What It's Like Competing With VC-Fueled Media Startups

All Publishers Face the Same Existential Questions, But Digital Media Is Better at Denial

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Credit: Kelsey Dake for Ad Age

Elsewhere in this, the Digital Issue of Advertising Age, my colleague Michael Sebastian writes about digital publishing companies -- specifically, a half dozen upstarts in various stages of youth, including BuzzFeed (born 2006) and Vox (2011).

It's an eye-opening report that looks beyond the hype surrounding these companies. Some of them are profitable (or at least claim to be), some aren't, but all of them have raised serious cash from starry-eyed investors (e.g., $96.3 million for BuzzFeed, $110 million for Vox). The business press tends to regard such hefty sums as implicit evidence of success and/or promise -- why would venture capitalists risk so much scratch if there was no there there? -- but Michael reminds us that all of these companies rely, somewhat harrowingly, on advertising for revenue.

Which means these new-media challengers have, at their core, basically the same business model as the publishing incumbents. They're selling eyeballs to brands (though sometimes they put a different spin on it; e.g., they're actually selling "engagement"). Everyone is competing for the same digital dollars, and thus the same digital-advertising issues that dog legacy media companies (declining CPMs, the rise of programmatic, the challenge of monetizing mobile, etc.) apply to the new kids on the block, too.

Everyone's facing the same existential questions; it's just that startups in a "hot" sector -- which, bizarrely, digital publishing is right now -- tend to be better at denial.

"Some of these companies are not going to make it," Newsonomics media analyst Ken Doctor tells Michael, referring broadly to the new class of digital publishers. But of course he could be referring to any sort of startup across any business sector -- because most startups fail. (A few years back, Shikhar Ghosh, a senior lecturer at Harvard Business School, released research showing that three out of four VC-backed U.S. companies don't return investors' capital. Venture capitalists "bury their dead very quietly," he told The Wall Street Journal.)

Advertising Age, the publication I work for, happens to be both a legacy business (it was born in 1930) and a digital-first operation (more of our revenue comes from digital than print). Our parent company, Crain Communications, is privately held; nobody around here is drunk on VC funny money.

Sometimes I'm tempted to whine about having to compete against publishing startups that have the license to burn through tens of millions of dollars (quickly!) while having no particular mandate to become real businesses anytime soon. (Keep in mind that being technically profitable is not the same thing as being able to ever make your investors whole.)

But then I think about my own history in media, and I realize plus ça change, plus c'est la même chose. When I was the founding editorial director of NYmag.com, New York magazine's website, I also worked on the print magazine and I had to fend off both new-media and old-media plunderers. Iconic magazine editor Tina Brown, for instance, who famously convinced Hearst and Harvey Weinstein's Miramax to back a new general-interest magazine called Talk, poached one of my star writers. At New York, which was still a weekly at the time, my guy appeared in virtually every issue, wrote in-depth features and contributed to the website. Tina offered him a contract to write one thing for every issue of her new monthly magazine -- i.e., a mere quarter of the work he was doing for me -- and didn't explicitly require him to write for Talk's website. For this, she offered twice the money I was paying him. Of course, he took the money and ran.

That happened again and again across the glossy ecosystem -- Tina offered generous (and unsustainable) pay to writers and editors throughout New York and beyond, and her competitors either had to wreck their budgets or watch talent walk out the door. (And then, ahem, Talk went out of business after burning through some $50 million in two-and-a-half years.)

Harvey and Hearst were Tina's starry-eyed VC equivalents. And then in 2008, Tina found another mark -- Barry Diller of InterActive Corp. -- this time for a digital-only launch, The Daily Beast. At the time, an IAC insider leaked budget spreadsheets to me indicating that the Beast planned to burn through $18 million in its first three years, and that more than half of Tina's 20 or so full-time staffers at launch would have six-figure salaries.

A defensive IAC suit at the time declared that the numbers, which I published on AdAge.com, were wrong and wildly inflated, but of course, The Daily Beast -- which would go on to enter into a doomed merger with Newsweek (Tina missed print!) -- would end up burning through way more than $18 million. Last year, Politico chronicled Tina's time at IAC in a story titled "How to Lose $100 Million: The Undoing of Tina Brown." (She left IAC in late 2013 to launch a conference business and to write a memoir, Media Beast, due out in 2016 and which I can't wait to read.)

If you're in media and you're competing with startups that have been funded by deep-pocketed and delusional investors, it can feel like you're constantly climbing into the ring with opponents you know are on steroids. The trick is to try to stay on your feet, or at least cling to the ropes, until their dealers cut them off.

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