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By Thomas Baekdal - May 2023

Two different worlds of new digital media, one failing doesn't mean anything

This is an archived version of a Baekdal/Basic newsletter (it's free). It is sent out about once per week and features the latest articles as well as news and trends about the media industry. If you want to get the next one, don't hesitate to add your email to the list.

Welcome back to the Baekdal/Basic newsletter, the newsletter for quick news and trends media analysis. Today, we are going to talk about markets.

Vice filed for bankruptcy, but so what?

As you may have heard, Vice filed for bankruptcy last week, and this has created quite a lot of commentary by people in the industry that digital media is failing.

I want to talk about this because this is such a wrong take on things. I'm not going to go into the details of what happened to Vice, I will just share Rafat Ali's tweet the other day when he said this:

Just to say this predominant analysis that Vice bankruptcy is "cautionary tale of problems facing digital publishing" is wrong. Read bankruptcy filing, a lot of bad business decisions & hubris. Which is...incompetence. Don't draw larger lessons when there is a simpler explanation.

I completely agree with this, and, as a media analyst, I don't like that Vice failed (but appears to already have buyers lined up), but I also don't see any of this as being important.

In the new digital media market, there have always been two very different groups of media companies.

One group, which is where Vice, BuzzFeed, and others operate, is the investor/venture capitalist funded market, where the goal has been to heavily inflate market value and to chase scale at unsustainable levels. Basically, all of these companies are run as if they are Facebook, hoping to get so much traffic that the otherwise miniscule revenue per user would somehow make sense.

This kind of chase for scale in an effort to sustain a made up valuation doesn't really work. Not just in the media industry but everywhere. It's a game that investors play. They will come in early, put a few millions into a company proclaiming that it's actually worth billions, and then they hope to sell again before the real world kicks in to reveal what the company is actually worth. And they try to sustain this scam for as long as possible, by trading off profit to the point where almost all of these companies are running at a constant loss.

And the result is that, as soon as these companies face reality, everything comes tumbling down because their real business is nowhere near their valuation, and their revenue is unsustainable. So, every year, we see hundreds of companies who used to have massive valuations fail because none of it was real.

Again, it's a game that investors play, and sometimes they lose the game because they couldn't sell early enough.

Vice was actually one of the better publishers. They have done a lot of good journalism, but the business was clearly impacted by this fake chase for market valuations.

But this is also why this has no relevance for the rest of the digital media market. What happened to Vice has nothing to do with the future of digital media.

And so the other group is where the rest of digital media exists. This is where I see all the media companies who are just trying to create good profitable businesses. In this market, the value of the company has nothing to do with what some investors want it to be, but is instead defined by actual real-world revenue and profit.

And despite what you have seen recently about how "digital media is failing", these companies actually do better. Over the last 10 years, the market for real-world publishers has been growing, and they are making more money and more profits.

One perfect example of this is Rafat Ali's publication "Skift". Skift is an industry publication for the travel industry, and what he has done with this is remarkable.

Another example is the Danish news site, Zetland, that I have talked about many times before. Same thing. They are creating a real future because they are based on real money, and they have done an amazing job at it.

But even sites like the New York Times are in this category. While they do have shareholders to please and even a market valuation to maintain, their business is fundamentally based on real revenue and profits.

And since all of these sites are part of the digital media market as well, it's absolutely silly to even suggest that this market is failing. It's not failing. It's doing really well!

The same is also likely true for Vice in the future. Right now Vice has been forced to file for bankruptcy because their fake valuations and unsustainable revenue caught up with reality, but they will soon be sold, probably to a "consortium of investors" (which sounds like hell). But it also means that they now have to focus on real revenue and profits. In the short-term, this will likely mean huge cuts and many people losing their jobs, which is sad. But moving forward, it means they too will be part of this second group of digital companies who do real things for a real audience.

Whether Vice will succeed in this transition is unknown, just as it's not entirely clear how BuzzFeed will do (they haven't learned this lesson yet). But the real digital media market is doing just fine.

The new New York Times Audio app

The New York Times is out with a new audio app, and one of my subscribers asked me to do a quick analysis of it.

There are two quick things to note about this.

The first thing is that there is a shift happening right now in the market as a whole, and that shift is moving away from 'random people visiting your site from Facebook' and towards 'more specific, nuanced, and defined services for subscribers to use directly'.

It's not a black and white shift, but there is definite change in the market overall in focusing more on direct services.

This new audio app from the New York Times is a very clear example of that. It is part of their subscriber service, and focusing on what they define as:

New York Times Audio features exclusive shows, a daily playlist of news and ideas that brings you the essential things to listen to each weekday morning, new episodes of "This American Life" a day early and a range of narrated articles from The New York Times and other top publishers.

So this is very interesting. The New York Times is clearly understanding that a key element of the future, and vital component to create subscriber engagement (and thus minimize churn) is to create services like this.

The second thing, however, is less interesting. The New York Times has now become so big that it has become a force upon itself. What I mean is that the New York Times now has enough size that it can start to do things that are likely to be difficult (or even impossible) for others to do.

It's actually a bit of everything. As they also say, it featured:

Curated by Times journalists and editors, the app includes daily programming across a breadth of topics - news, politics, arts, business, tech, culture, lifestyle, sports and opinion - providing listeners with a fresh perspective on everything from world events to cooking tips.

This is the very definition of 'everything', and as such, the audio app is not really focused, but more of a platform. This makes the whole thing less interesting.

This is likely good for the New York Times, but for other publishers, it would be too random to really work. You need more focus.

So, as a media analyst, I have a mixed view on this. On one hand it's really exciting, but on the other, it's the kind of thing only the largest publishers can do successfully, and doesn't really represent the potential of others.

Shooting yourself in the foot... again...

Finally, I want to talk about a small thing that comes up again and again, which is that in the press we will often focus on stories that will come back to bite us.

This time it's about privacy.

The basis of this story is an investigative story titled "Politicians are appalled by the illegal collection of children's data", from one of the largest news sites in my country. It focuses on tracking in gaming apps, and how this is then used to collect and track kids when they play games. And it specifically focuses on kids below the legal age (13 years in some countries and 16 years in others), where companies need permission from parents to collect any data.

And when they presented this finding to the politicians, they had this to say:

Tax Minister Jeppe Bruus says that he "takes a very, very serious view" that the rules on protecting children's information can be circumvented.

""It is completely unacceptable that you harvest information from our children in this way and use it actively and perhaps even trade it across national borders. It's illegal and we need to take a much closer look at it. The development that is underway is completely out of control".

How the Danish authorities will regain control is not yet entirely clear, but Jeppe Bruus and the parties who are part of the settlement circle in the area will find out.
"There is some of that which will of course be about bans, increased control and increased prevention, it says."

This all sounds very serious, but why does this come back to bite us?

Well, there are a few things to consider:

First of all, I agree. There is a very real and very concerning problem with tracking in mobile games and apps in general. I have talked about this too in the past, and it's great that we are focusing on it as the press.

There is no doubt that tracking online is 'out of control'

However, the focus on 'kids' implies that the gaming companies are intentionally breaking the law, which is not the case. And the reason is that the games are not primarily designed for kids.

The average age of mobile gamers is about 36 years old. It varies a bit from study to study, but mobile gamers are dominantly adults, with about ⅓ being over 35. In fact, the age group between 13-18 is only about 8% of the total, and those below that is even less.

So, mobile gaming companies are not considering under-age kids as part of their primary target audience. They represent only a very small percentage of the total audience.

But, you say, that's no excuse. They should still prevent kids from being tracked. And, again... I agree. But, think about what this means.

And this is the kicker for us. In the press we are pressuring politicians to enact legislation to prevent tracking for kids, but the companies we blame for this are fundamentally used by adults. So what would that legislation look like?

Well, it would have to be something like "no matter who your audience is, you would need to check their age before you can do any tracking at all". Okay... but you can't just limit that legislation to a few specific companies, you would need to apply that to all companies who use tracking.

So... who else is designed mainly for adults and is massively tracking their audiences? Well... newspapers. Newspapers are some of the sites that have the most trackers of any category of sites online. In fact, it's often the same trackers, from the same 3rd party tracking companies that they use.

There is literally no difference between what these gaming companies do ... and what every newspaper is doing. It's the same audience focus (mostly adults), and the same type of tracking.

And what do you think is going to happen when this legislation comes? Are we then as a media industry going to claim that "we should be exempt because journalism is important?"

Are we going to say that we should be allowed to do what others cannot? ... just because that is how we make money? That's not going to work that well...

Mind you, I do think we need more legislation. The whole 3rd party market is very much out of control. As a media analyst, however, I'm just tired of seeing these articles that create outrage for one group when the real situation is quite different.

As a media industry, we are shooting ourselves in the foot... again...

This is an archived version of a Baekdal/Basic newsletter (it's free). It is sent out about once per week and features the latest articles as well as news and trends about the media industry. If you want to get the next one, don't hesitate to add your email to the list.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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