Lessons from the Digital First implosion
But no one should be happy that Digital First hit the wall. All this episode proves is that digital publishing – which remains the only imaginable way forward for newspapers and other legacy media – is even harder than we think.
Digital matters, because modern consumers – even those over the age of 55 – prefer to ingest news on a panoply of platforms including computers, smartphones, tablets and smart televisions. Even the American Press Institute, an arm of the Newspaper Association of America, recently concurred that “the majority of Americans across generations now combine a mix of sources and technologies to get their news each week.”
The problem with digital news publishing, as discussed here, is that few, if any, organizations have developed models that come close to successfully emulating the scale and profitability achieved in the best of times by the traditional publishing and broadcasting media.
Sustainable revenues and profitability have eluded digital natives of all sizes, including both for-profit and not-for-profit ventures. And it most certainly has eluded legacy publishers, with newspaper companies like Digital First Media trying to crack the digital publishing code while battling an advertising collapse that has seen their collective revenues plunge by more than 50% since peaking at $49 billion in 2005.
If digital publishing is so tough, then why are so many new entrants coming out of the woodwork? The answer, quite simply, is that content has become a hot area for venture investing. To name but a few examples, Vice Media has raised $70 million, Vox Media has raised $60 million and BuzzFeed has raised $46 million, according to Tech Crunch, which raised $25 million itself. This is not to mention Facebook, the biggest publishing platform of them all with $13 billion in cash, $7.9 billion in sales and a 37% operating margin. The magic of Facebook, of course, is that all the content is generated for free by its users.
Because venture investors favor exponential growth in audience and page views over such traditional metrics as revenue and profitability, they are content to underwrite these new digital ventures in the hopes that they will grow to the point they will merit an IPO or be acquired by a well-heeled player.
Unfortunately for self-styled publishing visionary John Paton, the chief executive of Digital First, he picked the wrong vehicle and the wrong financial backers to pursue his digital quest.
Until he nuked the ambitious Thunderdome interactive publishing effort, Paton enjoyed telling fellow publishers to stop grousing about the decline in print advertising dollars and to start “stacking digital dimes.” Although Paton’s privately held company does not report its financial results, his actions clearly suggest that the dimes did not accumulate as fast as dollars flowed out of the print side of his business, which even in its dissipated state demands attention because it continues to produce the preponderance of revenues and profits for his company. (This, of course, is also the case at every other newspaper.)
Paton ran out of time and resources to pursue his vision because he had the wrong financial backers. Digital First Media is a collection of dozens of newspapers, including the Denver Post and San Jose Mercury News, that had been bought in bankruptcy by Alden Global Capital, a distressed-debt specialist looking to buy properties on the cheap that it could fix and flip for a quick profit at the earliest opportunity.
In other words, the objectives of the Digital First investors were the antithesis of the patience – and multimillion-dollar commitment – required in the slog to identify successful interactive publishing models, whatever they eventually may turn out to be.
It would be a mistake to view the failure at Digital First as a failure of digital publishing or a reason to stop trying to get it right.
The only thing this sad chapter proves is that the pivot from legacy to digital publishing is going to be harder than we imagined.