Digital media companies are experiencing a moment of upheaval as revenue models and consumer habits continue to shift.

Legacy media players may be having their first moment of schadenfreude in a long time as the youths of digital content get their own turns at struggle and uncertainty.

About 20 years into the Internet and print publications, the relatively few that survived the shift to digital life anyway, have already been put through the revenue ringer — forced to rut out new sources of cash, cater to new readers and bow to the ever-increasing demands of advertisers, even as they spend less on ads. Now, digital media, entering a puberty of sorts, is realizing it’s maybe not so different from its elders — as are the many, many investors that hung their hopes blindly on the young.

Although half a dozen current investors of digital media outlets either declined or could not be reached for comment on the current state of the sector, executives at media companies, industry analysts and consultants and ad agencies agreed on one thing: Financial stability in the realm of digital media, and simply operating in the space, is tougher than ever.

“Every company is at risk because you’re only one thing away from becoming irrelevant,” David Silverman, co-leader of PwC’s national emerging company services practice, said. “One technology trend of impact and even the dominant players could become irrelevant.”

Upheaval within a number of digital plays shows the truth of that. So many have, at the least, had a pearl-clutching moment or two when Facebook or Google changed an algorithm over the last two years. Plenty essentially disintegrated under the weight of relying on clicks, or platforms, or video, when reader and advertiser appetites started to change. Young news outlets like Mic, started in 2012, and The Outline, started in 2016, haven’t pulled through the malaise and are all but closed, and not even Lena Dunham could save her feminist newsletter Lenny, started in 2015. This year also claimed The Awl and The Hairpin, started in 2009 and 2010, respectively. Even MTV News cut its entire content team in an attempt to “pivot to video” — which has not materialized. The phrase is about to be a cliché, or a sarcastic industry quip, used so often now to explain what ails the industry.

If nothing else, it is a symbol of a digital obsession with being “nimble” and being able to “pivot” successfully at the first sign of a trend. While legacy media often moves too slowly, those industry colts who came in to “disrupt” media or “delight” readers with everything new often moved too fast, looking for the easiest path to consumers.

“One of the things that’s dangerous for our industry is to focus on a single solution, whether it’s traffic or advertisers [wanting audience engagement],” Melissa Bell, the founding publisher of Vox Media, said. “That’s always where issues arise — when people rely too much on one opportunity and don’t test out others or don’t try to innovate when they’re seeing success on a model.”

Vox, backed in part by NBCUniversal, along with BuzzFeed, is dealing with its own challenges presented by investor impatience, reader habits, advertising shifts and outside platform instability. But it’s large enough, right now, to deal with the changes. It has at least six streams of revenue, but that hasn’t spared it from pulling back in some areas — layoffs in video, folding shopping vertical Racked and bringing Recode back under the main Vox site — and its one-time, $1 billion-plus valuation is said to have receded significantly.

Bell didn’t deny that Vox has been dealing with issues that any other media outlet is facing, but does see a toxicity to the notion that any change at a company is “a sign of something bad or scary.”

“We live in a state where everything is changing all of the time, so we have to be able to say, ‘We’re going to make changes’ because that’s the way you learn as a company,” Bell added.

One thing that a lot of these companies seem to be learning is that subscribers, something legacy media has been invested in for decades, is one of the few safe harbors for revenue. The altruistic, if generationally self-serving, idea that everything on the Internet needs to be free, championed by so many start-ups and loathed by legacy, is poised to become a footnote in the history of the medium. In a year littered with closures, there have been almost as many launches of membership programs, paywalls or bold requests for donations. The number of sites that haven’t launched some kind of subscription program is very few, and among those who haven’t, it’s thought to be only a matter of time before they do. Outlets desperately want some kind of pay model, mixed in with revenue from live events and commerce, to get away from the lock advertising still has on the media industry.

“Advertisers hold all of the cards, not the publishers,” Tierney Wilson, managing director at digital ad agency January Digital, said.

And advertisers don’t hesitate to use their power. As the world of digital media has evolved, advertisers have moved away, to an extent, from the idea that traffic equals eyeballs on an ad and a return on their spend. They’re demanding more — more guarantees of viewability, more insight into reader action and follow-through, more control over placements. Ironically, none of this has increased the typical prices publishers can charge.

“If there actually is quality — the publisher has enough scale on a qualified subset of data — the price can go up, but without that, it definitely drives down the price,” Wilson said. Within any ad buy now are also typically guarantees like a viewability threshold and clickthrough rate, which outlets have to deliver on. If not, advertisers simply go elsewhere, or get extensions on buys, driving down the price even further. The publisher loses money either way and those without the infrastructure to deliver data, or the money to build it, tend to close.  

One might think that the younger, larger, digitally native media brands would be a go-to for an advertiser looking for quality on the Internet. But it’s The New York Times, as legacy as media gets, and Bloomberg, started in 1981, that seem to be most favored for quality and viewability among advertisers.

Facing stiff competition for digital ads, as well as some difficulty gathering data on viewers in the face of new GDPR regulations in Europe, it’s little wonder subscriptions are starting to seem like a great idea for online-only publications. Wilson noted that so many outlets are launching subscription models of some kind that she’s going into meetings with publishers and for the first time asking directly what they have planned around it — “I expect there to be a lot of change in the next six months,” she said.

The Daily Beast in June rolled out its own membership model ($5.99 a month or $50 a year) for the first time after 10 years of being almost entirely ad-supported. While it’s now a program that offers special and exclusive content for subscribers, Heather Dietrick, the site’s chief executive officer, admitted she’s “exploring everything” when it comes to a direct-consumer pay structure. She added that the membership product already has “thousands” of paying subscribers, but wouldn’t reveal an exact number, and said a new newsletter that goes deep into breaking news has an above-average open rate of 60 percent.

“[The launch] came with a realization that audiences are starting to understand that this content is difficult to create and not always free,” Dietrick said.

Started by Tina Brown and owned by Barry Diller through IAC, both of whom have spent their long careers in media, Dietrick said The Daily Beast “never overinvested in Facebook or the platforms” and has generally been able to avoid major fallout, unlike the many young outlets that did — and still do — depend on third-party hosting and search. There’s an argument to be made that other billion-dollar-plus valuations, like those for BuzzFeed (which has raised $500 million in funding over the years) and Vice (which has raised $1.4 billion), would never have happened if Facebook hadn’t started to go so deep into news and outside publisher content, and even younger outlets like Mic and The Outline would never have received tens of millions of investment dollars.

“Say you have four walls of your business, it’s very risky to build even one of those walls against another company that isn’t necessarily aligned with your goals and really has no reason or incentive to be,” Dietrick said. “I can’t say that [reliance on platforms] was a bad decision — it’s easy to say in hindsight, but it was certainly, at the time, risky. For some, it would be less of a struggle now, if they hadn’t.”

But she admitted that it is easy “to get caught up in trends like pivot to video and going all in on Facebook” for a smaller or independent company that has to “go out and raise capital round after round.”

“The whole environment was really drunk on scale [for the last several years],” Dietrick said.

Whether or not digital media has peaked is another matter.

“Anyone who calls the top of the market is always wrong,” Neal Zuckerman, co-head of Boston Consulting Group’s global media practice, said. “I do think we are very late into a business cycle and I don’t know where venture dollars will flow in the next couple of years. But venture dollars did fund a big chunk of digital media, as did proceeds from other things happening in our economy — a lot of Google veterans built content businesses. It’s very possible that the era of ‘cheap money,’ to use a Federal Reserve term, may end and the expectation of profitability may rise again.”

With an allusion to growing impatience in the investor community that pure digital media plays are still not turning a profit, Zuckerman wondered how these companies, some only a couple of years old but other more established ones already into their teenage years, would fare under the scrutiny of public trade and the Securities and Exchange Commission. There are always exceptions to any rule (it took Amazon the better part of a decade as a public company to turn a real profit), but investors, be they corporations in their own right or individuals, are getting tired of waiting for a return.

“If the expectations on many of these [newer digital] companies were the same as publicly traded companies, how long would they last?” Zuckerman asked.

Now, as a hangover from big investments and traffic-bolstered scale projections sets in, it seems helpful, if not vital, for digital media to have some old-school fundamentals (the same that so many disruptors derided as unnecessary early in their existence), such as being able to build relationships with readers, advertisers and competitors that don’t live and die on social media.

Justin Stefano, who cofounded Refinery29 in 2005, thinks a huge part of its relative stability, at the moment, stems from the fact that it was able to establish the site before the dominance of Facebook and Google as drivers of traffic, and thus controllers of advertising.

“It was like the old days of going door to door with a clipboard and signing up people for an e-mails list,” Stefano said. “We had to build front-page traffic to get consumers to come directly to us; we had to develop relationships with other web sites so they would pick up our stories, and vice versa. So we ended up building out a fairly diverse traffic model, because we grew up in a time when these other things didn’t even exist. I think the guys having a really hard time are those that built too much for a platform world and not for a direct-to-consumer world.”

But again, Refinery is not immune to the challenges of driving revenue with online content. Like Vox, the company laid off dozens of employees this year as it scaled back its video department. But other areas of investment, like international and events, are said to be growing exponentially, by 200 percent and 150 percent, respectively.

And Refinery, like almost every other major digital outlet, is still focused on growth overall, but in a direction away from ad-supported revenue. Everyone feels there are enough readers to go around, plenty of room to grow events and subscription models, not least because one overarching aspect of the Internet is that it levels the playing field. Now that field includes retail, television and news, which are increasingly competing for attention and soon, if not already, ad dollars.

“Long-term, the trend is your friend,” Stefano said. “The more advertising starts getting bought and sold cross-platform, the less different it’s going to look to advertisers.”

Maybe that further flattening of the ad landscape is why some people in digital media, like Bryan Goldberg of Bustle Digital Group, are willing to acquire some troubled and even defunct sites. Goldberg just bought Mic off the brink of total nonexistence and before that Gawker out of bankruptcy, and seems to see them as an ad play, more than anything.

“Advertising clients are demanding larger and more complex offerings and a company of 100 people will be hard-pressed to deliver,” Goldberg said.

He added, however, that the ad appeal of “boutique media brands,” with their smaller, niche and engaged audiences, “will never go away.”

“To that end, the boutique media brands will need to sit under a larger corporate umbrella,” Goldberg said, referring to his own strategy of buying up small, troubled assets. He called it “the LVMH model” and said that’s the future of the industry — fewer, bigger companies overseeing and operating more brands.

Goldberg is one of the few right now who doesn’t see subscriptions as a major part of the digital landscape going forward. “Advertising is the business model, because it’s an excellent model for those who know what they are doing,” he said.

He could be right. Even with all of the talk of “diversification” and events galore, digital media is still extremely dependent on advertising. Many outlets have goals of getting ad revenue down to 60 percent of their revenue in the next couple of years, meaning it’s well above that at present. (Ironically, that is about the same level legacy companies like Condé Nast dream of, hoping that one day a significant portion of their revenue will again come from subscriptions rather than ads.)

Nevertheless, the allure of shortcuts and diving into the next “new” thing isn’t going anywhere. Already, voice speakers and how digital media can get in on it is coming up in future plans. Should voice really take off, the duopoly of Google and Facebook may be the next media group in for a painful disruption, as search and hosting ads accounts for the vast majority of their revenues. Google, for its part, is just rolling out a personalized news search option for its Google Home speaker.

“You may not think about [speaker-enabled devices] as something that can impact the industry and advertising,” David Silverman of PwC said, “but you’re cutting out a middleman — the one that used to do search.”

For More, See:

Ad Spending Disappearing as Most Magazines Continue to Fumble

Goop Magazine Out From Under Condé Nast and Digging for Data

Future of Media Demands Radical Change

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