A Media Thesis
What makes content addictive, tips for media practitioners, Bored Apes seek bananas, NFT SNAFUs, psychedelic media, Prof G. gets schooled, musical grilling. Shake it baby.
Welcome to People vs Algorithms 15.
I look for patterns in media, business and culture. My POV is informed by 30 years of leadership in media and advertising businesses, most recently as global President of Hearst Magazines, one of the largest publishers in the world.
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The laws of gravity hit Netflix last week. A forecasted Q1 membership growth miss sent the stock into a tailspin. The company will add about 11M new subs between Q4 and Q1, well below previous guidance. For context, Netflix has about 220M subscribers. Its membership base has weathered a doubling of prices over the past 3 years. By any measure it’s a roaring success, notwithstanding current market volatility. Yes, the streaming business is increasingly competitive. This a subscription content company with hits, fickle customers and churn. At some point, the market’s bound to treat it like one.
Netflix's market cap has eclipsed most of its media rivals, but remains a fraction of the big platform players: Google, Facebook, Apple, Amazon in particular. These companies differ on key dimensions. All have enormous moats driven by network effects and data. They benefit from superior platform versus content cost structures. These are distribution not content companies.
Pre internet, media had more distribution resilience, especially in local news, cable and network television. That stability, combined with dual subscription and advertising income streams created market power and terrific margins.
Contrast these with contemporary digital content companies that fight to hold position in a user-driven digital ecosystem with no entry barriers. They earn their audiences daily. Few have the subscription scale of Netflix or the network distribution power of a Youtube. Life was easier when navigation was a TV dial.
All to say, it’s harder to sustain a scaled media brand now. Content has to work harder to find audiences, keep them engaged and loyal.
So I thought it would be a good exercise to jot down a few thoughts on how I think about media businesses now. This is naturally through the lens of a digital media practitioner.
As I started writing, an old presentation I made came to mind.
What makes content addictive
About five years ago I was thinking about what kind of content motivated a consumer to actually type in a URL. The challenge for digital media was an over reliance on Google and for a while, Facebook. What characteristics of content might motivate someone to seek out a piece content and ultimately build a relationship.
I spoke to a bunch of editors and smart media people and put together a list of observations entitled “What Makes Content Addictive.” I could not dig up the preso but remember much of it. Boiling the content equation to a list seems naive — the media world is vast, spanning news, entertainment, lifestyle, sport, B2B, social, gaming — but go with me.
Start by considering why you decide to read, watch or listen or play something. What was at the core of your motivation? Here are a few things I came up with:
The news and the new: Tell me what is happening now. Give me what I need to know to be relevant and thrive in my sphere (CNN, WSJ, Vogue).
Point of view and analysis: Help me understand and contextualize my world. Confirm or challenge my biases (The Atlantic, Fox News).
Car crash voyeurism: Help me feel better about myself by seeing the misfortunes of others. Let’s add gossip here. (Daily Mail, The Post)
How's it gonna end: Tell me a story, be it fictional, real life or sport (Succession, NFL).
Transformational promise: Make me feel better, eat better, look better, live longer, raise better kids. This is a classic lifestyle media brand construct. (Women's Health)
Engage passions: Connect me to a topic and ideas I am deeply passionate about created by people who are informed and like minded. (Food Network, blogs, Twitter)
Fandom: Enable me to more deeply participate in a community or movement I am passionate about. Related to above, but with a narrative angle (Fandom.com).
FOMO: Let me see what others are doing, so I can feel better or worse about myself (Instagram).
Deals and commercial content: Help me find the right things. Help me get the best deals (Food52, WIrecutter, Slickdeals).
Human connection: Connect me to people I care about. This is more communication than media, but it's all blended now (Facebook).
Bonus: Obviously humor.
The most important ingredient is…you
The above are good starting points when thinking about audience motivation. I would add one transcendent ingredient. Now more than ever, media needs to find a place for the audience. Good media has always engendered conversation. But, writ large, participation is the most fundamental engagement construct in modern media. The internet made creation accessible for everyone. Social media blended media with communication in a way that humans became co-creators and distributors. Fan fiction invites the audience to extend narratives. Sports has always been powerful because of fans. Fans participate. Frictionless betting adds an additional layer of engagement. Gaming is a narrative space that you complete. Any metaverse is your metaverse. Participation is the most powerful motivator and loyalty mechanism.
My friend Rich Antoniello, founder and former CEO of Complex, has good thinking on this, having spent many years building the Complex community. According to Rich:
"COMMUNITIES ARE TRANSPORTABLE, audience alone doesn’t travel across platforms.
What people don’t realize is WHY a brand/publisher having a “community” is absolutely essential — now that ALL media is distributed across so many platforms as well as the fact there are new, fast-going ones popping up all the time.
Today: Developing Community comes from not just providing content but unique value from a two-way conversation with the community pulling the content from the creators/brands/publishers.
Yesterday: brands/publishers PUSHING/amplifying content to as much audience for scales purpose - not a value exchange.
Dimensions of successful modern media
Let’s build on this and get more practical. Here are a few of the dimensions I look when looking at digital media businesses.
1. Addictive to the base, critical mass in a segment.
Call it niche or vertical media. It can be distinguished by means of topic, geography, point of view, but always super-serves a core audience. Pre internet, distribution monopolies created blurry lines and general purpose media. This has been dead for a long time. Resilience requires a unique and dominant position against a topic, mindset, audience segment or data position. Without this you face an exhausting war for dollars, in subs or advertising.
And the connection to the base must rely on a ownable distribution mechanism — free or paid — be it direct web, email, app, physical or a mix of these.
2. Built on audience involvement and brand advocacy
See Rich’s comment above. In network media, community is useful. The media brand has to encourage user involvement. Community takes many forms from light involvement (advocacy or commenting) to community creation to shared ownership (DAOs). Many media brands will be closer to one way service models. This should not diminish the need to have a user actively identify and engage.
Let’s not forget the most important virtue to an engaged audience… data. Authentication, in some shape or form, is a requirement moving forward. This is how you get it.
Related: Influencer models only become more important. The ability to wrap organizing capability around networks of creators becomes more important with media brands functioning as an operational and curatorial envelope.
3. Continuously growing IP
Because in the end, this is all that is ownable.
4. Value to the market that exceeds cost to produce
The ability to build a position in the market has to be achievable in a way that creates long run margin though enterprising approaches to content creation, audience development and / or an innovative way to extract value from the market through the ad offering, subscriptions, commerce, experiences or as a front end to a marketplace.
5. Traffic diversification
Yes, a base audience is a requirement. But to expand and market the brand you need a distribution strategy that levers off of large traffic networks in search, social and syndication partnerships. Many have relied solely on third party distribution at their peril. This is the story of those that grew quickly on the backs of Facebook and Google only to see the rules turn against them. The base is everything. But the ability to grow non-linearly through partner channels is the more likely scenario. Diversification is key.
6. Hacker mentality
Most media brands that scale quickly do so at a moment where new distribution opportunities or superior arbitrage economics created a window of opportunity. The rise of social media created Buzzfeed and Zynga. Superior execution against search created Bleacher Report. Netflix levered technology and shrewd catalog deals to accelerate against slow footed competitors constrained by years of cable success.
In the end the media needs to follow an equation where the cost to acquire a customer is quickly overshadowed by their lifetime value. A hacker mentality is useful.
6. Advertising plus
The internet is a transactional medium. Media has an opportunity to take value beyond the impression. Advertising is steadily shifting from impression to GMV. Which is essentially performance advertising. This manifests in two ways, getting closer to a transaction or having the consumer pay for the content. Increasingly this creates hybrids in content / commerce, content / leads, content / community, content / IP.
7. Nothing is defensible
Media is always vulnerable to new entrants. Especially now. What sustains beyond superior talent and continual innovation? Long standing brands, like those from the magazine world, have proven extremely useful even as digital has forced profound change. Format innovations gives you a head start but are, ultimately, easy to copy (Axios, Morning Brew). Media that unites buyers and sellers in marketplaces are resilient. This is why B2B media brands are compelling. Pure, community based media models are rare but obviously valuable (Reddit).
The best thing to come back to is to know your audience well, and understand the real motivators driving the relationship.
Bonus: Media Veblen
Here’s something a bit more conceptual but interesting to think about, to build on the community media construct. The tweet from the talented @jackbutcher reminded me of the idea this week. It’s the economic notion of Veblen goods — those where demand increases when price increases (i.e. the demand curve is inverted). Higher prices connote status positional value and as such create more demand for a product. Examples would include luxury cars, prestigious universities, iPhones, even crypto currency. Assuming this relationship can be maintained, Veblen is obviously synonymous with brand health and profitability.
Strictly speaking, media is not a Veblen good. It's hard to see a scenario where a higher price for Netflix, a movie or a subscription would lead to increased demand. Price increases on the ad side almost certainly lead to demand reductions. But, the best media does have Veblen characteristics. We might see it the price inelasticity of a Bloomberg terminal. Perhaps in a Wall Street Journal subscription. When media has a community foundation, it confers status among its audience. More people want to be a a part of it and price sensitivity is reduced. Veblen properties are analogous to a network effects. I don't want to stretch the idea out of shape, but the concept points to something special about a community connection between people and content.
We see it more clearly in the media DAOs (Decentralized Autonomous Organizations), collaborative, community owned media structures. Take for example the Crypto Packaged Goods DAO, a media networking and mentorship community founded by Chris Cantino and Jaime Schmit (like the hip art DAO, Friends With Benefits). They've assembled a good group of crpyto and media insiders to share knowledge through Telegram, support mentorship programs and fund charities. Access requires ownership of the CPG NFT whose value has steadily appreciated as the group has grown in status, scale and notoriety. Price increases confer status. Status makes more people want to join. CPG DAO is Veblen!
So the highest order aspiration for a media brand is to achieve a Veblen state, one in which participation offers status and privilege, where community value justifies price insensitivity. I like the idea…”Your media brand rocks, it’s Veblen.” (See related writing on media brands from a earlier missive.)
To be clear, this does not have to be a concept based on elite media products. Status comes in different forms for different appetites and economic realities — Jets fans to jet set.
So much of what passes for media today is search optimized bullshit. When it comes to evaluating media, you kinda know the good stuff when you see it. But it helps to have a framework to know what to look for.
Have a great weekend…/ Troy
7 other special things for you:
1: You are going to see a lot more Bored Apes. Especially if Yuga Labs, the company behind Bored Ape Yacht Club, needs to justify a fat valuation. Rumors are, the are raising at a $5B. The move would be an important validator for the NFT business model. BAYC explained here. More on deal rumors here.
2: One should expect kinks early in the lifecycle of a marketplace. With crypto and Web3 stuff, everything has financial consequence so there are going to be many situations where people get burned. Here, people moving NFTs between wallets, found that old prices surfaced unexpectedly, creating quick arb opportunities for alert traders and losses for owners. From Matt Levine at Bloomberg.
So you can write an algorithm to automatically buy Bored Apes below the market price, and it will buy apes, and you can keep them. And not even from rubes! “Even their most sophisticated (and wealthy) customers”! To fall victim to this trade you had to have been moving NFTs around between wallets to minimize gas fees. You thought you were being clever, but there are always people who are cleverer than you are, and crypto markets are very good at distinguishing the clever people from the cleverer ones and letting the cleverer ones take the clever ones’ money. Or apes.
3: How to become a coffee expert.
4: Interesting newsletter alert… for all you closet Burning Man people. Rave New World from Michelle Lhooq.
RAVE NEW WORLD is a newsletter on drugs and nightlife by gonzo reporter Michelle Lhooq—this is a view from the streets, no bullshit! Join me in the underground as we examine the cultural zeitgeist from the belly of the beast.
This newsletter investigates how counterculture is evolving in the age of platform capitalism, algorithmic oppression and drug legalization. It’s about how music and drug subcultures everywhere—from Los Angeles to New York, Bangkok to Berlin—are fueling the fight for cognitive freedom and political autonomy—and the messy politics of forging new worlds.
5: Scott Galloway bitch slap from Packy McCormick. Rebutting Prof G's Web3 Rebuttal.
6: Why have a piano when you can have a piano BBQ.
7: Finally, this is my newsletter and I will play whatever I want. This is absolute gold. Happy birthday Ruth…