First you create content, then you build distribution, then you monetize it all. Media is pretty simple and straightforward when you break it down.
Founder Om Malik announced that IDG will sell ads for Om Malik’s GigaOm Media, which means that Malik’s empire becomes the latest property to leave Federated Media, John Battelle’s company. I suppose GigaOm was not happy with the results from FM and Battelle, who has a thankless job of ad repping tech sites who look at a magazine like The Economist and wonder why they’re not getting those advertisements and advertisers.
IDG, a traditional, print-centric media firm, must be getting “the BIG idea” and will now be repping Giga Om Media. This type of deal can work, it might fail. But more importantly, it shows that they get it in the sense that the worst thing a media company can do is to get attached to its distribution, in this case, print. IDG recognizes that a major asset it has is its client relationship.
Distribution is wildly overrated. I am not saying it is not valuable, of course it is, but the value lies in
1) the content that is distributed and
2) the revenue, ie. the advertisers.
Expect more media companies to start doing this: repping new media sites. We have seen CBS repping a few newbies. SONY is also doing it with Rocketboom. Print of course is in more dire straits than TV, so this is not the last example of this.
You might be asking: will IDG buy GigaOm Media? It is indeed a first step towards an acquisition… I expect to see IDG content on GigaOm properties next, though. It’s also possible IDG asked for some kind of warrants or first right of refusal, which I hope and presume Om kindly refused.
If anything, I see this as a hedge by Malik who is wary that the economic slowdown will be too severe for a relatively new sales organization like FM to weather.
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Caption reads: With this hand, I push my predecessor off the stage.
Subprime to Deflation: tag, you’re it. Subprime will go down as the “Word of 2008″ and trust me, “Deflation will be the word of 2009″. First some background:
Although the risk is still considered relatively small, concern about deflation is one reason stocks have been hammered this week, sending the broad Standard & Poor’s 500 to its lowest close since 1997 Thursday. The rapid slowdown in the economy, coupled with the collapse of housing and financial markets, has increased the threat of a broad, sustained drop in prices.
While deflation might sound welcome, in fact it can be devastating to borrowers, banks and businesses. The Great Depression in the 1930s was accompanied by deflation of 10 percent per year, reflecting the widespread lack of demand. Falling prices in the 1890s made it impossible for farmers to keep up with mortgage payments, as Fed Chairman Ben Bernanke noted in a 2002 speech on the topic.
As prices fall, consumers and businesses become less willing to spend and invest, worsening the economic downturn, as happened in Japan’s “lost decade” of the 1990s.
Yippie. No wonder President Elect Obama is set to announce his economic team on Monday… anything to get the douche bags running the show out of sight, out of mind, will be a Godsend. The problem is that we have a President in office who was absent for most of this tenure, and the one President won’t be sworn in for another 50 days:
President Bush has been noticeably absent from the machinations aimed at righting the nation’s financial course. Analysts and key players differ over whether President-elect Barack Obama should get his economic team in place and take charge, or sit back and await his turn at the helm.
“Somebody has to speak up soon,” said CNN senior political analyst David Gergen, explaining that he understands why Americans are growing anxious and yearning for direction and leadership.
“I think … sort of the bottom feels like it is falling out for many people,” said Gergen, who has advised four presidents. “They sense there’s a total lack of leadership in Washington, that the White House is silent, the treasury secretary has been battered, the Federal Reserve can’t speak up. These automakers come up to Capitol Hill and fail. And the president-elect is silent in Chicago.”
Read more. Wow, the Republicans just might get their wish: a socialist in the White House. Be careful what you wish for…
Between now and January 2009 though, we just might see Citigroup join AIG and Fannie/Freddie in the government’s hands. Alley Insider’s ClusterStock has some frightening reads:
- Citigroup F****d: Bear Stearns, Lehman Redux?
- Citigroup F****d: Merger with Goldman Sachs or Morgan Stanley?
- Citigroup F****d: Weekend Rescue
- Citigroup F****d: Why are you laughing, creditors? You’re f****d, too.
Hmm… deflation, heh? Maybe this is why Citigroup is falling… people know it will be cheaper tomorrow than it is today. Recall Citigroup was at $5, then $4… soon $3, maybe $1 soon?
You know the saying: “the bigger they are, the harder they fall”.
Citigroup was the world’s most valuable bank, this week it became the fifth, probably even lower right now.
In finance and banking, it has everything to do with confidence and right now, there seems to be absolutely no confidence in Citigroup. It does not help that American Management is corrupt, morally bankrupt and getting its due. Had America dared “share the spoils” there would be buyers out there, but a few have reaped the rewards at the cost of the many, and this is the result of all of that greed and excess. Said the poorman to the rich: “Payback is a bitch, bitches”.
Rupert Murdoch is attacking NYT not by a hostile takeover (not sure the Feds will allow it, though admittedly the Feds are busy with trying to save the dying vestiges of capitalism) or even by trying to win over subscribers, he’s poaching advertisers.
Microsoft, meanwhile, is “over” with trying to acquire Yahoo!, so it is now poaching its employees, Yahoo’s VP of Search Technology Sean Suchter just left Sunneyvale for Redmond.
This is a new, old kind of warfare, I think, and it reminds me a lot of General Electric’s chairman, John F. Welch Jr., who earned the nickname Neutron Jack on his reputation for eliminating people while leaving building intact. In this case, the attacking party leaves the company intact but strikes at the core of the asset: in NYT’s case (a print media company) it’s the advertisers and in Yahoo!’s case (a #2 in search), it’s the brains behind… the algorithm and unit organization.
I’ve never bought this notion that viewers who consume video content online watch more TV. I am not saying that people who watch a lot of Web video don’t watch TV content… but I certainly think that the numbers of media one consumes is finite, so the more you get it from one media, the less you are bound to get it from somewhere else.
- From Broadcasting & Cable:
According to IBM, more than half of online video watchers say they watch less television as a result, with 36 percent watching “significantly less.”
- From eMarketer:
Between the shaky economy and the growth of online video, U.S. ad spend will decrease 4.2 percent next year to $66.9B.
- From Fortune:
The consulting firm ABI Research predicts more than a trillion videos will be streamed worldwide in 2013, up from 32 billion in 2006. Meanwhile, a recent IBM survey shows that web-video viewers around the world are watching less TV.
The problem, if you ask me, is that web revenue isn’t going to make up the falling TV ad market… and the ones who will garner the lion’s share of ad dollars online aren’t the TV companies… so you have to ask yourself: will the future of TV media firms look much different than the future of print media firms? Which takes us to the brunt of it all, when it comes to traditional media firms and web video: those who can (TV), won’t… while those who want (print) can’t.
Some time ago, I published a post that linked to an article on ReadWriteWeb that talked about bootstrapping a firm, which made me think of legendary Sequoia VC Mike Moritz’ investment thesis, or Elements of Sustainable Companies, which calls for frugality, amongst other things, which include:
Clarity of Purpose
Summarize the company’s business on the back of a business card.
Large Markets
Address existing markets poised for rapid growth or change. A market on the path to a $1B potential allows for error and time for real margins to develop.
Rich Customers
Target customers who will move fast and pay a premium for a unique offering.
Focus
Customers will only buy a simple product with a singular value proposition.
Pain Killers
Pick the one thing that is of burning importance to the customer then delight them with a compelling solution.
Think Differently
Constantly challenge conventional wisdom. Take the contrarian route. Create novel solutions. Outwit the competition.
Team DNA
A company’s DNA is set in the first 90 days. All team members are the smartest or most clever in their domain. “A” level founders attract an “A” level team.
Agility
Stealth and speed will usually help beat-out large companies.
Frugality
Focus spending on what’s critical. Spend only on the priorities and maximize profitability.
Inferno
Start with only a little money. It forces discipline and focus. A huge market with customers yearning for a product developed by great engineers requires very little firepower.
I think one reason why Mr. Moritz’ firm themselves called for their portfolio companies and start-ups in general to cut costs by 10% is two-fold:
- the economy’s wheels have come off, with talks now of deflation becoming rampant.
- VCs have investments that are certainly underwater. Think about it: if private investments were benchmarked to publicly traded firms like Google and the Nasdaq index, then considering that these are now down 50% year-to-date, obviously their investments are too.
The problem is a security that is liquid (ie. a stock) can reprice immediately. A private investment, not so.
Right now, VCs are hit with the perfect storm that includes their investors (so-called limited partners) balking on their own commitments to invest. Some pension funds are outright trying to unload their stakes in VCs for $0.50 on the dollar, let alone adding more money.
If you add all of these variables into the mix, it becomes a lethal combination.
Faced with this reality: VCs will certainly ask companies to cut costs, and may even ask for their investments back, in order to focus on companies that have a shot at attaining liquidity. Considering that many of these investments were “pie in the sky” experimental ideas with no business case to support their existence, I think you will see a massive wave of foreclosures of businesses and liquidations.
As of mid-September, I began to get emails (we’re talking 1-2 per week, nothing more, but still) from worried executives or investors asking me if we wanted to “take over” a firm or “buy on the cheap” a company. These emails have only increased in frequency and the sense of panic. Why?
Because their burn rates are too high and with no revenue in sight, the only thing a responsible investor can do is pull the plug. Right now, the value of a company has everything to do with revenues, costs and profits. This is a great thing.
As I pointed out previously in the above-mentioned post:
The value of a stock, company, asset etc., simplified, is = Future Earnings / Cost of Capital.
As such, to maximize the value of your company, it’s not enough to only keep costs down or to have a high-quality asset, you have to do both. This is basically Gordon’s Model theory applied to video publishing.
Mark my words: as the severity of the credit crisis has somewhat dissipated, what will happen is that companies with cash will start to scoop up companies right and left who simply want to stop their own bleeding. After all, in a deflationary environment, asset prices fall. If your burn rate is low or you are profitable, you don’t have to sell. In fact, if you operate online, this is the perfect time to continue to execute and grow the firm. But if you are suffering from a high burn rate, don’t be surprised if you find the rug pulled from beneath you any day now.
First off, my condolences to the family and friends to the 19-year old who took his own life on Justin.tv.
Second, my little brother is that age, so this really could happen to anyone.
Third, in no way am I insinuating that the victim was crazy or unstable.
However, I do think it’s important to highlight a few things here:
“What ever happened to crazy” is a quote by Chris Rock, when he was talking about the Trench Coat Mafia and how the mainstream media was obsessed with over-analyzing what music they listened to as an excuse - or explanation - to justify their heinous acts.
In this vein, Justin.tv, social media and the Web are somewhat irrelevant in this sad tale. This is, to quote President-elect Barack Obama, a case of friends and families knowing when to step in and talk to their siblings, sons, friends etc., to prevent these things from happening.
Now, since this blog covers business and the Web and not psychology and social issues, I would add, that this episode will however, stick a fork in the “social media as an advertising platform” argument. You cannot anticipate what will happen on these sites… and this is just not something anyone will be comfortable with.
But, more importantly, it’s time for me to give my little brother a call and see how things are going. You should too.
