How You Gonna Win
Welcome to People vs Algorithms #31.
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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On Tuesday, Snap’s canary in the coal mine moment sent waves through the digital media world. Prior to the quarterly announcement, they reported signs of softening ad demand and forecasted worse than expected results in Q3. The market swiftly cut 43% off its market value in the largest single day decline in the company’s history. The news sent the media market sharply lower. The broader category is now over 50% off its 52 week high. Meta alone lost 7.6%, twice Snap’s entire market cap. Assets are being dramatically repriced. A 10 year low in consumer confidence is bound to hit the ad market.
The news is moving through the media world quickly. Last night, a digital media CEO took a break from reworking his board deck to grab a drink with me. Just one though, the meeting was early in the morning. He had much to do to prepare austerity scenarios in the face of changes in the ad market. He reported a strong Q1. Q2 was looking equally robust. The Snap news created uncertainty, forcing the team to take a hard look at how the year might play out. How client spending will begin to shift in Q3 and Q4 is unclear, but sentiment is turning quickly. As an aside, he made a comment that resonated, “Everybody has a TikTok problem. Netflix to Buzzfeed” he said. We briefly contemplated the future of text content against the zombifying effects of the social video feed. TikTok is like TV on crack.
I’ve seen rapid change before, in 2001 and again in 2008. Brand advertisers will pull back, particularly in non-core activities. Category leading media brands with strong client relationships will weather the storm much better. Margins will deteriorate. Performance environments always tick on, but with rate pressure. Advertisers still need to advertise. Strong media companies with good balance sheets should welcome the reset. Especially those with a base of consumer revenue. Good acquisition opportunities will emerge for holders of cash. Related…Recurrent’s timing on the $300m Blackstone led fund raise could not be better.
Core strength
The correction got me thinking about what makes a media company strong now. There are multiple dimensions to a media business in a digital context. How should we be thinking about the underlying competency that separates an average company from a winner? Winning means being really great at one thing, maybe two. Scaled media companies play all the notes, but everybody has a Major and a Minor. Examining these honestly is important to getting through tough days ahead.
Let’s start by outlining the dimensions of a media business. My lens is digital media, but increasingly describes the entire media universe. Picture the media world as a sphere, defined by three axes.
1. Content: The primary media type — text, audio, video, experiential. Short to long.
2. Distribution: The nature of the connection to the end customer. Subscription to syndication.
3. Monetization: Who pays for the media — the audience, advertiser or a product purchaser.
Imagine these axes defining a 3D space. One could plot virtually any media company inside the space. Every good media company fosters a set of competencies, call it the Major, that enable them to defend the core and grow Minor positions. That Major, while not entirely deterministic, is shaped by how that business cemented a place in the media world, earning some level of stability and permanence. Shifting Majors is difficult, like escaping your DNA. Minors differentiate the Majors and provide aspirational terrain to solidify a core position, take share or diversify into adjacent territory.
Take a company like Business Insider as an example. Insider rose to prominence not with distinguished reporting, but playing to the realities of search and social distribution with juicy headlines, speed and a novel, populist style of business reporting that mimicked the Daily Mail more than it did, say Bloomberg. The content strategy was smartly tuned to the distribution reality. The idea was new. The brand moved across business and lifestyle freely, particularly in video. BI optimized a cost efficient and socially seductive short video style well suited to Facebook, the primary video distribution channel outside of YouTube, one that briefly allowed brands to grow distribution extremely quickly, assuming the content matched the whims of the feed.
BI was built on a series of distribution hacks. This was its Major. As the company evolved, so too did the ambition of its reporting and its aspirations to build a paid relationship with the consumer. It started adding Minors to its Major. This was Henry Blodget's key insight.
Being strong at your Major is a prerequisite for success. Media has few moats. You earn in and need to continually evolve to preserve your position. Successful entrants can Major in any dimension of the three above, but typically you distinguish yourself through virtuosity in distribution or monetization. Many companies make good content and fail. Fewer have failed with average content and good distribution. If you are excellent at monetization, you can usually find a way to make everything work, assuming the money hack lasts for a while.
Bustle is a similar tale to BI, building a search optimized distribution position early against a good monetization vertical, young women, then maturing the content feed, buying ailing brands and running them through a common playbook and exploiting operational synergies. The underlying differentiator is deep monetization skills. CEO Bryan Goldberg and president Jason Wagenheim have done an extraordinary job of building the sales org and supporting branded content capability to reliably serve the biggest brand spenders in the category. The monetization capability that is the Major here enabling them to take share in a crowded market. Refinery29 preceded Bustle as the digital disrupter. Similar to Bustle, their success was a hard earned skill to create editorial platforms for advertisers, optimizing the intersection between content, sales and marketing functions. Sadly, without this focus and the drive of a smart and motivated founding team, Bustle has stolen the leadership position.
Video is less forgiving if you don’t get content right. Most successful video centered businesses are content Majors. With video, you are on trial second by second with the viewer. If you don’t get the content right, people don’t watch… they don’t watch, you don’t make money. Pretty much any video that has strong viewer appeal can be monetized. While there are distribution Majors that are video led, this was more often the case when consumers were hostage to controlled distribution systems like network or cable TV. But this not the case in the on-demand meat grinder.
Archetypes
There are many Major / Minor variations of course. Here are few than come to mind:
1. The System Optimizer
A distribution Major. Built around a deep understanding and optimization of a primary distribution channel, necessarily supported by a reliable monetization mechanism. The Optimizer must have a deep understanding of the rules of the distribution channel, technical chops, a willingness to experiment and change quickly and a love for results which trumps a purely subjective and qualitative mindset on media quality. A hacker mindset works well here. Growth accelerating arbitrage opportunities can be found when the ability to optimize revenue exceeds the cost of buying audience. Traffic efficiency is key.
A few examples… DotDash turns About.com’s search position into affiliate revenue. Forbes Advisor turns a familiar brand into a marketplace for financial products through exceptional search optimization, arb and steady execution.
The truth is, almost every scaled digital media properties needs this as a Major or a strong Minor to achieve meaningful audience scale. This modern distribution reality can sustain search category leaders like All Recipes for a very long time. It can also create unusual media bastard children like the Facebook-optimized celebrity content site from Vietnam, NayeNews (surprisingly, among their top content referrers per their quarterly “Widely Viewed Content Report”).
2. The Brand Studio
The Studio is a monetization Major. Lifestyle media brands embody this Major, particularly fashion brands. Here, a well lit, trusted media environment, distributed across many distribution environments, is sold to advertisers with bespoke, content-driven solutions. The media brand and its halo are vital. Quality content is key, obviously, but it is impossible to escape commoditization and content rarely drives a meaningful subscription proposition. Inside, the entire organization revolves around the needs of the advertiser, though few admit this. Advertising becomes the true north. Efficiently balancing the needs of all constituencies is a differentiated Major. Affiliate and events may be Minors. Examples include Vogue, Bustle, Elle.
3. The Niche Navigator
Content Major. Highly differentiated content focussed on a discrete and definable audience drives a subscription proposition. Building community credibility and authentic connection is key. Exploiting it against a strong subscription sales capability is the real Major. Advertising may be a minor here.
4. The Two C’s
Your soul is content but you’ve learned how to turn it into money by selling products. Typically called “content to commerce.” Your content is your Major, but equally important is the brand IP it engenders and learning how to apply it to selling a thing. Without this or an efficient content-driven audience funnel, you would just be a regular retailer with intense margin pressure. That said, your audience will still demand great products and you will need to manage CAC and gross margin very carefully. There are not a huge number of winning examples here — standouts include Goop, Hodinkee, Milk Street, Food52. Truth is, being great at content and commerce is very, very difficult because you need a double Major. More often than not we see commerce brands lightly layering content on a retail proposition Major, like a Mr. Porter, Glossier or Huckberry.
5. The Cult of Personality
Content Major. Produced or staring a recognized and magnetic human. Typically social distribution, especially video. Subscriber count is the crack. Highly differentiated but can be fragile, as human-led brands tend to be. The Major is turning the human into a brand that lots of people can eat up. Minors in selling endorsement advertising or products. Example: Kardashians, Oprah, numerous influencers.
6. The Lone Wolf
Similar to above. Now typically called a “Creator.” Content Major. Email is the primary distribution. Podcasts too. People seek the content because of a unique or expert voice and POV. This is the real Major. Quality driven list growth is everything. Monetization takes the shape of high value endorsement advertising and subscriptions. A new breed of aggregators like Work Week will turn to these wolves into packs with shared services and growth expertise.
7. The Low Cost Community
Arguably a Content Major but could sit in Distribution. Content and engagement is build around a group of people with shared interests and set of tools that enables community creation. These are hard to build, but when they works you find non-linear growth at a negligible content costs.
Outside of the major social platforms you have examples like Fandom a wiki-based publishing environment for fans and top 20 US destination or SlickDeals, a highly profitable destination for discount hunters where deals are surfaced by the community. Niche examples include Bring a Trailer or Audiogon both of which gather valuable communities around vertical marketplaces.
8. The Orson Welles
Content Major with video focus. You make stuff that people need to pay to see. You may minor in licensing or some small thing but you are a distinguished production company because your ability to make exquisite things.
I am sure you can add to my list. The point is, fixate on your Major or die.
Media is intensely competitive, now more than ever. Few can sit on a distribution advantage for long. Every business will have a combination of Major and Minor that earns them a right to exist. Remember, having a Major that doesn’t find its way to money is called a non-profit. That’s not what I am talking about.
Ask yourself, what is your organization really good at? What deep capabilities do you need to foster a tight connection between audience generation and profit? How are yours unique? What will sustain the advantage?
Truthfully, most companies are not great at a lot of things. Businesses start by being decent at one thing that someone else is overlooking. Hopefully you get great at that thing and the market rewards you. Then you have the breathing room to get good at another thing. But the first thing is the beating heart that will keep you kicking during tough times.
Or as Lauryn Hill would say, “How you gonna win if you ain’t right within?”
Have a great long weekend…/ Troy
Nine more things and one amazing bonus
1. Products like Chocolate Hummus are great to get people talking. Trader Joe’s does this so well. I was surprised to see it leading the most trusted list of brand in the US. “The 2022 Axios Harris Poll 100 reputation rankings.”
2. So are weird $3000 gamer thrones like this. What is going on at Wayfair, c/o Garbage Day.
3. I always thought this was distant tech fantasy. Maybe it will happen sooner than I thought. Walmart is bringing drone delivery to a suburb near you.
4. Google challenges OpenAI’s Dall-E 2 for text to image supremacy. Imagen can make a image of, say, oil portraits of a raccoon king and queen on the wall of a raccoon castle. Seriously tho, this is important tech.
5. Videogrep makes video supercuts from a command line. Not for everybody, but if you are slightly enterprising you can make this fun experience very easily. More examples here:
6. TikTok does self improvement in compelling ways. Exceldictionary helps you get better at spreadsheets.
7. Adam Mosseri is Instagram’s soul searcher. I just don’t know if you can have a cash machine and total creator empowerment. From Wired, “Adam Mosseri Says He Wants Big Tech to Give Up Control.”
8. Bionic reading is kinda like the speed reading techniques taught for decades. I found the typeface on the right much easier to plow through. More on Bionic Reading.
9. Maybe Amazon isn’t right for every product. “Lady Gaga’s Beauty Brand Gives Up on Amazon”
See me cry....