Hello friends, I hope you’re having a good weekend!
I decided to write this post because I read this news of the failure of a startup (Artifact) which was funded just a year ago by the Instagram founder Kevin Systrom. I remember very well reading that he was moving on after Instagram and he was working on a digital news app… so it was really surprising to read that they crashed into a wall so soon. And this made me think… if the Instagram founder can’t crack this, is it definitive that online news will never work?
I started doing some research and actually in the last months media layoffs have been on the news quite a lot. Just in the last months:
Vice Media (the edgy and youth-oriented content site) has recently undertaken substantial staff reductions and filed for bankruptcy;
Buzzfeed (the pioneer in digital media and viral content) announced a 16% cut in its workforce and sold Complex network to a live video shopping platform;
Sky Group announced it plans to eliminate about 1,000 jobs, mainly within its engineering division;
Bell Media has announced a significant reduction of 4,800 jobs and the sale of 45 regional radio stations. This decision reflects the company's adjustment to changing media consumption habits, particularly the shift towards digital and streaming platforms, and the need to optimize its portfolio in response.
The Los Angeles Times, a prominent newspaper, laid off over 100 employees in January 2024.
All this brought me to conclude that while traditional media is not doing well, also digital news outlets are struggling and I wanted to spend some time thinking about what could be the factors of this outcome.
The digitalization of media
In the past two decades, we've witnessed a digital revolution that has fundamentally altered the landscape of various content industries. From music to movies, traditional modes of content distribution and consumption have been upended by digital technologies, giving rise to players like Netflix and Spotify. These platforms have not only changed how we access content but also how it's produced and monetized, creating new paradigms in entertainment.
The music industry was among the first to feel the impact of digital disruption. With the advent of platforms like iTunes and later Spotify, we saw a shift from physical albums to digital downloads and streaming. This transition was marked by challenges, including piracy and declining album sales, but ultimately led to a more accessible and varied music landscape for consumers.
Despite these successes in entertainment, the news industry stands as a notable exception in the digital revolution. While there's no shortage of online news sources we still have not seen the sacred graal of Media-focused VC investing: a 'Netflix of News'. We have seen several players (including Apple) trying to build a unified platform that successfully aggregates and monetizes news content in a manner appealing to a broad audience.
What went wrong in the most recent failures?
Artifact & The Messenger – The Quest for a Digital News Paradigm
As I said at the beginning I really thought that Artifact (the Instagram co-founder led startup) would have the best shot at building the “Netflix of news”. What went wrong then?
Artifact: AI-Driven News Aggregation's Short-Lived Promise
Artifact, a news app developed by Instagram's co-founders, aimed to personalize news aggregation using artificial intelligence. It represented a significant effort to leverage AI for news curation, intending to provide users with a tailored feed based on their interests.
However, despite its innovative approach and initial success, Artifact faced several challenges:
Limited User Base: Artifact struggled to expand its user base beyond its core audience in the U.S. In other words it struggled to find a global product-market fit, which is not an easy task especially in something linked to local nuances as the news;
Competition and Changing News Consumption: Facing stiff competition from existing news aggregators and changing patterns in news consumption, Artifact couldn't sustain its initial momentum. The big bet of the app was to change customers’ behavior of relying on AI-driven content delivery, such as social feeds and search engines. That did not happen.
Identity Crisis: Like many companies struggling to find product/market fit the app started expanding features trying to test different hypoteses and use cases. This mean expaning features, and progressively losing focus on its primary function as a news app, venturing into things like social networking territory.
Artifact’s failure is surely a proof of how hard the digital news industry is, but it’s also something that reminds me something I often think about: finding product/market fit, especially on consumer products, is HAAARDD!!! If the Instagram founder did not make it… I think it gives perspective.
The Messenger: A Traditional Approach with a Rapid Downfall
The Messenger, another ambitious project, was founded by a Media mogul and captured a lot of attention when it announced (a year ago) it raised $50MM.
The key factors that did not make this work:
Outdated Business Model: The Messenger heavily relied on a traditional, ad-based revenue model targeting a broad audience. This strategy became unsustainable due to the declining effectiveness of programmatic ads and the challenge of targeting specific audiences amidst the decline of third-party cookies.
High Burn Rate and Mismanagement: The company's high expenditure on office spaces and rapid expansion, without a sustainable revenue model, led to an untenable burn rate.
Challenges in News Disruption
As these cases, along with many others, prove disrupting the news industry is a complex challenge. And it’s no surprise that we still don’t have a Spotify/Netflix/Kindle for news.
I actually spend quite some time reading about failure stories, and there’s actually a really cool website (Failory) and newsletter that gathered all the major failures and created a “Startup graveyeard” which is filled with interesting insights.
And when reflecting on what makes news so hard I think the key difference between News and other content is:
Personalization vs. Objectivity: News consumption is deeply personal, with readers seeking information relevant to their lives, interests, and views. However, there's also a need for objectivity and broad coverage in news, making it challenging to create a platform that caters to diverse preferences while maintaining journalistic integrity.
Real-Time Nature: Unlike movies or music, news is time-sensitive and often requires immediate dissemination. This real-time aspect demands constant updates and a dynamic platform, which can be technologically and logistically challenging. I read an interesting quote some time ago about somebody saying that the only things keeping Live TV viable are Sports and News. And that’s also why Netflix and the big streaming players are going very deep into sports for instance… it’s where most of the remaining share of attention is.
Credibility and Trust: In an era of misinformation and "fake news," establishing credibility is crucial. News platforms must balance speed with accuracy and depth, ensuring that the information is reliable, which is not always a requirement in entertainment content.
The Business Model Conundrum
Monetization Challenges: Ad-based models can lead to clickbait and sensationalism, while subscription models may limit audience reach. Finding a sustainable model that ensures quality journalism and broad accessibility remains a significant hurdle.
Decline of Traditional Revenue Streams: The traditional news industry has seen a significant decline in revenue from print advertisements. Digital ad revenues are also under pressure due to the rise of ad blockers and the phasing out of third-party cookies, impacting targeted advertising capabilities.
Impact of Technology and Social Media
Role of Social Media: Platforms like Facebook and Twitter have become significant news sources but lack the editorial oversight of traditional newsrooms, leading to challenges in controlling misinformation and ensuring journalistic standards.
Emerging Technologies: AI and machine learning offer opportunities for personalized news feeds and automated journalism, but they also raise concerns about the authenticity of content and the potential reduction in the need for human journalists. At the same time trading quantity for quality is not a great thing, especially with something so socially relevant as the news.
Micro-curated news
While I acknowledge that creating a global “Spotify-like” news aggregator could be impossible, I still believe there’s room for journalism and content. I actually believe that the situation has never been more attractive for quality niche content. News might ultimately be one of the few spaces where Chris Anderson’s “long tail” theory, that was at the foundation of the early internet days, proves fully right.
I believe that there’s space for journalists and content creators to have niche very loyal audiences that are willing to pay a subscription in exchange for exclusive content. I actually believe much more in this model than the classic news site “paywall” model.
Personally I am not willing to pay for a generic site paywall, because I know that I will find really interesting only a small fraction of what they publish, but on the contrary I am subscribed to several news creators and commentators that have very interesting insights and for which I am happy to pay a small fee/month (my favorite is Ultimo Uomo, Italian football)!
And to his credit, this is also Musk’s vision for Twitter: allow journalists and creators to use the platform for distribution and share a portion of the ads revenue with them, in addition to the entirety of a subscription fee they can ask customers to pay for exclusive content.
Once again, the future is of the creators!
And probably here there’s really no space for middle men… which also has HUGE societal implications on the future of the “Fourth Pillar of Democracy”: are we ok living in a non-moderated society, where everyone is only accountable of his own words? But that’s another story!
In summary I have lately come to appreciate Taleb’s “Barbell strategy” in many fields of life, and while he framed it specifically for statistics and financial markets I think it has a lot of application here as well. I think that what makes sense, in the news space, are only the 2 sides of the “Barbell”: fast/live news (via twitter, live news channels, etc) and vertical (niche) in-depth content (i.e. podcasts, long form writing, etc). There’s really no space for anything in the middle in my opinion because:
It’s very hard to monetize: most people will not pay a fee to go beyond a paywall of an “ok-ish” news site because they get speed for free on social media;
It has a quality adverse-selection component: top-tier journalists often shun "B-level" content, as it neither satisfies their professional aspirations nor offers substantial financial rewards (as noted in point 1). Consequently, this tends to attract lesser-skilled "C-players" who further erode the quality of the content, thereby fueling a destructive cycle.
I wish you all a great weekend
G
p.s. this discussion would naturally evolve into covering Tucker Carlson, who probably is the biggest news celebrity who “went direct” and disintermediated. I am actually not ready to do that, he’s so controversial I am taking a lot of time to form my thoughts (currently listening to his 3hrs interview with Lex Friedman, after listening to his interview with Putin and a lot of comments on it). I plan to study more and talk about this at a later stage :)
A great read to start the weekend. Thanks Giovanni!