Rafat Ali’s right. The news industry is a lousy business now.
Competition’s cutting ad rates as technology flattens the industry, destroying economies of scale that once enabled news companies to profit by consolidating into national chains.
That one-two punch is keeping online content businesses from scaling to the point where they become lucrative options for investment capital, or enticing targets for corporate acquisition.
If you’re an angel investor or venture capitalist, why should you consider the online news business? There are so many more lucrative places to invest your money. If you really want to be in the online space, look toward the technologists who are creating tools that can serve not only online news but other segments of the information industry, creating a path toward growth that might reward your initial investment.
The elimination of steeply progressive income and capital gains tax rates in the United States a generation ago changed Wall Street’s focus from finding companies with long-term income stability to finding ones with immediate growth opportunity. (If the government’s gonna take 70 percent of all you earn this year, you’re more concerned with spreading your income across the ensuing years than making it all up front. But when tax rates are relatively flat across income levels – as they are in the U.S. now [PDF] – you want to get the money while you can.)
Without a clear path to scale, content-driven online news businesses can’t show Wall Street the growth opportunity that investors demand. People keep trying to create national website networks, but as I wrote in my recent piece on Patch.com (also linked above), the economics of creating an online network are nowhere near the same as those of creating a national newspaper chain a generation ago.
Ali referenced Nick Denton’s Gawker network as an exception, noting Denton’s discipline in giving ailing or slowly growing sites a quick hook. But making those decisions require sharp management attention, and Gawker’s network, while successful, certainly isn’t challenging old media chains such as Gannett or Conde Nast in either income or earnings. Again, the lack of scale.
But take a closer look at what I just said. The Gawker network is successful in that, by all reports, it is making money for Denton and his partners. Look around the Internet, and you’ll find thousands of privately-held websites that are making money for their owners. Or look within the portfolios of corporately-owned sites, and you’ll find many that run in the black.
Which brings me (finally!) to my point: While the online news business might be lousy for investors and entrepreneurs looking for a major hit, it’s providing a healthy living for many others whose ambitions aren’t so grand.
While publicly-traded companies and investor-backed start-ups might not be able to justify new spending in online news, publishers and entrepreneurs who don’t answer to “The Street” can find plenty of money to be earned here. No, there’s not impressive growth opportunity. Your endeavor might not scale beyond a single site or modest network, but if that can provide enough income for you and your partners (or contractors or employees), don’t let Wall Street’s gloomy talk keep you from jumping into (or staying in) the business.
Thinking about how many investors have become skeptical of the online news business, I’m reminded of the old Yogi Berra cliche: “Nobody goes there anymore; it’s too crowded.”
Hey, those folks might not be hanging around much longer, but that just leaves more room for us.
At least until one of us figures out how to make content scale in this environment, then buys out – or wipes out – the rest of us.