Welcome to this week’s edition of The Rebooting. Reminder to check out The Rebooting Show, a new podcast that breaks down sustainable media businesses in conversation with those building them. Next week’s episode is a deep dive into the Business of Home with president Julie Noran Johnston. You can subscribe on Apple for now, and I’ll add more platforms. Let me know what you think: email@example.com. Finally, if you arrived here because this email was forwarded to you, please consider signing up.
Against all odds, the war launched by Barstool’s Dave Portnoy against Insider and even its sister companies continues into a second week, following an Insider article that delved into muddled accusations of sexual misconduct by Portnoy. From Portnoy’s perspective, the article was a “hit piece,” falling back on the familiar claim of “cancel culture.” The interesting wrinkle of this, from a business model perspective, is how Insider’s decision to put the article behind a paywall is being used by Portnoy as proof the article was ginned up for nefarious reasons, in this case to grab some subs dollars.
Insider, the confusing entity that is home to Business Insider, is an interesting company with a bifurcated model that marries broad reach lifestyle and news content with in-depth business news. The former generally is monetized through ads while the latter is behind a paywall. This particular article is an anomaly since, to my understanding, it was produced by the part of Insider that normally is focused on broad reach. The decision to put it behind the paywall opened up Insider to this criticism whereas The Wall Street Journal with a strict paywall wouldn’t get the same criticism for, say, requiring a subscription to read its investigative piece that precipitated the downfall of Theranos.
This points to a weakness of digital media’s shift to a SKU model. By SKU, I mean the retail term for individual items, or stock-keeping units. SKUs play a critical role in retail, allowing for the optimization of inventory supplies. By breaking down inventory to individual units retailers can not only manage supply better but also determine profitability on a per-unit basis. Deconstructing media to the SKU level has been a go-to strategy for publishers as they competed for attention in an age of algorithms, beginning with search and followed by social.
The SKU media approach doesn’t focus so much on how pieces add up to a coherent whole. Think of a magazine and how pieces tend to reinforce each other, created with the intention of the sum being greater than the individual parts. Digital media obliterated that. Each piece of content needed to fight on its own merits against other pieces of content. The logical conclusion of publishers was to reorient their operations to focus on unit economics. That allows for better optimization, after all. With ad models, the success of a piece was determined by pageviews. That’s why places like Business Insider had pageview expectations. But by atomizing their content, publishers also atomized their brands.
The shift to subscriptions would, on its face, mean a return to the bundle. After all, it’s one thing to try to cadge some Google traffic on “what time does the Super Bowl start” searches and rake in Facebook visitors with some outrage bait, but it’s quite another to get people to take out their credit cards. Yet many publishers are focused on piling up big numbers of subscriptions. The surest way to do that is to rely on low introductory offers -- Insider offers a $1 monthly trial that goes up 13x -- and hope people stick around, either because they find the product worthwhile at the rack rate or because they simply forget and don’t notice the credit card charge.
This subscriptions SKU approach has drawbacks. Like “clickbait,” there is subs bait. These are the stories designed to get people to subscribe solely for that piece of content vs the entirety of the brand’s offering. Personally, I’ve always found this a short-term approach and wanting. If you produce a list of 45 up-and-coming marketers, chances are you will sell some subscriptions from those on the list so long as you handle pricing right. But it’s hard for me to believe these subscriptions are as durable as people who opt for a bundle of content. Always struck me as putting optimization ahead of brand.
Churn is a reality. And too often subscription and membership programs are propped up by loose affinity. Someone who wants only to read a juicy story doesn’t have much loyalty. That’s built over time. With Digiday+, we wanted people to subscribe to a bundle. I didn’t judge the success of pieces of content individually, on a binary basis. Instead, different pieces of content did different jobs. Popular pieces were good ways to introduce new people to the brand and to inch people closer to their monthly limit before the meter kicked in. We coupled that with member-only content -- newsletters, guides, pitch decks -- that would do the job of pushing people over the line. I found this a more balanced approach.
In many ways, I think the shift from institutions to individuals in media will lead, inevitably, to a more bundled approach. After all, people are, in some weird way, a bundle of viewpoints. Substack’s announcement it has passed 1 million paid subscriptions is a testament to the traction. One criticism of Substack is that while it obviates some of the incentives to “manipulate people’s emotions” in algo-driven media, it also relies too heavily on the growth dynamics of Twitter, where arguments and grievances thrive. The leaderboards of the top paid Substacks in politics show how powerful grievance and combativeness can be in driving subscriptions.
Ultimately, there is no single path to building a sustainable media business. The success of intent-based media companies shows the power of the SKU media approach. There are ways to win at the algorithm game. But ultimately, to build a stable direct revenue business will require more focus on the product bundle, underpinned by a differentiated brand.
Avoid common cashflow mistakes
In the last 20 years advertising media has shifted to a real-time trade, yet the cashflow moves slower than most sectors. The holy grail is matching the velocity of the money to the velocity of the commerce, in an efficient way that optimizes: cost of capital, scalability and risk management. But too many media companies make common financing mistakes:
- Mistake 1: Deploying capital raised from equity to finance operating expenses. Capital infusions are earmarked to growth, but there is a temptation to use some of that liquidity to float outstanding accounts receivable. The result: Slower growth, inefficient use of capital.
- Mistake 2: Relying on an asset-backed loan from a bank. An ABL is an obvious choice but not ideal since 60-90-plus day payment terms often drain the entire facility. Also: stringent covenants and high fees.
Silverblade Partners offers a better way for all media companies to use trade finance to create a strategic advantage.
5 things to check out
Packy McCormick and Chris Dixon are two of the best at explaining the potential of Web3. They collaborated on an article for The Economist’s The World Ahead 2022 issue, laying out the potential for blockchains to move beyond defi and speculation to remake the infrastructure of the web. I understand why the maximalist crypto crazies turn off people, but I also remember how the idiocy of Pets.com and Web 1.0 charlatans caused many to miss the seismic changes happening as the world got high-speed internet connections.
The excitement around Web3 goes hand in hand with the Great Resignation and a rethinking of how we live. Rishad Tobaccowala has a characteristically incisive view of these dynamics, particularly how this will upend the distorted balance between capital and labor. Sure, many will return to middle management, but the pandemic has exposed just how hollow many find the corporate world -- and the talented have more options than ever to create their own independent lives.
Substack isn’t the only game in town. Beehiiv is a new newsletter platform that is a lot like Substack, only it’s more flexible and not wedded to a subscriptions-only model. It’s already used by newsletters like Exec Sum from Litquidity. Even better, Beehiiv is moving out of invite-only mode today and opening the product to all. (Disclosure: I invested in Beehiiv’s seed round.)
The pandemic forced us all to stand still, leading many to take stock of what’s important and what needs to be fixed. The Slowdown’s At a Distance podcast has chronicled this reckoning through over 100 interviews with leading thinkers since March 2020. Excerpts are now published as part of a wonderfully designed book by the same title. I plan on having The Slowdown’s Andrew Zuckerman and Spencer Bailey on The Rebooting Show soon. In the meantime, check out At a Distance.
Product leaders are true unicorns of the media business, needing to serve as a bridge between editorial, sales, audience development and engineering. If you’re looking for a product leader, Travis Bernard is available. At TechCrunch, Travis led the development of its subscription program to 30,000 paying members. Get in touch with Travis to talk more.
Thanks for reading. Please feel free to email me with feedback and any evidence to back up the repeated assertions that journalists going solo had thought it would be easy -- this is a meme that is being taken at face value for some reason. My email is firstname.lastname@example.org. Also, please share this with anyone you think would find it valuable.