No, media companies shouldn't pick just one revenue source
The single hardest job of a founder may be picking what logical well meaning advice to listen to and what logical well meaning advice to ignore.
The problem frequently is that something that sounds right worked remarkably in one case. Or failed in one case. And pundits, investors (and journalists!) assume that experience will transfer to another company just because it’s in the same “sector.”
I read an example of such boneheaded advice on Monday, about the digital news business. On his widely-read Monday Note blog, former Liberation editor Frédéric Filloux argued that media companies should pick one strategy: paid or ads, and stick with it. Anything else would breed compromise, confusion and doom a company to failure.
Filloux’s argument relied heavily on one example: The Information. Which is a great publication. But hardly should be the model for every single one.
Fortunately, when I was starting Pando four years ago I listened instead to the advice of Heather Harde, TechCrunch’s CEO during it’s profitable, dominant, pre-AOL glory years. The number one piece of advice she gave me: Have three revenue streams. Because each will come and go with the boom and bust cycles of the tech economy.
TechCrunch was also one example. But it so happens Heather was absolutely right.
Two years ago events was as much as 80% of our revenues. Last year revenues were dominated by “integrated marketing” packages that include ads, sponsored (but editorially independent) special reports, and "hot seat" Q&As. This year, our revenues are dominated by memberships. We’ve had all three revenue lines since inception.
But we’ve continually tweaked them to react to the market. And as the volatile startup market surges and stumbles around us, having three ways we get paid if we deliver value is pretty much the only thing that’s kept us in business. We haven’t raised funding in about two and a half years. We had several profitable months and quarters before becoming sustainably profitable -- each time with a different revenue line doing the heavy lifting.
It’s all well and good to sit back and prognosticate about how to build a profitable content company. Doing it on a skeleton amount of funding when the founders aren’t wealthy is another matter. If you’re mulling such a brutal path take my advice: Have back up revenue streams. Because a bad quarter, a weak event season, a shift in ad sands, a change in Facebook algorithms-- all of these things can tank you.
Because there’s always a new thing “saving journalism.” In the early days of TechCrunch, it was ad networks like Federated Media. But those didn’t scale, and the ad networks took a steep 50% take. And once sites got large enough to handle their own sales, their CPMs and inventory was already in a bit of a price and brand ghetto paired and bundled with other players. Reclaiming that inventory was near impossible for many.
Then it was events. But events are expensive and the market is glutted. They don’t scale. Even successful event franchises start to cannibalize one another under the same roof or brand.
Sponsored content. Facebook. All trends that have tanked content companies that relied on them too greatly.
The trend du jour after years of pooh-poohing is subscriptions. Now that’s the answer.
I don’t know about you, but looking at that track record, I’m not betting my entire business on the current fad.
Most tech companies, like Snapchat, Facebook, Google and other giants, try out different revenue streams early on to discover the best way to turn their brand into salaries. Why would digital media companies-- a group that typically raises less cash at harsher terms and has a way higher failure rate-- be any different?
For us, some of the shifts have been predictable: We radically changed our subscription offering last June for two reasons. The first was the uncertainty in the tech world. Most of our large customers were newly public tech companies-- you know the category that enjoyed the worst start to the year since the dot com crash in 2016. But also, our journalism was becoming increasingly adversarial, and we worried a single advertiser would potentially try to silence us by pulling their business. We’d go under before we caved to a demand like that. But it’d be nice not to go under. Now, with thousands of people paying the newsroom salaries, all we have to do is produce great work, even if that great work is uncomfortable for a lot of people a lot of the time.
That said, a pure paywall would render a lot of our journalism totally invisible to all but a few thousand insiders. Thanks to unlocks, our work is still read by millions of people. And we believe millions of people need to read our work. We recently gave nearly 1,000 free subs to any workers of the ridesharing economy-- they were underwritten and paid for as part of an integrated marketing program. That’s a win for everyone.
People who advocate for pure paywalls are letting revenues-- not mission -- dictate their business strategy. Most reporters aren’t wired that way. We certainly aren’t.
Less predictable has been how events impacts our revenues. It was popular when we started Pando to opine that events would save journalism. I was skeptical of that then and now. Disrupt is one of the best tech franchises ever created, and in the 2008 downturn, it suffered financially. Again, Heather cautioned me against relying too easily on what seemed like easier money than ads.
Again, she was dead right. Events have been more profitable for us than not. But they entail huge risks, huge costs, and huge distraction. If they aren’t a core part of your mission, you should find the revenues elsewhere. This was one reason we cancelled our long-popular PandoMonthly series. With events you have to brutally respond to what the market tells you.
We could have easily cancelled Pandoland this year. In fact, that was the smart and logical thing to do. Events should perform weaker this year. And as the tech world fretted about what might be coming in 2016, we had a lot of sponsorship conversations pushed farther back in the year than in the past.
And yet, here we are in April, more ahead in Pandoland revenues than we’ve ever been before. An event that we hoped would just break even this year looks to be our second biggest profit center, after subscriptions. A year ago, I wouldn’t have guessed that. I also wouldn’t have logic’ed it by looking at what I saw at TechCrunch and the economic climate. But I’m glad I had the back up plan.
The thrust of this article about “picking one” is that you can’t produce great work if you have an ad supported business. We simply don’t believe that’s the case. We’ve done millions in ad revenues with several large six figure repeat buyers, and we’re a very young company. The problem with ads is they are lumpy. The problem with events is there is a glutted, over-crowded calendar and they cost a lot to produce, so they’re a bigger risk. The problems with both for a tech audience is that they’re very dependent on the macro startup economy.
Subscriptions are stabilizing. But continually growing your audience is a challenging without spending a lot on marketing. And that confines how big you can get as a company, and how many people you can reach. That in turn confines the impact you can have on the world, and the type of reporters who want to work for you.
We’ve tried other revenues sources that didn’t work. Podcasts haven’t done as well for us as they did for NSFWCORP. eBooks didn’t perform either. If we come up with other models that may work, we’ll try them to. There’s a reason it takes a decade or more to build a sizable content company, a reason only four have exited for north of $100 million, a reason you can count all the content unicorns on one hand, and a reason most sell within a year or fold.
It’s a hard business. And for us, it’s not “an experiment,” or a way to get rich one day. It’s all we do.
Don’t risk your baby on absolutist advice that sounds good. Have a backup plan and another backup plan and another backup plan after that.
If logic and simple advice built content companies (or any companies) the odds would be a lot better.