Content economics, part 4: scale

November 11, 2013
Vox Media has acquired Curbed Network. Why is the news so big?

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The big blog news of the day is that Vox Media has acquired Curbed Network. Why is the news so big? Because, until now, if a major blog property was sold, it was always sold to some media giant — more often than not, AOL — which wanted to add another bloggy arrow or three to its massive content quiver.

This time, by contrast, the likes of AOL (which bought Weblogs, and Techcrunch, and Huffington Post); Condé Nast (which bought Ars Technica and Reddit); Disney (which bought Babble); and Turner Broadcasting (which bought Bleacher Report) were either outbid or were not in the running at all. The buyer here is native: Vox doesn’t need the Curbed team to understand the world of online publishing, since it has been even more successful at that game than Curbed has. (Vox, with more than 40 million unique visitors per month, has raised some $70 million to date; Curbed is being acquired for somewhere in region of $25 million.)

Rather, the Vox-Curbed combination is the beginning of a phenomenon that Henry Blodget has been anticipating for a while. Last month, he talked about a “digital equivalent of Time Inc”, where various standalone publications would operate under a larger corporate umbrella. Last week, at a now-notorious breakfast with Gawker Media’s Nick Denton, the two CEOs talked about a possible merger of their companies. And on Friday, in a Google Hangout hosted by Howard Lindzon, I took the opportunity to ask him to elaborate. Could Business Insider and Gawker Media continue as independent sites while sharing back-end technology and sales teams? Here’s what he said:

I do think that over the next five years, what you’re going to see is a lot of consolidation. The fact is, there are way too many digital news and media organizations out there right now. There will be a lot of consolidation. As they come together, you will get huge economies of scale on the sales side, on the tech side, and on some of the other areas as well. And then you’re going to see these companies produce good profits…

Right now there are 30? 50? 100? news organizations online that are effectively just general news sites. Do all of those brands have to exist? I would say no. I would say a lot of them could be combined under a big brand. We like brands. And I think ultimately companies like Huffington Post, or maybe it’s BuzzFeed, maybe it’s CNN, will build a global news organization that is vastly larger than anything that’s out there now. Now, basically, if you don’t have 100 million uniques as a general news organization, you might as well mail it in, because that’s the size that most of them are now. Over time, that will be 500 million uniques. It will be just inconceivably large audiences. Because they will bring a lot of what other sites are doing onto their one platform. They will be much easier for advertisers to deal with, because advertisers don’t actually want to do deals with 75 tiny little sites: they’d actually much rather work with a big site with much more reach…

Somebody’s going to build the Time Inc of digital media. There are going to be a few big properties, and they are going to hang on this central platform that will have the same technology, the same international sales layer, the same administration. Each publication will be very big and successful unto itself, but they’re sharing some of these services. That will work very well… Many, many companies have a shot at this. AOL. Glam. Vox Media is going after this aggressively.

Little did Blodget know, as he was saying that, that Vox Media was putting the finishing touches on its deal with Curbed — the first in what will surely be a string of acquisitions aimed at creating exactly the behemoth Blodget is talking about. Indeed, Business Insider might, conceivably, be next on Vox CEO Jim Bankoff’s shopping list — it shares a similar demographic to sell to advertisers, and Bankoff has chosen Business Insider’s Ignition conference as the venue from which to formally announce the acquisition.

The Blodget vision — which is clearly shared by Bankoff — is of a publishing platform on which any number of websites can be built. That vision isn’t a new one: both Gawker Media and Weblogs Inc were based on pretty much the same idea. But neither of them ever managed to expand by acquisition. And it’s notable that while Denton was an angel investor in Curbed Network (which in turn means that he’s now a small shareholder of Vox Media), no one ever gave serious thought to building the Curbed sites on the Gawker platform.

Similarly, while BuzzFeed is a traffic monster, its content management system — the all-important technology which in large part drives the success or failure of any online publishing operation — is so narrowly optimized to the unique BuzzFeed voice that it’s hard to see it being extended across a broad swathe of different sites.

It’s almost impossible to overstate the importance of the CMS when it comes to the question of who’s going to win the online-publishing wars. As Blodget said on Friday, if you’re going to make serious money in this business, you need serious scale. If you want serious scale, you have to be able to expand not only organically but also by acquisition. And if you want to be able to scale up through dealmaking, you need to have a technology and sales platform which can support large-scale acquisitions.

Vox Media’s platform, called Chorus, fits the bill — it does everything well, from video to real-time storytelling to sophisticated ad integration. AOL, too, has an excellent CMS. In fact, when Jim Bankoff, in an earlier incarnation, acquired Weblogs Inc for AOL, he did so in large part for its CMS, rather than for any of the site brands. But other potential players are seriously hobbled on this front. Off-the-rack CMSs like WordPress and Drupal are OK for small-to-medium sites, but aren’t particularly well suited to be the framework for a major publishing operation*. Narrowly bespoke CMSs like BuzzFeed’s or Gawker’s Kinja can be very good at what they do, even while they’re less well suited to powering a broader range of sites. And if you’re a legacy media company of any description — be it in newspapers, or TV, or radio, or even financial-information terminals — then a large part of your CMS is going to be devoted to integrating digital content with your legacy product, and is therefore going to be a little bit clunky and unwieldy if you try to use it for any pure-play digital operation.

My feeling, then, is that there’s a strong argument that a franchise like Business Insider belongs on a platform like Chorus. Business Insider is like Curbed Network in that it is pushing up against the limits of its current CMS, and faces a decision point. Should BI to make a large investment in product and technology, to support its future growth? Or would that just be an exercise in reinventing the wheel, given that Chorus already exists? And while BI might be able to afford to invest heavily in technology and sales, other small-to-medium-sized blog networks, like Gothamist, as well as standalone sites like Salon, probably can’t. For them, a move to Chorus, or something like it, could be the only way to grow.

The question from Vox Media’s point of view, however, is a bit different. There’s an enormous number of websites out there which would become significantly more valuable overnight if they simply moved to Vox’s sales and publishing platform. So the arbitrage is clear: buy those sites at a relatively low multiple (Curbed Network sold for less than four times revenues), turbocharge them with Chorus, and then reap the benefits of seeing those sites’ revenues increased substantially — and being valued at significantly higher multiples than Vox paid in the first place.

On the other hand, as the NYT notes in its article about the Curbed acquisition, “Vox has earned a reputation for high-quality content, producing sleekly photographed articles that integrate multimedia in a smooth and sophisticated manner.” It’s that reputation which helps it maximize its ad rates — and if it becomes a company selling a hodge-podge of random sites, it’s going to find it difficult to maintain its premium pricing and desirability among advertisers.

What’s more, Bankoff seems to want to build or buy sites which have a realistic chance at dominating their respective fields — he doesn’t seem particularly interested in building a stable of sites which compete with each other, although that might change over time. After all, Condé Nast didn’t have a second food magazine to compete with Gourmet, until it bought Bon Appetit in 1993. In principle, if you have two similar sites and can therefore offer a potential advertiser twice the inventory and a significantly greater reach, that should be good news for all concerned.

Which brings me to the company which has been executing the publisher-as-a-platform strategy more successfully than anybody else for longer than anybody else: Glam Media. Glam is the publishing behemoth that non-insiders are least likely to have heard of, because it does a good job of hiding its own light under a bushel. Instead, it allows the sites on its network to build their own followings.

Glam started out as an ad network, basically. It would find publishers, mainly in the women’s-lifestyle space, and would do deals with them whereby it would sell ads on their sites. By aggregating a large number of sites, and starting a few of its own, Glam managed to achieve the kind of scale which advertisers demanded.

Along the way, Glam acquired an enormous stable of bloggers and writers — who were not only micro-publishers in their own right, but who were also creating some great content which deserved to be placed in front of a much larger audience. So Glam created a system whereby writers, photographers and other content providers could see their work appear on sites throughout the Glam network — and get paid every time that happened.

The difference between the Glam view of the world, which comprises thousands of publishing brands, and the Blodget view of the world, which involves only a relative handful, is that while it’s true that consumers like brands, it’s no longer true that one big brand is going to beat thousands of small brands. Smaller websites can feel much more targeted and personal, and can build up a much more loyal following, than sites which have millions of users. If advertisers can get their ads onto that kind of site, and reach just as many people as they would buying one huge site, they’re better off for it.

Glam, then, turned publishers into curators: they could produce their own content, or they could source content from elsewhere within the Glam network. If they hit a nerve and managed to gain serious traction with a niche audience, they could make good money from what they were publishing — and then they could make even more if their original content was used on other Glam sites. Best of all, none of the publishers had to worry about technology or ad sales — all of that was taken care of by the Glam mothership.

In many ways, Glam represents the ultimate triumph of technology over content. It does own valuable websites, but that’s not where the real value of the company lies. Instead, Glam has managed to build a system which controls more of the advertising stack than any other company, so that it can implement campaigns with more effective targeting and reach than just about any other online publisher.

And Glam isn’t stopping there. In 2011, Glam bought Ning for a reported $200 million — and now, finally, we’re beginning to see why. Look at Foodie, Glam’s shiny new recipe site — it’s powered entirely by Ning, and works a bit like Pinterest for recipes and restaurants. It’s a social discovery platform: it’s a place not only to find your favorite recipes, but also to collect them, to publish them, and to broadcast them to others. Glam, meanwhile, provides the technology which makes the whole thing incredibly intuitive and easy to use and navigate — both for individuals and for brands.

Foodie is still tiny — much smaller than Glam’s existing network of sites. But it also has significantly higher margins than classical publishing plays, partly because the cost of content is so much lower: like Pinterest and Yelp and Twitter, the content is often provided, gratis, by users. It’s a publishing platform which is open to anybody, a bit like Kinja — but it’s much easier to use than Kinja, and it’s naturally social in a way that Kinja isn’t.

Importantly, Foodie shares with the rest of Glam Media’s sites the fact that it doesn’t really do journalism, or news. Glam Media is a lifestyle publisher, specializing in things like fashion and beauty. That’s extremely attractive to advertisers, who in general don’t particularly like news: the reason that newspapers split themselves up into lots of sections is precisely because advertisers are much happier when their ads don’t appear next to hard, gnarly news.

Vox Media, too, is not really a journalistic organization; it breaks little if any news*. And in that respect Curbed Network is a good fit. As Bankoff told Jessi Hempel, he wanted Curbed because of its status in “consumer categories” — things which people want to go out and spend money on. His CMS is actually extremely well-suited to supporting a news site: it was designed to power SB Nation, his network of sports sites, and a sporting match is, in a manner of speaking, an exercise in continuously breaking news. I would love to see Business Insider powered by Chorus: I think that such a site would be much friendlier to both readers and advertisers, and could really come into its own on, say, the first Friday of the month, when the jobs report is released.

The question, however, is whether Bankoff would want Business Insider to be part of Vox. News is always a tougher sell, but at the same time it confers priceless legitimacy: BuzzFeed, for instance, is investing an enormous amount of money in its journalism, not because that’s a particularly cost-effective way to generate traffic, but rather because it means that both readers and advertisers take the site much more seriously as a result.

And with his most recent acquisition, Bankoff has proved that he’s OK with buying lower-multiple businesses. The reason that Curbed sold for less than four times revenues is that a very large chunk of those revenues is attributable not to advertising but rather to events. Eater, in particular, has a thriving events business, but events revenues are always going to be valued on a lower multiple than advertising revenues are. Still, events are a great way of adding a new revenue stream to an existing franchise, and of helping to take brands off the internet and into the real world. Don’t be surprised to see the existing Vox Media franchises doing many more live events now once the Curbed team is in place.

Vox Media and Glam Media, then, both clearly have a good shot at becoming Blodget’s digital version of Time Inc. AOL does too, especially if CEO Tim Armstrong can wrest his attention away from Patch: AOL’s publishing technology is excellent, and the way that HuffPo is expanding internationally is a great model for companies which have always struggled to monetize their non-US traffic.

Other, bigger, companies would love to enter the competition. Yahoo has made many attempts at doing so, but they always seem to end in bureaucratic suffocation. Disney has many digital powerhouses of its own, from Babble to Club Penguin to ESPN, but they’re too big and too disparate to form the nucleus of a publishing network. Condé Nast put a huge amount of money and effort into making a success of Conde Net, but at heart it simply isn’t a technology company; while it might be a perfectly good quiet minority investor in the forthcoming site from Kara Swisher and Walt Mossberg, it’s not good at running sites itself. And of course soon-to-be-spun-out Time Inc has every intention of becoming the digital version of Time Inc itself. But it’s too slow-moving, and its fiefs are too politically entrenched, for that to happen.

On the other hand, maybe Time Inc isn’t the right metaphor. If you look at these slides over at the Glam Media site, which date back to August 2012, you’ll find the company comparing itself not to any print publisher, but rather to cable channel operators, like Disney or Viacom, which sit in the middle between advertisers, content providers, and content distributors. Glam, it seems, is interested in developing relationships with everybody in its ecosystem. It was even there at the beginning for Refinery 29, which has now become a major competitor.*

No one knows what the digital-publishing platform play will ultimately look like. I’m convinced that owning a first-rate CMS, one which makes publishing both compelling editorial and beautiful advertising a breeze, is a necessary precondition for success. Beyond that, it’s still far too early to tell what’s ultimately going to work. I’m fascinated by the Medium experiment: I think it has a lot of potential, especially if it starts to support custom domains, like Tumblr did early on. Looking at Medium, along with Vox, and Glam, and even AOL, I think I can begin to discern the vague outlines of how digital publishing might eventually be able to deliver the kind of scale and impact that brand advertisers demand from TV and glossy magazines. I don’t know who the winner is going to be. But I do think that Blodget is right about one thing: whoever the winner is, they will have to have some very deep pockets. Winning this game won’t come cheap.

(This is part 4 of an irregular series; it comes in the wake of part 1: advertising, part 2: payments, and part 3: costs.)

*Update: A few things worth adding/clarifying here. First, I shouldn’t have said that Vox “is not really a journalistic organization. That’s wrong: it does a lot of very good journalism. What it doesn’t do a lot of is the kind of investigative/breaking news which advertisers tend to shun.

Second, on WordPress and Drupal, there is an argument to be made for WordPress VIP, where improvements made for one client automatically apply to all other clients, and a tech company is in charge of tech rather than a media company. The problem is that they don’t integrate with the advertising stack as easily as they should, and they remain at heart blog CMSs, based on the idea that you basically have a single template which displays individual posts/articles in a standard manner. I think the web is moving on from there.

And finally, here’s something I had completely forgotten about, or never knew in the first place: Vox and Glam actually announced a significant partnership back in 2009. I wonder what happened to that.


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