The trouble with growth

New York Stock Exchange, 1963 (Thomas J. O'Halloran / Library of Congress)

A volatile market, plunging tech stocks, and fears of a looming recession (or at least, a major correction) are sending jolts through the media world. Last week Bloomberg reported that in December The Fidelity Blue Chip Growth Fund had cut Snapchat’s holding by 2 percent—its second write down of Snapchat in three months—and that Yahoo had reduced its valuation of Tumblr by $230 million, amid cost-cutting plans of its own. Meanwhile, The Guardian News & Media, publisher of The Guardian, recently announced it’s looking to cut more than $70 million in costs over the next three years, after losing more than that in 2015—despite its vast of flows of traffic and digital growth. 

For media start-ups running off the fumes of their VC investments, and legacy newsrooms making the move to digital, these stumbles are a crucial reminder that traffic alone won’t keep them out of the red. As digital ad sales soften, investing in other channels of revenue—be it  branded content, events, membership programs, or paywalls—will become increasingly important. These recent tech market tumbles also point to the trouble with growth: namely, that unless it generates revenue, it may not have much value. Not when investors are getting nervous and tech unicorns may be facing leaner times.

 

Snapchat’s case is telling. Its impressive headline valuations, and proclivity for launching new experiments, made it one of last year’s media darlings. Not only were news outlets covering it constantly, they were hitching their carts to its star, as evidenced by the ever-growing suite of news organizations that now distribute their content via Snapchat’s news channel, Discover. And yet, Snapchat’s shifting share price—the company mainly makes money off ads—is raising skepticism around whether headline valuations have any relationship to actual business value, or, as the Financial Times has reported, are merely “a symbol of the outsized ambitions of this generation of startups.”

Mary Ritti, a spokesperson for Snapchat, has said, “We are confident in our business.” Investors, however, are sending different signals. 

“The steroid era of startups is over,” tweeted Keith Rabois, former chief operation officer of Square, in response to its sliding share price. Another expert offered more tempered advice. 

“Private investing has not dried up,” Lise Buyer, founder of the Class V Group, a public-offering consultant in Silicon Valley, told The Washington Post. “It is just that people are sobering up.”

For the last several years, investors have been bullish on the news. VC funding has flowed into digital media outlets like BuzzFeed, Vox, and Business Insider, jumping to over $800 million in 2014 and giving rise to a new generation of online media startups, including Bustle, Re/code, The Establishment, Bold, and others. Many appear to be thriving. In April, Refinery 29 raised $50 million in Series D funding, bringing the company’s funding to $80 million. And as of October, Bustle was reportedly on track to make a profit. With ad partners such as Microsoft, Skyy vodka, and Juicy Couture, it had surpassed a hundred staffers, was preparing to expand its offices, and was considering further investment. Digital ad spending, too, is expected to increase in 2016.

 

Private investing has not dried up. It is just that people are sobering up.

 

It’s notable that publishers that are reporting the strongest earnings have either increased their focus on a core product, such a print or ads, or branched into alternative revenue streams, such as information services.

And yet growth can have its downsides. Even as digital ad spending climbs, flooding into video and expected to surpass TV, it’s also pressure on media sellers to lower their prices, leading to what some experts are calling, “digital deflation,” and an overall slowdown in the ad spending market, The New York Times reported.

This helps explain the The Guardian’s sobering news. As the company invested in growing its audience, it also made a bet on digital advertising, and now that growth in that market appears to be slowing, it’s not the only British newsroom that’s feeling the crunch. The Mail Online has, too; last summer, its ad growth slowed to single digits, despite its 200 million monthly users.

For committing to digital growth while holding out against a paywall, The Guardian has been criticized for “thinking more like a Silicon Valley startup” than a news organization financed by a trust. On the other hand, with plans to make membership “the heart of editorial,” The Guardian is clearly retooling its revenue strategy. The days of free content may soon be behind it. 

 

As the market sobers up and investors pull their wallets closer to their chests, publishers will have to think smartly and leanly. In addition to diversifying away from digital advertising, they’ll have to focus on where they excel, build core products around that forte, and recalibrate visions of growth. It’s interesting to note that the publishers doing this well are hardly remaking the wheel. Their approaches are more like business 101. For example, even though most glossy magazine are struggling, Garden & Gun has carved out a niche of affluent readers and advertisers who love its voice, the quality of its pages, and its laser-focus on upscale Southern lifestyle. Even though its digital presence is modest, it’s been increasing steadily since 2013, and according to its editor, David DiBenedetto, that’s okay.

“Traffic is small, but it mirrors our circulation in that we aren’t a mass magazine,” DiBenedetto said recently.

And then there are local news organizations like the Texas Tribune and Voice of San Diego, which have excelled by identifying a primary stream of revenue and going after it hard, the former through live events, the latter through its robust membership program. In the process, both newsrooms have been able to bring their values to their on and offline communities and convert them into dollars.

It’s not like it’s all grim news for advertising either, merely a shift in focus. Elite Daily just reported that even though its traffic and unique visits are down, its digital ad revenue has grown. Behind the scenes, the company has tried to diversify its traffic, so it’s not so reliant on Facebook, and invested in its sales team and branded content, while “drastically cutting” the revenue from programmatic content—all signs that it’s going for quality over quantity.

Major news players are also making shifts, responding, perhaps, to the market. After a period of busy experimentation in areas like podcasting, virtual reality, and video, The New York Times says it’s time to reflect on its progress and maybe even cut back. Executive editor Dean Baquet told staff on Tuesday that, “It is time to catch our breath,” and “develop a strategic plan for what The New York Times should be, and determine how to apply our values to a new age.” Baquet recently told public editor Margaret Sullivan that “given the reality of the journalism world we’re in, we certainly can’t get any bigger and we probably have to get a little smaller.”

Like other publishers out there, The New York Times is looking to identify what works—a product, a strategy, a new definition of growth—that will carry them through the winter.

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Damaris Colhoun is CJR's digital correspondent covering the media business. A reporter at large in New York, Colhoun has also written for The Believer, The New York Times, The Guardian, and Atlas Obscura. Find her on Twitter @damarisdeere.