Tech Brew Ride Home - (Bonus) The State of Digital Media With Rafat Ali @rafat

Episode Date: January 26, 2019

Given all the news of layoffs in the digital media space this week, I knew I couldn't sit on this interview with Rafat Ali any longer. Currently the founder and CEO of digital media company Skift—but also, if you weren’t aware, a true digital media pioneer going back to his founding of Paid Content—I knew he could talk about this stuff, and he has a pretty unique perspective on the state of digital media in 2019. TLDR, it’s not good. Dire might even be the word.  This episode has a full transcript. Sponsor: Capterra.com/ride Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to a tech meme right home bonus episode. I'm Brian McCullough. Believe me, at least on New York and New York-based media Twitter,

the big news of this week was layoffs, the layoffs at the company formerly known as Oath and the proposed layoffs at BuzzFeed. As I said on Thursday's episode, there's two tracks to the story, one being Tim Armstrong's apparently a board of attempt to cobble together a media empire to compete for ad dollars with Google and Facebook

and the whole phenomenon of digital media startups who took gobs of venture capital money to attempt to do news and media at scale only to have that scale seemingly be ephemeral and the VC well now running dry. Well, I actually recorded this interview back in December, but someone who has been very vocal

about all of this all along has been Rafat Ali. currently the founder and CEO of digital media company Skift. But also, if you weren't aware, a true digital media pioneer going back to his founding of paid content, one of the first blogs to go pro, as it were. I did a great episode with Rafat on the Internet History podcast, which I encourage you to look up. So I knew that Rafat could talk about this stuff, would have a lot to say about this stuff, would have a pretty unique perspective on the state of the digital media landscape in 2019, T-LDR. It's not good. Dyer might even be the word. And, well, given this week's news,

and since, as I said on Thursday, this has been a major ongoing story that I feel like I've criminally undercovered. I thought, let's let the great Rafat Ali tell you what the state of digital media is right now. One quick note of context. We reference in the conversation Jonah Peretti's trial balloon that he floated a few months back saying digital media, media companies should combine forces either in a mass merger or as some sort of collective bargaining block in order to get better ad rates. Well, on Friday, as the laid-off, BuzzFeed reporters were tweeting their sad news. Peter Kafka was reporting that BuzzFeed was in talks to merge with another digital media player, Group 9. But first, let me tell you about this episode's sponsor, Captera. Do you remember 1999?

I do. The dot-com bubble wrote a whole book about it. We're officially 20 years further on from 1999. So if you're no longer partying like it's 1999, why does the software you use every day at work feel like it's not quite ready for Y2K? Start this year off on the right foot and find software that's a little more up to date on captera.com. Captera is the leading free online resource to help you find the best software solution for your, business. With over 700,000 reviews of products from real software users, discover everything you need to make an informed decision. Search more than 700 specific categories of software, everything from project management to email marketing to yoga studio management software. No matter what kind of software your business needs, Kaptara makes it easy to discover the right solution fast.

Visit Kaptara.com slash ride for free today to find the right tools to make 2019 the year for your business. Captera.com slash ride. Captera, that's C-A-T-E-R-R-A dot com slash R-I-D-E. Thanks to Captera. And now, the State of Digital Media in 2019, with Rafat Ali. Rafat Ali, thanks for coming on the TechMeme right home. Thanks and writing me again.

All right. You've been tweeting a lot about the state of digital media. I wanted to get you on to... Unfortunately. Yeah, exactly. We've talked about that before when you were on the Internet History podcast, but let's just start with a little bit of context. The current spate of all of these huge VC-funded online media outlets, did that really

begin with BuzzFeed and Vice? Was that sort of like the first wave of this? Certainly the first wave of this crop of digital media companies, but as you know, from being a history bus yourself. History always repeats itself. The whole world is about cycles. And if you go all the way back from Web 1.0 days on a lot of the companies that were funded,

including digital media online media companies, names like Ceylon and Slate and others, many of which still exist, many of them don't. A lot of them were throwing money at companies like AOL and others. I'm sure you remember. This was probably, this was probably part of the podcast on the book that you wrote.

Right. But so you said that this is the new crop. Was it that this new crop grew up in the age of social? And so that's why they thought, well, it's different this time around that these guys have cracked the social nut? Correct. I think that certainly the valuations are definitely went out of control. The whole concept of distributed media company,

which in many ways, certainly BuzzFeed was at the vanguard of because everybody thought they they cracked virality right that's what the whole thing was and virality essentially happens through social media

these days and whether old school YouTube to Facebook and Instagram and all the other stuff that obviously came along after and so yeah I would say that social media now people don't call

social media now it's called platforms. A distributed platform media company is what what BuzzFeed thought it was and it's you know I guess in many ways it still is but what that also did is some of the large

companies like Hurst and others started calling themselves to meet the media companies which is hilarious to hear that along the way everybody wanted to write that mojo yeah and even the VCs because I'm curious about this side of the all the money that flowed into you know BuzzFeed Vox Bustle refinery 29 business insider yeah but even though yeah I mean certainly they got a good good

good good timing and return on that so what I'm curious about like why did why did the investors why did the VCs think things change because okay so social media is a new way to go viral and think but the the the underlying economics of the ad supported business didn't change the CPS didn't change. So why all of a sudden, for maybe a period of four or five years, were so many people willing to throw so much money at that platform? Well, I think that people did think that the audiences were infinite because of the numbers that they were seeing on Facebook, which, by the way, itself, as you know, over the last two years, has come out at least three to five times

about how wrong their methodology in terms of how they count views and how they count traffic, etc. were. So they've downgraded their estimates on numbers that they were pushing to to these sites or video views, etc. So I think everybody thought that engagement is infinite and traffic is infinite. And then if you add an ad model that may not add up to tons, but is an infinite growth mode, which is the default mode in a, in a, in a, in a, boom market. This is not just true in internet. This is true in every sector in the planet because all

everybody does extrapolate from where they are today versus accounting for a downturn down the line or change of economics down the line. I think that's what VCs got seduced by. They also got to doze by the buyers, potential buyers of these companies in the market because they're not just investing

to grow these companies. They're looking for exits. is the end game for them. So exits in terms of IPOs, exits in terms of buyers. A lot of the buyers are out of the market. Who did they think the buyers would be? The AOLs and Verizon's and Jaws and Verizon. I mean, all of that is gone.

Comcast certainly has done its share, but it invested in these companies instead of buying them. Disney, which, you know, in hindsight, like Bustle should have taken that billion dollar deal, whatever that rumored deal was that that Disney was going to buy. I think they came very close to buying it. It's not just a rumor deal. This is a fact for, I think, a billion dollars or something.

But they thought it was too low. And, yeah, so I think that many of the buyers out of the market in many ways. I think that's the reality of it. And everybody's buying, they want to buy big things. Like, Inti is buying TV and Disney's buying TV. And so they're not buying digital media. So now we have the situation, you know, Mike just laid off the majority of its staff, sold to bustle, even oath. There's the huge write-down that oath had to take yet.

So essentially, all of these companies took, you know, tens, hundreds of millions of dollars in investment money. There's not going to be any more of that down the road. we've had all the things like you know Facebook changing the algorithms so traffic is down so the situation now like this is where I think you were smart yeah because you were smart I saw your tweet where you said that you know if 2018 is is bad for digital media now when the economy is good what if the economy turns bad so what do you where do you think we are right now in terms of these companies in a situation where media is singularly screwed for like a better word in a boomtown, but in a very up market scenario.

In 2019, and 2020, every indication says we're in the last evening of an up cycle in the economy globally. And indications are that it's going to get worse. All of the indications are, you know, you talk to economists. I'm not an expert, but every indication, every media expert, every economy expert is saying that. So in a downturn scenario, even more money is going to go out of the market and go to more efficient platforms like Facebook and Google, the two main beneficiaries. Unfortunately, so far, all the issues are on Facebook. It certainly is not hurting its revenues, even though it's hurting its user growth from the public numbers.

Instagram is still growing like a weed Even though people You know when people talk about Facebook They don't necessarily talk about Instagram or WhatsApp But you know owned by the same company So You know I don't see

I don't Short of All of these companies recapping And all the investors writing down Their investments which they already have done keep in mind in many cases the founders aren't hurting because the founders probably took a bunch of money off the table in these large rounds that they did so it's the regular employees for most part and investors that gets screwed it's not the founders that gets screwed because if you're going to raise today if you're raising if any company is raising north of 10 million dollars there's 80% 90% John's that couple of the million dollars will go into the founder's pocket if you are if you are a company that's in series B type scenario and beyond. So guess what?

The founders of BuzzFeed and Mike and others probably got enough money out the table already. This is the thing that nobody talks about, but that's just the fact of the market today. What do you think of, because I'm thinking of recapping and recombining, what do you think of Jonah Preddy's idea to do some sort of merger or pooling of ad inventory or something? What do you think of that? Well, I mean, I don't think he said something about, hey, that would give us bargaining power over Facebook and Google, which I think was more of a throwaway comment than anything else. And obviously, that's the one that I picked up and poo-pooed and say, oh, they look at these kids. They tend to have any power against Facebook and Google.

I do think that I actually give it more credence than others have as an idea. As an idea that could work? As an idea that could work, does it give returns to the existing investors? Not really. But at the right rational valuation of combination with the right management and the right management and play. I mean, there are a lot of ifs and plus. Well, certainly there would be a lot of egos all in one room, too.

I mean, well, a lot of egos won't be washed out, meaning it won't be everybody coming along. It cannot be everybody coming along. So they will have to be, I'm just making this up, but Jonah runs the whole thing, for instance. And then there's, but many of those will get washed out. It's not like, you know, tomorrow if there's an exit for the founders of Vox, for instance, if Vox gets combined with BuzzFeed, I guarantee you, if you give a deal to the Vox founders or executive that you'll get an exit and you don't. have to worry about this anymore. Will they, will they not take it? They'll take it. I mean, it's, it's an exit and, and it can't be five layers of managers running these companies. There'll be

one layer of management running these companies. So I do think that many of them will take the deal on the table and, and will run, run as in like exit. Run is probably too strong a word. That's my hypothesis based on nothing. Hello? What do you think of, sorry, what do you think of long-term the solution being subscriptions? Now, again, subscriptions have been talked about for 25 years now. But we kind of are maybe in this moment where people now are habituated to paying subscriptions for online media of various forms.

Do you think that maybe now that is, everybody loves subscription revenue these days, Maybe a pool of media. Apple's talking about, you know, that, what is it, Stitcher? Spotify. No, no, no, no. Making a subscription for Apple News sort of thing. Do you think that that's maybe the time is finally here for subscriptions to save online media? Well, I mean, so I have a long view on this because I started the site called paid content in 2002.

So I've been tracking paid content for 20 years at this point, or 16 years, 17 years, 20 years at this point. I still would bet against a Spotify of news coming along, meaning a bunch of news publications you can pay a flat rate and it gets distributed with different people. I do agree that people are more habituated to paying. I do believe that in this moment, the media, and then we're talking mainstream media today,

We're in this moment where people, there is consciousness about if you want good media to survive, you have to pay for it. You don't have to thank, let's say, Trump, for that. In B2B world, that we exist and obviously that has been there forever. So I do think that there is a case. I think subscriptions will be a good part of media revenues going ahead. I think if done right, I still think that it will all come down to how, you. you know, is it nice to have or must have? And nice to have works in entertainment scenario,

in a sports scenario, well, in a sports scenario, maybe an entertainment scenario to some extent, but does it work in a nice to have new scenario? So I think that's the key that BuzzFeed and Vox and whatever bustle is and all these others, and we'll have to figure out. New York Times is a different, in a different boat. It's essential institution. It's put a lot of reference to the editorial,

Washington Post, the same thing, journal the same thing, et cetera. FT. So those are in a different bucket than the general digital media out of there today. You mentioned Skift, how's Skiff doing these days? Very well. We are six years, six and a half years into our journey. We're ending they are close to 60 people growing pretty fast in terms of organic growth. We did our first acquisition two months ago and potentially looking at a couple more next year. But again, you know, we are, it's all organic growth. We are cautious. We are intentional about our growth.

I'm increasingly becoming a bigger fan of the word intentional in general. So we've, I think we want to be careful on 2019, 2020, because of the potential macro issues that will affect us as much as anybody else. But obviously, we're not overextended in any possible way. So all very good. Global expansion in terms of our travel and then expanding into dining and wellness for us as well. So I think in many ways the next five years, I'm very excited. about in terms of how we grow our larger footprint. The final question.

We talked about the idea that VCs bought into this notion that maybe every day you could reach two billion eyeballs or whatever. Is that dream of scale for online media? Was that just always a pipe dream? Or is there some sort of scenario? Someone will invent a new wheel that you could create sort of a platform for straight media, not a platform like Facebook, that could. achieve the scale of billions and billions.

I mean, I don't know. I can't say I know the answer to that question definitely, you know, certainly. But, you know, is that platform TV? Well, that's existed forever. Is that platform Netflix looks like it from a, you know, from a video perspective? So that platform in a bigger way could be a version of Netflix, well, you know. but on its own today as a new player in the market you know I don't see but you know 20 years ago if you asked me about

Facebook I wouldn't have seen that of this Instagram I never saw coming