Media is Doomed (possibly)!
Hello! I started this newsletter and then, like so many great geniuses before me, I totally forgot about it. A family medical emergency followed swiftly by a global pandemic and a mix of millennial ennui all conspired to keep me from maintaining the very leisurely cadence I had promised for these. (Sorry) Fortunately, I have plenty of time now due to our mass cultural captivity so I’m going to start publishing more frequently. (also sorry)
Does media have a future?
So with the world in the grip of a pandemic unlike anything we’ve seen since the turn of the last century, my thoughts naturally turn to media business models. (In times of stress, we seek out what we know.) Just about every reporter, columnist, and armchair pundit has taken a swing at guessing how the pandemic and the resulting global economic downturn will impact the already struggling business of media. As an unabashed member of the latter class, I’m going to take a swing as well.
Some trends will accelerate
The media industry is already in the throes of a period of significant consolidation and contraction. A number of pundits predicted 2020 would be a respite from the kind of megadeals that defined the last few years. There are only so many 21st Century Foxes and Disney’s to merge after all. After a few years of big deals, corporate media was set to spend 2020 digesting its meal. The pandemic aftermath, and a predicted 12.5% drop in total advertising spend will likely change that. Small and mid-sized publishers and other media businesses decimated by the crash are likely to get snapped by giant conglomerates that come through the storm comparatively healthy (think Bloomberg with its money-minting terminals) and those looking to grow their way out of the downturn through acquisition.
It’s also pretty clear that we’re seeing the last gasp of local news as we know it. The teetering towers of debt accumulated by hedge fund backed newspaper chains like Gannett are likely to finally crush many local outlets. Local news doesn’t need to die, but the ungainly structures that have held it up thus far probably do. The good news here is that those newspaper chains have been very poor stewards of the brands they’ve acquired, and letting them fail, some have suggested, might give rise to a crop of more nimble digital-first outlets unencumbered by massive debt. The bad news is that in a time when trust in journalism is at an all-time low, much of the remaining trust accrued by local papers are tied to their familiar legacy brands regardless of ownership.
Some trends will reverse course
Over the last decade, as audiences migrated to digital and Google and Facebook devoured the lion’s share of digital advertising dollars, media companies of all stripes have undergone pivot after pivot looking for alternative business models. Two recent favorites, events, and affiliate commerce have both been devastated by recent events. This follows a decade of similarly lackluster results from pivots to video, investments in branded content, and recent efforts to for disparate IP into production pipeline for streaming outlets. As we work toward recovery look for media companies to shore up their core business and perhaps dial down their dalliances with revenue diversification.
Another set of trendlines likely to take a hit are those of presumed winners and losers. Disney, long-anticipated to be a big winner in the streaming wars, is now facing an unprecedented disruption of its parks, hospitality, and film businesses that have earned it a downgraded forecast from analysts. Disney was set to dominate the entertainment space, its pain at the box office and on the production lot is felt universally, it’s liabilities in parks and tourism will weigh the company down more than less diversified rivals. In news media, The New York Times Company’s emerging monopoly is likely to see it’s growth slowed by falling ad rates and a prolonged recession throttling its rising subscriber count.
While consolidation is likely to accelerate during the downturn, local news has already largely consolidated under a handful of large national chains, a move that has lead to growing homogenization of news. Depending on how things play out, the fallout from the pandemic may reverse that trend. Faced with their own insolvency, major chains may look to unload many of the local papers they’ve accumulated at firesale prices. If local news chains face sudden extinction, instead of slowly bleeding to death as most pre-pandemic analysts predicted, they might ultimately shutter fewer papers on their way down. A big factor here will be what if any, assistance the news business gets from the federal government. A bailout in the form of a direct cash infusion would likely prevent the deconsolidation scenario I described. However, if the government bailout takes the form of debt relief it might allow major news chains to unload some of their possessions without saddling them with fatal levels of debt.
Some things we can learn
The last two weeks have been incredibly revealing. As the reality of the economic situation sinks in more and more media operators are taking drastic steps to survive. Outside of a wave of layoffs, furloughs, and temporary pay cuts we’ve seen a number of CEOs and other c-suite executives moving to forgo their annual salary to ease the pain. These gestures, while generous, are also largely symbolic. Sizable as they are, the salaries of Bob Iger and Brian Robers and Jonah Peretti won’t make a material difference in employee retention. Still, it’s revealing that media executives can forgo a full year’s salary without material harm to themselves or their family while most media workers would be financial jeopardy if they missed a single paycheck.
The convergence of media and tech has lead media executives to expect Silicon Valley-style compensation packages despite working in a lower-margin business with distinctly dodgier prospects. It’s a legacy problem. Media business valuations have fallen back to earth since the days when Buzzfeed was valued like a tech startup but executive pay largely hasn’t. Perhaps as business returns to whatever our new normal will be, executive pay will find a new and more reasonable equilibrium.
In fact, it’s possible that the whole industry is due for a reset. Like legacy news, most digital-native media brands (looking at you Vox, Vice, and Buzzfeed et al.) are groaning under a mountain of debt and venture capital accumulated during their boom years. These companies were built to be flipped like a remodeled condo to pay back investors and pay off founder stock options, rather than the last. (An early version of this thinking explains why most of our local newspapers exist within a Russian nesting doll of hedge-fund debt) Perhaps the next generation of post-recession media businesses will take a longer view.
Links
Ok, that’s enough from me. A few quick links to the work of more talented people.
Follow Bethany Biron’s excellent reporting on Hobby Lobby which has been flagrantly violating state-mandated Coronavirus closure orders. Following a tip from a concerned employee, she’s managed to bring attention (and police intervention) to the situation, possibly thwarting the will of God himself in the process.
I’ve been on a local news kick lately, partly because of the dire straits so many local papers find themselves in and partly because I’m temporarily stranded in my hometown in rural New Jersey as we ride the Coronavirus. My arrival here happened to coincide with the retirement of Jennie Sweetman, the local history columnist at our hometown paper. Ms. Sweetman has written her weekly column about this small unremarkable corner for the world for 50 years. They have always been great, and I will miss them. Read her final installment which was as timely, thorough, and engaging as ever.
https://www.njherald.com/lifestyle/20200322/1918-influenza-epidemic-hit-county-hard