Given all the recent assertions in the press about a “Digital Media Bloodbath,” this seemed like a good time to affirm our commitment to media investing and to explain our media investment thesis. Media has been a focus for our firm since our first fund more than twenty years ago. While each year we consider a lot of media related investment opportunities, we make relatively few investments in the area. This is largely because we rarely see new companies innovating broadly enough to build major long term, independent businesses. Innovation in media often begins with content, but building a successful new media business depends just as much on innovation in distribution and in the advertiser’s experience. Drawing on some examples from our portfolio (including Business Insider, theSkimm, BuzzFeed, and Giphy) and from companies we admire, let me try to explain why.
Most promising new media companies start with original content. If they are successful, they will begin to capture a meaningful share of an audience’s time. Our successful media founders have typically been strongly creative people with experience in the legacy media industry. They know how to fashion something engaging, often out of familiar material. Henry Blodget, Founder and CEO of Business Insider, recognized that telling a story in a timely way through charts (often arranged sequentially as slideshows) allowed an audience to engage directly with the data and reach their own conclusions quickly. This high-velocity storytelling helped propel Business Insider to the #1 spot in daily online business news. Similarly, the founders of theSkimm recognized a need while working at NBC when they were constantly recapping the news for their female friends. Building on that experience, they have achieved breakthrough engagement and reach with millennial women (and some men), by approaching the morning news with a fresh voice and a format that’s easy to consume on mobile. As a result, their subscriber growth and open rates have reached extraordinary levels. But great content is just one critical element in creating a truly innovative media company. Founders need to focus just as much on creating innovative distribution for their original content and on creating a fundamentally better experience for advertisers.
We live in a post-portal world in which content travels freely through different messaging channels (email, text, Snapchat, Slack, a multitude of messaging services) and across major social media platforms (Facebook, Twitter, Google, YouTube). Successful distribution today depends on promotion, broad appeal, and your audience’s willingness to engage, react and share. Understanding these platforms and the forces that drive engagement and proliferation are critical if you want your content to achieve meaningful distribution.
We’ve been investors and on the board of BuzzFeed since May of 2010. The power of sharing as a mode of distribution is one of BuzzFeed founder Jonah Peretti’s great insights. He recognized early on that as platforms become a bigger and bigger part of the digital ecosystem, sharing of engaging content would increase, and that content would exist in many different formats. BuzzFeed has made early, and sometimes surprising, investments that have helped build a global, cross-platform network powered by technology and data science. That network has allowed BuzzFeed’s team to cover a breaking news event like the November 2015 attacks in Paris on par with other global media organizations like CNN or the BBC, reaching millions of people around the world through their site, apps, and distributed video. It’s also brought about creative programming and experimentation with, say, exploding fruit or mesmerizing recipes that resonate with millions of people. The company understands how audiences engage with content and why it is shared. This has given Buzzfeed a powerful cultural currency.
Understanding search as a means of distribution is just as important. To this end, we are big admirers of companies like Bustle. Founder and CEO Bryan Goldberg’s deep understanding of search engine optimization and the search habits of his core demographic — teen and young millennial women — has enabled the company’s content to achieve incredible durability and reach long past the date of publication. The associated ad revenue opportunity has similar endurance, particularly given Bustle’s rich, almost “glossy,” ad format. While treating search as a distribution mechanism, the company has achieved an almost recurring revenue stream on the pieces it has previously published, propelling it to terrific revenue growth.
And then there are companies that recognize that controlling distribution of great content in a new format can be just as powerful a business enabler. We’ve always loved GIFs because of the way they tell emotionally engaging stories in a short, easily shareable format. When they first started, the founders of Giphy created a lot of engaging GIFs. But they soon recognized that all valuable historic video content would eventually be atomically reduced to a series of GIFs (at least the good parts). Fortunately for Giphy, organizing all this new content requires powerful new search capabilities that fall outside of traditional web search. They have focused relentlessly on creating those capabilities and indexing this vast new content landscape.
BuzzFeed, Bustle, and Giphy have all innovated considerably around distribution and this has helped propel their growth. We are deeply interested in new forms of distribution in themselves, particularly ways to reach strong affinity groups and self-organizing communities.
For more than 20 years we’ve been fascinated by the slow pace of innovation in ad formats and experiences. For media businesses that depend on advertising, this seems counterintuitive since better ad experiences have the potential to unlock major new revenue streams. Innovating around the advertiser’s experience has actually created a vast amount of value and we wish we saw more companies focused on this.
Through AdWords, Google gave advertisers a way to reach specific audiences that had declared their interests and intentions, dramatically increasing the efficiency of cost-per-click advertising and breathing new life into display. Unfortunately, this still left brand advertisers searching for a better way to tell their story. Facebook promised the beginning of a better relationship for brands, with sponsored stories reflecting our accumulated likes and the collective wisdom of one’s social graph. And yet, even today, we still see an awful lot of poorly targeted display advertising on Facebook. And the platform takes an incredibly artificial approach to our relationship with a brand: Personally, while I may shop at Target (and even like their brand values), I’m never going to take the time to visit and “like” their page.
Across the edges of our screens, the old display advertising model has been dying for some time now. Display ads are awful for telling a brand’s story. The ad exchanges have wrung the last bit of efficiency out of this miserable format. While they have their utility when an audience’s intent can be clearly discerned, all too often they appear where it can’t.
We believe that in every media format, the important thing is to give the brand advertiser a means to engage the audience emotionally, just as the content does. At BuzzFeed, Jonah Peretti recognized this and drove the creation of the sponsored content model. This gave brands a fresh medium to tell a story through shareable content, while holding them accountable for engaging the audience. Today, there are more ways than ever for publishers to be true partners to a brand, helping hone their voice and find their targeted audiences. BuzzFeed’s test-and-learn approach lets brands explore new formats like quizzes, shorter-than-short form content, and no-sound-required video. These explorations have opened up entirely new revenue streams for BuzzFeed in the form of cross-platform branded content packages that are integrated with the company’s owned and operated site and apps. It’s one of the reasons the company has continued to grow at a terrific rate.
Today, we welcome the ad innovations from SnapChat, with Lenses that overlay a brand lifestyle on our own and publisher driven Discover channels that include short, high-quality video ads. Now it feels like we are getting something new that works for brands, though a lot of what’s happening in those channels feels a lot like TV. We look forward to seeing new innovations in ad experiences that captivate audiences and advertisers alike.
So What’s Next?
We will continue to look for new media companies innovating across content, distribution and advertising. For us, those are the essential elements of building major long term, independent media businesses. We know that platforms and formats will continue to change and this will create opportunities for new entrants. With the shift to mobile, this seems to be happening on a greater scale than ever before. And, as it becomes cheaper and cheaper to produce and stream high quality video, new online media businesses are leading with everything from GIFs, 8-second Snapchat videos, 45-second How-To segments, to 3-minute serials.
Judging by the deals that have caught our attention recently, we expect to continue to see innovation in news — particularly the decentralized sourcing and curation of “stories.” We also think there are still huge opportunities for media companies to share data with advertisers about the audience they are reaching without compromising privacy. In fact, we think this is essential for engaging advertisers in any new platform or ad experience.
It has been a privilege for us to work with so many great media entrepreneurs and we look forward to partnering with the next generation in the years to come.