Every Media Business is a Struggling Business...Until?
Every Media Business is a Struggling Business...Until?
Why media companies like Warner Bros. and Disney have been struggling, what it takes to succeed as a media business today, and some companies that have been thriving already.
Today, I’m tackling an issue I’ve been meaning to write about for a while: what has happened to the media industry, and where is it heading?
I am a student of media businesses. At BCG, I helped craft growth strategies for some of the largest media companies. Now, at HelloCreator, I’m working to support the modern media business: the content creator. You could also easily argue that this blog is a media business, although a horribly unprofitable one at that.
Media is captivating to me because it is everywhere (“every business wants to be a media business” is a saying my former BCG colleagues discussed recently) and also because, from a business perspective, it is so incredibly difficult to succeed. Media is the primary way humans stay informed and inform others. Innovation in media, beginning with the typewriter and most recently with short-form video on TikTok, fundamentally changes how we communicate and who we communicate with, generating seismic cultural shifts. (Pace Capital’s Chris Paik explains the historical impacts of new communication styles on society well in this interview.) Succeeding in media drives the success of an institution. Just ask Kamala Harris and the 200+ content creators she brought to this year’s Democratic National Convention.
And yet, while every business may want to be a media business, every media business is also, arguably, a struggling business. Even the largest media companies, the emblems of success for the up-and-comers, are riddled with challenges. It is difficult to identify a media company that hasn’t undertaken massive layoffs in the past few years, and it is even more difficult to identify a large media company that serves as a realistic, optimistic, playbook for the future. Warner Bros.? Struggling with debt. The New York Times? More of a lifestyle company than a pure-play media company, as I’ve discussed. Disney? Have you seen the challenges CEO Bob Iger has been dealing with?
I. Understanding the Source of the Struggle (for Entertainment Companies)
A. The shift from linear to streaming
For so long, companies like Disney and Warner Bros. were propped up by the reliable and profitable linear TV business (i.e., cable). As more consumers cancel cable packages and “cord cut”, the business is shrinking and the emphasis on streaming has increased.
Streaming is a way worse business model than linear. It is a far less reliable and far less profitable income stream. While linear TV businesses involved selling bundles of channels to cable companies that consumers would pay for consistently in their cable bill, streaming revenues rely on ever-fickle consumer subscription models. 23% of consumers are “serial churners” for subscription platforms, meaning that they cancel and then re-buy subscriptions frequently, typically to gain access to the content they most want to watch. For example, a consumer might subscribe to Netflix to catch Bridgerton’s newest season, but when new episodes of The Bear drop on Hulu, they’ll cancel their subscription to Netflix and subscribe to Hulu instead. To make matters more difficult, studies have found that consumers group all content subscriptions together, forcing all media types (news, streaming, etc.) to compete with each other for share of wallet.
B. The fruitless battle for content
The way to win then for streamers is to always offer content interesting and new enough to the consumer to be worth the subscription. And that’s an expensive game to play. Media companies like Netflix and Disney have tripped over themselves trying to play a content race for the most in-demand content always. They still try for this, although spending has cooled. One stat I found stated that according to their annual reports, Netflix’s streaming costs in 2021 came out to ~$6 per subscriber. Disney+ spent ~$5 per subscriber.
II. What the future looks like
While costs for streaming businesses soar and the demand for new content feels relentless, the irony is that creating and distributing high-quality content has never been cheaper and easier. As a result, it's hard to see a future in which large media companies succeed. The business has changed too much, and large media companies are too big to pivot into the lean, cheap content machine that succeeds in this modern media landscape. They are too big to not fail.
We’ll likely continue to watch large media players aggregate again and again, as we’ve recently seen with Skydance merging with Paramount. And we’ll also likely see them continue to pay up for sports content, which has been a consistent source of consumer demand in an inconsistent market. Right now, more than 1/5th of companies’ content budgets are dedicated to sports.
The real winners in media’s future will be the little guys who can create highly-entertaining, high-quality content in a way that is quick and cheap. Essentially, the future of media is the 200M+ content creators expressing themselves online. But that’s hardly a new observation. So instead, I want to highlight the characteristics of the successful future media business.
III. Components of the media businesses of the future
A. They will leverage algorithmic distribution platforms
Social media is the new TV. The average consumer spends 33% of their screen time on social media, watching short-form video content fed to them through a smart, personalized algorithm. These algorithms have a knack for finding little-known high-quality content and making it “go viral”, placing it in the feeds of millions overnight. Recently, startups like Gymnasium have been using the algorithm to their advantage as a free, very effective distribution source. From idea generation to the editing process, the Gymnasium team creates content they think the algorithm (and their social media-based audience) will like. It seems to work. The first episode of Gymnasium’s most recent show “Boy Room”, was posted to TikTok on an account without followers, acquiring 3M views within two weeks.
B. They will own their audience
Algorithms can be great distribution channels, but they are also entirely unpredictable. When using algorithms that drive SEO and social media feeds, it’s hard (and expensive) to stay relevant. This is why we’ve seen a greater push among media businesses to own the contact channels for their audiences. For print media, for example, this has led to the rise of newsletter culture. With newsletters, media businesses know who their audience is and how to reach them. Traditional media platforms have rolled out newsletters appealing to a plethora of niches. New York Magazine currently has 39 newsletters. Journalists have also started owning their direct readership with newsletters of their own. Former New York Magazine Editor
’s business newsletter Feed Me is an example of this. Writing on Substack instead of for NYM grants Emily creative freedom and a significantly higher paycheck for her work.The other way media companies own and cultivate their audience is through a community-focused media strategy. Substack has “Substack Chat”, Puck has The Puck Private Conversation, and production studio A24 has “A24 All Access (AAA24)” that all serve the same purpose: providing a platform for their community to converse, strengthening their understanding and relationship to their audience in the process.
A. They will have very-specific niches
To cut through the content noise, the future of media will speak to a deliberately-very-specific audience. A24 is an example of this. As New York Magazine journalist Nate Jones explains when referencing A24’s decision to produce Greta Gerwig’s Lady Bird, “The studio doesn’t just make a ‘high-school movie,’ it makes a ‘Catholic school in Sacramento in the spring of 2003 movie.’” Recently, we’ve also seen this with the modern media company Smooth Media. Started by early employees at Morning Brew, Smooth’s mission is to make newsletters for “knowledge creators” or those who educate their audiences through “smart, insightful content”. Most notably, Smooth hosts the creator-focused newsletter The Publish Press (
). Smooth recently acquired Energy Central, a media publication for “electric power professionals.” It’s hard to come up with a more specific niche.I’ve certainly seen this trend at HelloCreator. Conversing with content creators daily, creators seem to have a strong, very-specific sense of their niche. Creators will consider themselves to be a “lifestyle influencer who provides advice on how to make passive income through real estate” or a “health and wellness influencer who shares vegan, high-protein recipes”.
B. They will think like traditional businesses.
Great media companies think like traditional businesses. They set out on an intentional path to profitability, minimizing costs and planning their revenue sources strategically and creatively. Usually, this drives new media businesses to find revenue sources beyond content itself. Brand sponsorships, rather than advertising revenue, fuel the modern media businesses. Creators are projected to earn $8B from brand sponsorships this year and only $1B from platform advertising dollars. Beyond sponsorships, brands look for diverse revenue streams. A24, for example, rolls out limited-edition merchandise that sells out often within seconds. The Paris Review does this as well.
Community can also be a revenue source. Substack writers monetize their communities, typically making $5 per month per reader. This is a pretty notable sum when you do the math, especially when you consider the lower salaries journalists are used to making. Substacker
takes home $800k+ annually for aggregating her readers onto her own site. A24’s community brings in upwards of $1M+ in annual recurring revenue in exchange for providing its passionate fans with a quarterly magazine, free movie tickets, early access to merchandise, and the ability to chat with the other community members on Instagram.IV. Conclusion
Ultimately, the beauty of media is that it is a persistent reflection of the technological and cultural zeitgeist. Succeeding as a media business requires constant evolution and with it, the requirement to stay lean enough to do so.
The essay in bullets: (I know…this is a long one.)
· Consumers are canceling their cable subscriptions, causing large media companies that relied on revenue from linear TV to lose reliable income.
· Recognizing that cable is a declining revenue source, media companies have been trying to make streaming happen. They do this by spending big $$ on producing content for a fickle population of “serial churners”.
· It has never been easier to produce high-quality content quickly and cheaply, clearing the way for a new operating style for the media companies of the future.
· The best media companies of today will have clear audience niches, own their audience (literally, by being able to contact them), be intentional about their P&Ls, bring in revenue beyond content itself, and tap into distribution systems on existing platforms that capture audience attention like social media feeds.
· Media is changing all the time. Media companies must stay lean and nimble to be able to adapt.