March 20th, 2015

Mumble journalism mumble money: link fu, incoherent ramblings

Journalists write about the difficulty scratching out a living writing articles. They mention bits and pieces about the media business, as it pertains to ... how much they get paid (that is, print still pays more than online, and which outlets pay how much), or what they regard as money that was wasted on something useless (like excessively high NY rents) when it could have gone to paying them more money for online articles. Older journalists write about younger journalists not having mentorship or learning the trade. They all complain about the difficulty of finding much less climbing the career ladder.

GigaOm went under in a big surprise earlier this month.

Felix Salmon advice to young journalists:

Noah Davis on freelancing:

PandoDaily explaining that they aren't about to go under and here's why:

Pando's post is a little unusual, in that it doesn't talk about it purely from the journalist/freelance writer/wtf perspective. It talks about run rates and money and seed series and so forth. Partly because Pando's area of coverage is an area funded by venture money and they have therefore covered people who get some seed money, attract a bunch of attention and then fail to make it through Series A and go out of business, and have been covering the wildly high numbers getting seed vs getting Series A, etc. Pando seems to have understood that this same set of rules apply to media companies as well. Well, and GigaOm pretty much proved that.

Online media and tech startups have had a very symbiotic relationship. Would you know to sign up for a password manager or a music subscription service or about the existence of TripIt or even FitBit if you hadn't seen reviews of these things in online media? The first encounter I had with Jet made me laugh out loud at their astonishing arrogance -- an Amazon killer/competitor, basically a membership shopping thing, that hadn't even launched. You read enough coverage of Jet and it starts to seem plausible. This is surely a component in how Jet raises money.

At some point, however, whether you get the money from your mom, the bank, an angel investor (other than your mom), your own savings, a seed round or a Series A round, someone is going to ask you to show that there is a path to repayment multiplied by a number that will get larger, the more money you need and the quicker you need it (and the longer you expect before you start paying it back). If your basic business doesn't Work (the costs need to be less than the revenue, basically), then you're going to be expected to make changes so that it does Work (the revenue needs to be more than the costs) either by adjusting the costs down or the revenues up or, seemingly ideally both.

There is a Thing that happens, a Thing of Desperation, that creates a smell of fear. It is when you know that just reducing costs isn't going to make it Work. And just increasing revenues isn't going to make it Work. You are going to have to do both, and probably at the same time, which usually means getting more work out of a smaller number of bodies, and then charging more for the result. The two goals are often incompatible (more work out of fewer people usually degrades quality, which is annoying, but if you are then charged more for inferior, customers may leave in droves, loudly explaining why, which in a world of google and online media is a Disaster).

And GigaOm makes me look at online journalism, and the excessive supply of journalists and their output, and the fact that they don't seem to have time to fix errors that have been brought to their attention any more that in the not too far distant past they _would_ have had the time to fix, and I wonder if someone or maybe the whole fucking industry is trying to make the numbers of the business Work and coming up with the usual solution: churn out more product from the same bodies and try to get more money for it, too.

I feel like there _ought_ to be articles about this, yet even I know that that's the _last_ article I can expect anyone in this bubble to write.

Old media NYT but Manjoo:

Manjoo attributes the failure to poor or absent management, overreliance on the research division which turned out to not be as profitable as believed or able to made that profitable. But what he is actually describing is a complete failure of internal accounting, auditing and cost controls. Apparently no one there was keeping track of what anything cost or how much money it brought it. At any level. That's quite a story!

The Pando article (because of who wrote it, obvs, a decision making insider rather than someone collecting stories from a mix of insiders who didn't make decisions and outsiders who didn't really have much access to data) is trying to show that they are Not Like GigaOm (or BI) -- they didn't borrow that much money. And there is an effort to show they are Serious about keeping costs under control.

"Raising only a relatively modest amount of venture capital (around $4m over three years vs GigaOm’s $20m+ and Business Insider’s $55.6m) means we have a thin cash cushion so have to keep hustling until we have a full profitable year. We can still fuck it up. I can still fuck it up. But I’ll put it this way: We started 2014 way, way more dysfunctional on the business side of the house, and if we merely equal last year’s revenues we’ll be profitable in 2015. Our run rate is way ahead of that."

There's something subtle and really scary going on here. I _love_ small media just like I love restaurants that aren't part of a chain. But I also get that those things make it or fail based on how energetic the founders are, because you can't actually pay anyone to work that hard. It's like farming. It makes it on exploitation, and the most sustainable exploitation is self-exploitation (and it's not that sustainable). We "have to keep hustling until we have a full profitable year." I am fairly certain that's not how long you have to keep hustling. You're going to have to keep hustling. Forever. How many of the people operating youthful media companies have really internalized that? There's been a lot of venture money floating around and that's not gonna last forever, because there are only so many stupid investors. When they've flushed their money down the WC, you're left with the smart ones, and those people know better than to compete with free.

In this one, the theory is that it is VC money that _is_ the problem, or rather the advice/pressure that VC investors put on the company. The author's theory is, don't take VC money. (El Jefe's theory involved picking your VC people carefully, and then making sure they didn't get a big enough piece to enforce their will. This is why I feel that my initial assessment of El Jefe -- he's pretty good at the business thing -- was, while wildly understated -- not inaccurate. I'm not at all impressed by Yates here.) The author thinks you should make it on customer money, leaving an important question of how do you bootstrap (El Jefe also believed you shouldn't ever start a business just with your own money, because if you couldn't convince other people that your idea had merit, it was probably a turd anyway.).

The details are important: Yates suggests that VC guys (at least the idiots he drinks with) encourage slow growing companies that will do fine but not be unicorns to take stupid risks that will probably destroy them but _might_ turn them into unicorns. It is not a totally nuts theory, however, I suspect that Yates is overestimating the number of slow growing companies that will do fine out there selling 80% of themselves to VC. Why would a slow growing company do that anyway?

[ETA: Digiday subscribes to the VC money is a bad idea theory, with Mathew Ingram support.]

Jason Bloomberg (I wonder if there is any relation) over at Forbes has a 3 pager which I only looked at the first page:

Because his theory is that the research business Was Doing Just Fine. Had he seen the numbers? No, he had not. Look, business isn't something you can do by feelz. It is not. You actually do need to match costs and revenues (hey, I know how out of whack this stuff can get. _The Everything Store_ confirmed a sense I had when I decided to take my pennies and live a quiet life in the country keeping bees. Or something.).

The only time you can get away with NOT matching costs and revenues is when people keep handing you more money now so you will give them money back later, and you don't actually have a plan for doing that.

Which I am increasingly suspicious is endemic in this whole journalism online thing.

Re/code coverage of GigaOm, a bit more about GigaOm

It's not too hard to find an old-skool journo who will write at length about all these blogger online media types who, because they didn't have mentorship, or someone shitting all over their work, they aren't actually any good. I tend to discount that sort of complaining.

I'm gonna assume that Peter Kafka's sources are legit and he did great work tracking down all this lovely info. What he didn't do is assemble a timeline and tell the story against that timeline. And the result is distracting, and hard to make sense of.

From the second paragraph (and all these paragraphs are short):

"But, behind the scenes, Gigaom’s managers and investors had known the company was in serious peril for more than two months. And while they hadn’t discussed it publicly, its backers had been trying to fix the company for at least a year by pouring millions more into the publisher and swapping out executives."

In this paragraph, in two sentences, we learn that (a) managers and investors knew "serious peril ... more than two months" AND (b) "trying to fix the company for at least a year".

and here is the last sentence from the fourth paragraph:

"But the state of the company’s finances over the last couple years is clear: They were a mess."

I don't actually need to know _which_ it was. But I do wonder why it is "more than two months", then "at least a year" and finally "the last couple years". And this is before any specifics are supplied.

Paragraph seven:

"Last fall, after pushing out longtime CEO Paul Walborsky, Gigaom’s investors, which included True Ventures, Reed Elsevier and Alloy Ventures, made two different bridge loans of $500,000 to keep the company running. They brought on former Dow Jones executive Michael Rolnick to head the company in the beginning of the year and lent the company another $1.5 million."

It is March. "Last fall" couple be anything between 3 and 6 months ago, depending on how you figure the thing. But it isn't two months, 1 year, or a couple years. We now have _four_ time frames, two with specifics: 1 year, a couple years, 3-6 months/last fall, 2 months (beginning of the year -- mentioned in the last sentence of paragraph seven, explaining the 2 months from the beginning of the article).

In paragraph 9, we learn that a GigaOm conference scheduled for next week (I think this means Structure at Chelsea Piers, and I think it may have sold out) was not going to be able to pay vendors, and _that_ triggered a last minute attempt to sell the company. No time frame is given for when the attempt to sell the company is given. We gotta whole grab bag of possibilities: 1 year and a couple years are both available and neither one is remotely plausible.

Two paragraphs later (intevening paragraph background on Om Malik) we get a possibility: "Malik, who remained on Gigaom’s board, did work to find a replacement for Walborsky, and was helping to shop the company in recent weeks".

Here's my theory of the timeline embedded in this piece:

Western Technology put in $5 million in 2011. The 2014 funding round was, in part, to pay that debt off. I think that the inexplicable "couple years" finances were a mess was discovered by Western Technology. They decided they wanted their money back and had some capacity to force GigaOm to pony up. So that's the couple years ago.

The "at least a year" is the investors who came on board during the 2014 funding round. They were told one thing when they were being courted, and then once they had signed, they started doing some real digging into the finances and they freaked out. I wonder if they didn't know their money was going to pay Western Technology; would they have declined to participate if they had known?

Last fall, their digging was complete, and they realized that the business model they thought would save the company would not. And they also weren't happy with the executive who didn't seem to know what the hell he was doing and/or was not being very cooperative. So they start working with _all_ equity and creditors of GigaOm and start building consensus to boot the CEO. They are successful by January, but that inevitably increases the number of people who know there is serious trouble. So that's our two months/beginning of the year time frame.

They get their guy in, their guy is unhappy to be there, and even more unhappy once he finishes taking a look around and wishes he hadn't agreed to help. His bright idea is to sell the company. January and February are devoted to this process, but if anyone knows how bad a shape GigaOm is in, they won't bite (after all, the last group wouldn't have bit into that apple if they'd known how rotten it was). So they keep letting people travel and they continue collecting ticket money for the conference, etc.

Whoever they thought they might or might not convince to buy the company, in the end, declined, and at that point, the creditors are stuck with having to meet legal ownership obligations (pay severance) and close up shop. They can continue to get a trickle of ad revenue off the older articles, and maybe someone will buy the name/etc.

Kafka is a good writer, and I am not. But I think Kafka's article would have made more sense if it had had a timeline structure. And I don't understand why it didn't, and it annoys me because the only way I could make any sense out of what happened at the company was to create the timeline, and then write it out.

Honestly, it was like when I went to Spry and they didn't even have an org chart. Don't people understand that you need stuff like that to understand the world they are interacting with?

ETA: GigaOm bought ContentNext from Guardian Media, including paidContent (I really liked paidContent). I can't find out how much they paid for it. The wikipedia page for GigaOm says that the original founder of ContentNext, Rafat Ali, sold it for $30 million to Guardian but if you drill down, the article cited as a source conspicuously DOES NOT say $30 million, and a Dealbook about the Guardian -> GigaOm sale says that the Rafat Ali -> Guardian was 4 million pounds.

So, there's an error on the paidContent wikipedia page. Here's the source for the $30 million, which if you dig down included an "earn out". I assume the Dealbook gave the price as paid, vs the hypothetical if ContentNext made Tons 'O Money.

There's a whole bunch worth thinking about here in terms of exit strategy for people who start online media businesses. If the exit strategy is to hump like mad and sell out to an existing larger business, will those businesses keep paying when you get this kind of result?