Originally published in Venture Beat
By Ben Wirz
When mobile news platform Circa collapsed last Wednesday, hot on the heels of the consolidation sale of technology site Re/code to Vox and the demise of GigaOm, you could be forgiven for feeling a sense of despair.
These were quality news platforms with talented leaders, defined audiences, and unique approaches. That said, they were also startups, and the odds for any startup are terrible, particularly in media, where technological barriers to entry are low and (as confirmed in a recent IMD/Cisco study) the risk of disruption is especially high.
Despite these odds, there are going to be winners who will define news for a generation of young people, who have mostly opted out of TV, radio, and print. While technology is moving rapidly, the desire of people to know what is happening in their communities hasn’t changed. Yes, there is a shakeout going on in media, but there is also a diverse set of companies making it in the current environment by satisfying this need.
Here’s how:
Profitability: Some outlets have demonstrated that they can make money in a surprising variety of ways. Examples include: Vice Media, which, like an ad agency, creates and distributes ads that cater to its target demographic; Refinery 29, which combines advertising with e-commerce; Gawker which relies heavily on advertising; and The Blaze, which generates money via subscription. All of them have had to devise a model that ties the core of their business and is able to generate not just revenue but profits, proving that there is no single winning formula.
Growth potential: Venture investors continue to put money into online news on the promise of growth. Mic.com, a news platform targeting millennials, in which Knight Foundation has invested, just closed a $17 million round; Refinery 29 just closed a $50 million round. Late last year, Vox Media ($47 million), Bustle ($15 million), and Buzzfeed ($50 million) did the same. The attraction for many VCs is that, at scale, digital media companies can generate significant revenues and keep marginal costs close to zero. The challenge is to evolve across mobile and social as people’s media tastes change in order to maintain organic growth. Buzzfeed has been masterful at this and as a result is the only news site among the top 10 websites in the US.
Balance: Some have found ways to lower the cost of creating content while increasing the value of what they produce for their advertisers and audience. One method used to create this balance is native advertising. Upworthy, Buzzfeed, Vox, Mic, and many others rely on native advertising (aka sponsored content), which leverages the brand, creative talent, and reach of these publishers. In fact, sponsored content on Upworthy performed 3.5 times betterthan traditional news, generating $10 million for the site last year. Others are using unpaid contributors to create news that comes from and appeals to their audience; these include publishers like Huffington Post, The Tab, and Spoon University.
New Platforms: As media habits change, there is an advantage to pursuing ideas that address community information needs in unique ways. At Knight, we bet on companies that have shown momentum on their platforms, and that got there early. Gimlet was among the first to launch a network of narrative podcasts last year, while Newsela, a company that uses news to teach kids to read, has built a tremendous market in online education. Watchup provides local video news on Xbox and Wii, where viewership is relatively high but there are few competing apps.
Bottom line: The best media companies are the ones that embed adaptability. Excitement can be seen around companies that evolve with the digital landscape and can continue to meet people where they are.
Will all of the news providers listed above survive? Unlikely. It is still tough going. The winners will undoubtedly be those companies who manage to stay ahead of people’s media preferences while incorporating the best practices of today’s digital media leaders.
Ben Wirz is director of venture investments at the John S. and James L. Knight Foundation in Miami. He can be reached at wirz@knightfoundation.org and on Twitter at @bthewirz. He is also a member of Kauffman Fellows, a Silicon Valley-based venture capital leadership program.