advertising, in-person events, cutting edge digital technology — like their innovative news chat-bot — and aggressive outreach and increased reader revenue, making Emerson Collective’s investment a sound one.
A Path to Purposeful Profitability…
The above examples show a highly visible, consumer-facing industry with a powerful potential to drive change can help ensure that investors enjoy the ROI they expect.
Digital behemoth, Vice Media, despite it’s recent miss on financial forecasts, is nonetheless still a case in point. Not only did they outline the original playbook, but they stumbled into a moneymaking strategy — native advertising — that has been emulated industrywide. Vice was able to unlock a large market others didn’t see by matching its brand image, message, and values with those of its millennial audience. It understood that this audience sought a media brand that reflected its values. Vice jumped on that and has kept innovating with the times.
For example, In 2009 Intel, quickly losing relevance with a younger, hipper demographic, recognized that Vice was onto something. The chipmaker approached Vice Media with the partnership deal that was to become a blueprint for Vice and for the industry. In exchange for brand awareness among a sought after millennial audience, Intel underwrites Vice creative initiatives that further fuel the media company cultural juggernaut status. The advertising deal that started out as $40 million and soon rose to $100 million.
Those deals not only buoyed Vice’s bottom line, and drove its valuation to $5.7 billion, but has allowed Vice to launch Vice Impact, a separate digital channel that taps into a millennial sense of mission and values, as well as into corporate social responsibility marketing budgets. Indeed, Vice Impact has become a pioneering social voice. Its partners include: the United Nations Foundation, UN SDSN, Water Defense, The Solutions Project, the Alexandra Soros Foundation, The Pratt Foundation, Project Everyone, Global Citizen and RED.
Pick up the Playbook…
Investing in companies that demonstrate a purposeful media strategy can spark a virtuous circle. The more a company understands its audience, the more potential it has to be meaningful. The more meaningful that company becomes, the more purposeful it can be. The more purposeful the layer between the company and the audience becomes — i.e. Capitalizing on the social connectivity that is the media itself — the larger that audience will grow, and the more potential for profits. The more sustainable the profits, the greater the impact.
Smart ventures, impact driven or otherwise, can pick up on the playbook used by the smart media companies identified above. Their potential has been realized because savvy investors realized that the more that they reflect the interests and underlying human values of their audiences, and adapt their content and delivery strategies accordingly, the more opportunities they have to innovate their business models and core offerings, thereby generating greater financial returns and having a greater impact on the world.
*Ann Grimes contributed to this article