The Future of News and Media

Venture capitalist and entrepreneur Marc Andreessen has a series of interesting tweets discussing his perspective on the future of the news business. It starts with this premise:

Starting point: I am more optimistic/bullish about future of news industry over next 20 years than almost anyone I know. Will grow 10x-100x.

He explains in several tweets how he sees the new business changing in the future. In a nutshell he believes the following (this is my translation or summation of his tweets):

• News should be run like a business; profitability is key to producing quality content
• The news industry is experiencing tumultuous change because incumbents are losing, in his view, "monopoly" or "oligoploly" status in the "control of distribution" and thus pricing
• The advent and global popularity of the internet has led to multiple forms of media - TV, cable, newspapers, etc. - seeing their futures converge on the internet (where there is a proliferation of relatively free content). As a result, they are losing market & pricing power when it comes to distribution.
• There has been a large expansion in the customer base for news - and this growth in (sales) "volume" will (partly) counter the loss of revenues from widespread competition. Therefore, he says: "Big opportunity for news industry in next 5-10 yrs is to increase market size 100x, drop prices 10x. Become larger & much more important."
• Those that offer most breadth or depth in coverage will be the most likely winners in this new paradigm - those in the middle more likely to lose. Based on this, the business models he believes that will survive are the following: Advertising, subscriptions, premium content, conferences and events, cross-media, crowdfunding, bitcoin for micropayments, philanthropy.
• He adds: "the more noise, confusion, and crap -- corresponding increase in need for trusted guides, respected experts, quality brands"

News and media are one of my favorite topics and it is hard to do justice to this topic in a single & quick post, but I'll try. Since I have a fair amount of direct experience in this area and have enjoyed many discussions over the years with many friends interested in this area - like Peter Daou - I'll say the following in response to Andreessen's thoughtful observations.

His perspective (in my words):

• News should be run like a business; profitability is key to producing quality content

My response:

There are two ways in which I partly disagree with the above premise:

a) Entities in the field of news can be both non-profit and profit-based. In one of his tweets, Andreessen does acknowledge the role of philanthropy but doesn't necessarily connect this back to the assertion that entities in the field of news must run it as a profit-making business.

b) A full fledged business entity or corporation that chooses to focus on "news" as a business should certainly be run like a business. However, "run like a business" is not the same as "profit-maximizing corporation with a goal of exponentially increasing revenue and EPS year-over-year in perpetuity". That type of pressure to keep increasing EPS can have a very negative impact on the quality of the news. Being in technology, I can say very unambiguously that the quality of your product or service is a big deal in technology. It is a big deal with almost every product or service if you plan on becoming a large and successful company. Clearly, this needs to also be a very big deal in the news business as well - both because I consider that an essential ingredient for a successful business and because journalism has a very important place in a free society in a way few, if any, other "products" or "services" are. Sadly, however, the quest for exponentially growing profits routinely compromises the focus on quality when it comes to news and media -  there are too many examples to cite here but I think most readers can relate to this in one way or another. It is not that difficult to make money on controversy, fake news, erroneous coverage, and various other forms of content which may have limited factual or rational basis - i.e., quality. If quality is important, the nature of the business needs to be such that there is a way to preserve quality with growth, even it means limiting the profit potential over time.

I'll also offer a somewhat different analogy to make my point - from the business of energy. If one's goal is energy efficiency, businesses delivering energy should be oriented around reducing energy consumption in their customer base, not increasing their customers' energy consumption (which would be the typical way a business is run - i.e., increase the volume of sales). If you take California for example, such an incentive exists for utilities like PG&E through what is called Electric Decoupling - which PG&E explains here on their webpage discussing how they make money. In a similar way, if news quality is important - then the business models for running a news organization must have the right control points and safeguards to enable quality - even if it means you may impact your "volume" to do so.

Andreessen's perspective (in my words):

• The news industry is experiencing tumultuous change because they are losing, in his view, "monopoly" or "oligoploly" status in the "control of distribution" and thus pricing
• The advent and global popularity of the internet has led to multiple forms of media - TV, cable, newspapers, etc. - seeing their futures converge on the internet (where there is a proliferation of relatively free content). As a result, they are losing market & pricing power when it comes to distribution.

My response:

I generally agree with his observations here. The internet has made it easy for new players to challenge giant incumbents. This is particularly true when the quality of an incumbent's news operation is vulnerable to attack - the internet has made it a lot easier for poor quality to be exposed thereby lowering the barrier to entry for newcomers and eroding the share of incumbents. On top of this, the proliferation of huge numbers of sites and social media has made it much more difficult to retain customers who previously might have been attached to just one or two news outlets.

Andreessen's perspective (in my words):

• There has been a large expansion in the customer base for news - and this growth in "volume" will (partly) counter the loss of revenues from widespread competition. Therefore, he says: "Big opportunity for news industry in next 5-10 yrs is to increase market size 100x, drop prices 10x. Become larger & much more important."
• Those that offer most breadth or depth in coverage will be the most likely likely winners in this new paradigm - those in the middle more likely to lose. Based on this, the business models he believes will survive are these: Advertising, subscriptions, premium content, conferences and events, cross-media, crowdfunding, bitcoin for micropayments, philanthropy.
• He adds: "the more noise, confusion, and crap -- corresponding increase in need for trusted guides, respected experts, quality brands"

My response:

I can't say much about the assertion that market size will go up 100X - although that seems a tad high from where I sit. It is an important number to get right because a 10X price drop cannot lead to a situation of overall profitability growth for the industry without a 1+ order of magnitude increase in the customer base. That said, if one is barely profitable today (let's say your operating margin is in the low single digits), a 10X price drop might not allow for any profitability on the scale of individual companies. Let me set this aside for now by temporarily accepting his overall premise. Where I think he somewhat misses the mark is in his summary of the 8 business models: advertising, subscriptions, premium content, conferences and events, cross-media, crowdfunding, bitcoin for micropayments, philanthropy. While these are all valid and relevant ways to look for revenue, many of these do not represent, in my humble opinion, the foundational basis of a news business. What I mean is this: advertising is a way to bring in revenue once you have enough customers visiting your news source (e.g., web, TV, newspaper) - but it is your content that determines whether people will want to use you as a source of news in the first place. It is the content that one should therefore first focus on - and once you have a large enough number of interested customers for your content, you need to make sure you have a way of monetizing their use of your news "product" or "service".

If we focus on the content, the quest for a business model in the news business should start with differentiation. Andreessen rightly talks about finding a way to get around the "noise" in today's world of "news" - but the signal that allows for high signal-to-noise is differentiation. In a market flooded with almost infinite content ("news") providers, many of them offering content essentially free to their customers, the only way to be profitable long-term is to strongly differentiate. Andreessen discusses news providers who go broad or go deep - this is his way of introducing the topic of differentiation but I would go deeper and focus more on this because the monetization problem is generally an easier one to solve once you solve the problem of differentiated content.

So, the way I look at this is - what type of differentiation would enable long-term stability & profitability? This is not always easy to predict, but one can at least look at how individuals or entities in the news or content business have tried to make money over the last decade by differentiating. Here is a table where I've tried to capture many of the ways to differentiate on the topic of "news" or content creation - in a broad market of diverse customers.

Differentiation Category	Brief Description
Original Content Creation	- Original reporting/journalism - Unique content (e.g., photos, audio, video, multimedia)
Content Integration & Original Analysis	Integrated view of topic or story by combining various sets of information through analysis usually not available elsewhere
Content Aggregation	- Link aggregation - Story aggregation - Aggregation of multimedia content
In-Depth Coverage	In-depth focus on one or more topics (e.g., climate change)
Topic Focus	Breadth of focus on a single topic (e.g., financial news, food, basketball)
Fact Checking	Focus on fact-checking other content providers or news sources
Community Building	Focus on allowing customer/user base to build an online community
Ideological Focus	Ideologically driven focus on a breadth of topics
User or Expert Reviews	Convergence point for book/movie/other reviews by experts or readers/customers
Special Guests or Opinion Leaders	Draw customers interested in hearing from particular people whom they respect
Educational	Focus on educating or informing customers
Other	- Collaboration across groups - Other approaches

In each of the above cases, one might choose advertising, subscriptions, premium content, crowdfunding, philanthropy, etc. as ways to bring in revenues. However, the latter are feasible only if the differentiation is significant. The search for the future leaders in the news business must therefore begin with those who are seeking to clearly differentiate the most - in a manner that is long-lasting - as a way to cut through the noise and establish a strong signal that can attract customers over time. I suspect that a large and successful news business of the future will likely be one that combines various differentiating elements to attract a wider customer base - either organically or through M&A. However, I would not make year-over-year earnings per share growth a necessary requirement for the success of a news business - the ability to always differentiate while making a reasonable profit would be my measure of success.