Ceilings, walls, slow growth

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Defector, the sports and culture publication launched four years ago by former Deadspin writers, is an example of the mixed picture for the future of the media business. The tradeoff of sturdier business models is slower growth.

On the plus side, Defector is a solid business, operating profitably with $4.6 million in revenue and 42,500 paying subscribers while fully employee owned and without any outside investors. At the same time, Defector’s revenue grew by just 2.2% and its subscription revenue, which accounts for 83% of the business, grew by 1.3%. It ended its fourth year of operation with 42,500 paid subscribers, up 400,000 from year three.

Defector’s revenue growth shows a business that’s hit a wall. After accruing $3 million its first year, Defector’s annual revenue growth has gone from 16% to 18% to 2.2%.

"The state of Defector is strong," said Jasper Wang, COO of Defector Media on this week’s episode of The Rebooting Show. "I mean, it's fine. It's steady. In some ways, that's the best thing you can be."

That steadiness means approaching the business with a healthy dose of realism.

"I don't think anybody in-house is under any false ambitions or pretenses that we will find the next gear in the next year that gets us back on the 20% year-over-year growth," .

In some ways that’s the story of the modern media business. Incremental growth is the new meteoric growth. Subscription models are more reliable. Defector has a solid renewal rate but even the subscription business isn’t immune to macro challenges like the difficulty in gaining organic distribution through search and social platforms. 

Jasper and I also discussed Defector’s plans to expand its ad revenue, the inevitable challenges of fast decisionmaking in an employee-owned business, the “lean stack” approach of outsourcing as many publishing and corporate functions as possible, and the growth of its Normal Gossip podcast and diversification of Defector’s audience.

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Digital advertising is in the midst of profound change in the use of audience data. For publishers, this represents a challenge but also an opportunity. On Oct 31 at 1pmET, I’ll be joined by Matt Kyme, senior director of product at Hearst, and Patrick Crane, director of core sales at BlueConic, to discuss how Hearst is using the “crisis” as an opportunity to build consented first-party data strategy in order to create valuable audience segments for advertisers.

Hitting the wall is a reality of most endeavors, not least publishing. The days of heady growth inevitably taper to a trickle. The early gains, which themselves felt difficult, slow. The business requires new tactics. 

The wall is surmountable. Hitting the ceiling is different.

A wall is something you can go around with persistence and skill. It often requires a greater focus on optimization and operational skill, as well as pulling other levers in the existing business. My conversation with Jasper reminded me of this. Defector has the hallmarks of hitting a wall. That’s why we spent a good part of the conversation talking about tactical approaches to the business like gifting articles, finding new sources of distribution and managing infrastructure costs.

The more daunting task is when you hit up against a ceiling, which is a structural barrier. A ceiling is when you have reached near the potential of your existing business. Newsletters have emerged, improbably, as a bright spot for the media business. They offer many advantages not worth repeating. They also come with a built-in ceiling. For some, that’s perfectly fine, others have to rethink their approach and do the proverbial cliche of rebuilding the plane while in mid-flight.

In the overall media business, the ceiling for many is lower than it once was. This thought echoed in my head as I read the excellent New York magazine feature on the future of the media business. It was a smart approach as a package, and it captured many of the anxieties of those running media businesses. One thread I found is the acceptance that the ceiling for many media businesses is lower than once thought, particularly compared to the Mary Meeker days. 

New models can start with an understanding of the lower ceiling and build an infrastructure accordingly. Take Semafor. The business just turned two. Half its $10 million of revenue comes from events, which by definition have a lower ceiling than advertising. The upside: Events can produce revenue relatively quickly, at least compared to advertising or subscriptions. You can also only do so many events. Semafor plans to do 75 events by the end of the year. Tellingly, Semafor cited its 750,000 newsletter subscribers rather than a big digital audience number.

The optimistic notes sounded by the smaller-scale models that are doing far better comparatively to many sectors of packaged media came with an undercurrent. Can these become very big businesses? To many of the stalwarts interviewed, the idea of clawing your way to 9,000 paid subscribers is small ball. Hustling dozens of events a year, or acting as a party planner at Art Basel? A Zoom call? 

This is hardly the 1990s magazine industry. Niche is by all accounts the most vibrant lane in the media business. Niche is also a synonym for small. The tradeoff of low costs is a lower ceiling. And most people in previous generations didn’t get into the media business to be bit players inside a far larger Information Space, where power and prestige has dispersed from institutions.

Indeed, the success cases cited – Semafor, Puck, The Ankler, the Substack crowd – are at this point small businesses. The revenue wall for many digital publishers used to be $100 million. It was a slog to get around that. The market overall has decentralized while the overall ad market is smaller for publishers. That will inevitably lead to the wall coming sooner, and more likely a ceiling being hit far sooner. 

Of course, managing expectations is one thing. It’s far harder to adapt an infrastructure and culture to a lower ceiling. That came through with many of the criticisms of legacy players like Condé Nast and, surprisingly, unions. Of all the challenges facing these businesses, that might be the most profound one.

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