On corporate raiders and creator media
Where is all this headed?
There’s a strong economic and cultural theory of the case for creator media that goes like this:
What we call “legacy media” — I include 2010s digital media startups in this, too — was a failure for the talent, and audiences suffered for it. Legions of hardworking, innovative people were unable to write the stories they wanted to write, shoot the videos they wanted to shoot, collab how they wanted to collab, get the stability or the raises they needed to stick around, or to even get in the door, etc.
Who wasted all this potential? Who were media’s bad guys? The bosses, of course: Venture capital dummies whose digital sandcastles got erased by the king tides of indifferent tech monopolies; Wall Street vampires who squeezed cash out of declining legacy businesses that needed that cash to pivot; and dilettante billionaires who 1. got bored of delegating and started meddling idiotically or 2. got tired losing money on ingrate lefty media people and exited completely. Workplace racism and sexism — sometimes overt but also often irritatingly subtle and pervasive — added their own special failure rate for swathes of the rank and file. Most digital media Millennials of my generation can locate their industry trauma somewhere in this paragraph.
What if you could just avoid all that boss-level media bullshit and go solo — hang out the shingle and say what you want to say, make what you want to make?
Well, there’s a business proposition for it.
Social media platforms now redistribute more than $20 billion to millions of accounts through revenue redistribution programs, either through a shaved-off share of ad revenues or through special (and opaque) creator funds. Maybe it used to be the case that “information wants to be free,” but today, the modern American consumer has gotten quite habituated to subscription programs and paywalls and is now spending the largest share of their income on newspapers and periodicals since 2007. And you don’t need bosses or even coworkers to go get some of these platform or consumer dollars.
To rephrase all this in finance-world terms: What if there’s a lot of value to be unlocked by freeing all this wasted talent from bloated and inefficient corporate structures and in letting creatives flourish in smaller, nimbler forms?
See how Substack’s founders framed this issue in their crowdfunding solicitation to prospective investors in 2023:
We believe that the internet’s powers, married to the right business model, can be harnessed to create a much better media economy that gives more control to writers and readers, protects free speech and a free press, and promotes the creation of amazing works that wouldn’t have been possible in other systems. This is the work we have been doing at Substack in our effort to build a new economic engine for culture.
To realize this mission, we have to do much more than build good software. We have to build a new kind of network: one that unlocks the scale and democratizing power of the internet but is based on principles that give control to writers and readers. In such a network, the whole is greater than the sum of the parts. Each new person who joins Substack makes the network more valuable for everyone else.
Does any of this sound familiar? Are you buckled in? These are practically identical principles to what drove the Wall Street raiders of the 1980s to dismantle large corporate conglomerates. The “greed is good” crowd is now hailed as a success story by some finance academics for making the American economy bigger by making flabby businesses smaller.
In Donald H. Chew, Jr.’s new book, “The Making of Modern Corporate Finance,” the “barbarians” weren’t the leveraged buyout raiders outside the corporate gates, but the CEOs hiding inside. One influential scholar concluded that corporate conglomerates of the era had been “allowed to destroy 50 percent or more of the operating value of their franchises” before the finance pirates raised enough debt to move in, take over and start hacking things down into more profitable little bits.
“The technological advances that drive growth in the U.S., and in any relatively free market, economy also tend to create overcapacity in the industries made obsolete,” Chew writes approvingly. “And because such excess capacity becomes an impediment to future growth, accomplishing the ‘efficient exit’ of failing industries and companies is an important function in a thriving economy.”
Inside of my old industry, local newspapers, Alden Global Capital was one of several corporate harvesters par excellence of the 2010s: buying up bits of more civically (=inefficiently) operated local news businesses, whittling them down into leaner size (=laying off / underpaying the employees), and wringing out cash for overseas investors or more promising investments.
When you’re a journalist, or really anybody who cares about your community, you know that our desperate existential civic problem is journalistic underproduction — not enough local journalists doing civically important local journalism. But to any finance or tech guy looking at a spreadsheet, the problem of local news is standard-issue overproduction — too many people making too much of an expensive product that too little of the market wants. Cue layoffs, attrition and wage stagnation and other well documented negative effects of investment ownership of local newsrooms.
But the Substack theory of the chopping-up case is interesting: It’s less direct but goes much farther than an investment owner like Alden Global Capital, which still has things like newsrooms and employees.
What if a cold-blooded and disciplined cutter like Alden Global Capital is actually much less efficient than it appears? What if there’s value to be unlocked in going way, way smaller than even Heath Freeman would? What if Aldenite journalists said goodbye to their dinosaurish out-of-town investment ownership and started covering City Hall on their own, the way that their own neighbors might like to see City Hall covered? What if the creator can attract more paying digital subscribers than were willing to pay for a smaller and slower-arriving print edition? And if enough laid-off or fed up local journalists build enough successful solo operations, isn’t there some point where the sum of the indies becomes bigger than the old newsroom?
Doesn’t that sound nice?
But isn’t all dramatic growth fueled by risk? Who gets most exposed to that risk when things go wrong? And what new, nimble conglomerate could be in the middle of it all, hovering safely above and collecting 10%?
May you receive 10,000 Substack subscribers for this post and a fair share of the revenue!