Publishing is Back to the Future

By Ben Thompson

Andreessen Horowitz is going direct. From the a16z website, natch:

People want to learn about the future. If Software really is Eating the World, there needs to be a place that is dedicated to explaining and tracking it. So we are doing just that: we are building a new and separate media property about the future that makes sense of technology, innovation, and where things are going — and now, we’re expanding and opening up our platform to do this on a much bigger scale. We want to be the go-to place for understanding and building the future, for anyone who is building, making, or curious about tech.

Journalists, needless to say, were not amused; this tweet from the Washington Post technology columnist Geoffrey A. Fowler was representative:

For the record, I doubt that journalists have much to worry about in terms of a16z monopolizing the market; Andreessen Horowitz, under the guidance of former Wired editor Sonal Chokshi, has built out an entire podcast network that has excelled by doing pretty much the same thing promised with this initiative: explaining and tracking technology and how it might impact the future. Given the fact the podcast launched in 2014, a year after Stratechery, I for one can attest that the venture firm’s efforts have not drowned out “more independent views.”

Still, I get the concern. Andreessen Horowitz, at the end of the day, succeeds or fails on the basis of its investment returns. It is unreasonable to expect the company to cast a truly critical eye towards new technologies or companies given how significant its conflicts of interest are. At the same time, this also explains why Fowler’s tweet isn’t quite right: the tech industry, from the smallest startup, to the loudest venture capitalist, to the largest behemoth, has no problem when it comes to the motivation necessary to “grow and improve its products”. Competition will quite quickly kill the startup, the returns, or the long-term competitive position of any entity that ignores market forces.

Just look at journalism.

Traditional Journalism’s Insulation

There was a fascinating exchange between Nilay Patel, the editor-in-chief of The Verge, and Marques Brownlee, the brilliant YouTuber behind the MKBHD tech review channel, on the most recent episode of Patel’s podcast Decoder:

Nilay Patel: This kind of gets into one thing that I personally was very happy to see on your channel. You made an entire video about your ethics policy and what you will and won’t do with advertisers. Just to draw the stark contrast, I have almost nothing to do with the revenue of The Verge. I’m a very traditional journalist in that mold. Like, I know who our sales team is and sometimes they parade me out in front of executives to seem fancy. But I don’t know what our rates are. I’m very insulated from sales. It’s your inbox, it’s your deals, you’re setting the rates. How do you balance that tension, because it’s a very YouTube-specific tension in one way, but I think we’re seeing it across the entire kind of creator ecosystem?

Marques Brownlee: The way you phrase it is interesting. I think our rates for an ad in a video are pretty fluent. But it’s a balancing act, because you don’t want to overdo it or pick the wrong thing or not consider some part of this that should be considered. You want to make more, so that you can pay for that camera car.

But the other end of that seesaw is a channel that does way too many ads…I never put three mid-rolls in a video. It’s zero or maybe one. That applies to the ads that we build in and make ourselves, too. If it’s a bad product, it’s not worth doing it at all, even if we would’ve made a ton of money. If it’s a bad integration or if it’s a bad company to work with, I have to say no, because it just doesn’t fit. So that fit is often more important than the math of the per-minute or per-project basis.

I agree with Brownlee that the way the question was phrased is “interesting”; from a certain perspective there is an insinuation of small-scale corruption, or at the very least, the markers of something less important than “journalism”. After all, journalists don’t know how their businesses work, and they are proud of it!

Joseph Pulitzer

To be fair, I really don’t think that Patel meant anything quite so damning; he was simply stating what any “traditional journalist” thinks; no less an authority than Joseph Pulitzer wrote in The School of Journalism about his vision for Columbia Journalism School:

Not to teach typesetting, not to explain the methods of business management, not to reproduce with trivial variations the course of a commercial college. This is not university work. It needs no endowment. It is the idea of work for the community, not commerce, not for one’s self, but primarily for the public, that needs to be taught. The School of Journalism is to be, in my conception, not only not commercial, but anti-commercial. It is to exalt principle, knowledge, culture, at the expense of business if need be. It is to set up ideals, to keep the counting-room in its proper place, and to make the soul of the editor the soul of the paper…

Here is the problem, though: traditional journalism, at least in the 20th century, was predicated on geographic monopolies that bundled editorial and advertising. There was no need to know how the business worked, because, as Warren Buffett noted in a 1991 letter to shareholders, newspapers weren’t even businesses, but franchises:

An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation. The existence of all three conditions will be demonstrated by a company’s ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise’s profitability, but they cannot inflict mortal damage.

In contrast, “a business” earns exceptional profits only if it is the low-cost operator or if supply of its product or service is tight. Tightness in supply usually does not last long. With superior management, a company may maintain its status as a low-cost operator for a much longer time, but even then unceasingly faces the possibility of competitive attack. And a business, unlike a franchise, can be killed by poor management.

Until recently, media properties possessed the three characteristics of a franchise and consequently could both price aggressively and be managed loosely. Now, however, consumers looking for information and entertainment (their primary interest being the latter) enjoy greatly broadened choices as to where to find them. Unfortunately, demand can’t expand in response to this new supply: 500 million American eyeballs and a 24-hour day are all that’s available. The result is that competition has intensified, markets have fragmented, and the media industry has lost some — though far from all — of its franchise strength.

Note again the date: 1991. That was when Buffett perceived that media properties were losing their status as franchises and becoming merely businesses, which is to say that the rationale for journalists not caring about how the money was made started to disappear before the World Wide Web even existed.

The Web dramatically accelerated the trends of increased supply — infinite supply, in fact — while sites like Craigslist destroyed the classifieds business that was newspaper’s biggest moneymaker. Even mentioning Craigslist, though, anthropomorphizes what was a secular outcome of the Internet: that fact you could make a site for anything accessible by anyone — and searchable, to boot — meant that of course newspapers were going to lose the classifieds business (and the display advertising business after that). They only had it because newspapers had been a franchise, and now they were a business, and a struggling one at that.

Someone like Brownlee, on the other hand, has been focused on building a business from video one. Sure, he is the star of his videos, but he is also the CEO of his company; of course he makes business deals, because it is business deals that make the content production possible. This isn’t a YouTube-specific tension: it’s the marker of any modern media business.

Australia’s Media Bargaining Code

The problem with not understanding that not knowing or caring about how the business worked was a luxury afforded by media’s franchise status, is that it lays the groundwork for other, more pernicious untruths. Look no further than Australia, and its proposed media bargaining code; here is what Fowler’s Washington Post had to say about it:

Google on Friday warned Australian lawmakers it would stop offering its search engine in the country if they went ahead with a proposed law that would force the Internet giant to pay news organizations for showing their stories in its search results. The threat is the latest and most intense in a long-running battle that has pitted Australian lawmakers and news organizations against U.S.-based tech giants Google and Facebook. For years, news organizations in Australia have argued they should be paid when Internet companies aggregate news stories on their websites. Google and Facebook say their sites help people find news, and the resulting traffic to news websites is valuable on its own…

The rise of Google and Facebook has massively disrupted the news business all over the world. The steady advertising revenue newspapers relied on for decades has almost entirely gone online, and news organizations have struggled for years to adjust to the new reality, with many going out of business or severely downsizing. The proposed law is written to apply to all “digital platforms,” but Facebook and Google are specifically mentioned in the text and have been at the center of the debate.

This is what happens when you don’t understand how your own business works: you create a myth wherein Google and Facebook decimated the news business, when in reality they came along years after the business — already not a franchise — had been decimated by the Internet. That Google and Facebook became hugely profitable by virtue of helping users make sense of infinite content — Aggregators focus on discovery, not distribution — meant that their responsibility for the state of news, to the extent it exists, is exactly what they say it is: directing huge amounts of traffic to publisher websites.

The Australian Competition & Consumer Commission’s Digital Platforms Inquiry, which undergirds the proposed media bargaining code, does, to its credit, have a somewhat more realistic view of what happened to publishers:

For many news media businesses, the expanded reach and the reduced production costs offered by digital platforms have come at a significant price. For traditional print (now print/online) media businesses in particular, the rise of the digital platforms has marked a continuation of the fall in advertising revenue that began with the loss of classified advertising revenue in the early days of the internet. Without this advertising revenue, many print/online news media businesses have struggled to survive and have reduced their provision of news and journalism. New digital-only publications have not replaced what has been lost and many news media businesses are still searching for a viable business model for the provision of journalism online.

This at least gets the timeline right; the problem is that phrase “marked a continuation of the fall” is treated as “caused a continuation of the fall” in the rest of the report, and the bill that followed. The Explanatory Memorandum for the bill states:

The ACCC found in its Digital Platform Inquiry (July 2019) that there is a bargaining power imbalance between digital platforms and news media businesses so that news media businesses are not able to negotiate for a share of the revenue generated by the digital platforms and to which the news content created by the news media businesses contributes. Government intervention is necessary because of the public benefit provided by the production and dissemination of news, and the importance of a strong independent media in a well-functioning democracy.

This idea, that news media businesses contribute to Google and Facebook’s revenues and have a claim to it, is rooted in the same mindset that undergird the separation of editorial and business: faith that money for news is a fact, and thus of no concern to journalism, at least until it disappeared. Then the industry looked around, saw who was making money, and in effect declared that money to be theirs.

The memorandum continues:

This Bill establishes a mandatory code of conduct to help support the sustainability of the Australian news media sector by addressing bargaining power imbalances between digital platforms and Australian news businesses…

The memorandum uses this hypothetical to explain what a bargaining power imbalance is:

The Daily Chronicle (DC) is a registered news business that receives a benefit from referrals to its website from Digiplat, a designated digital platform service that holds a significant bargaining power imbalance in its commercial relationships with Australian news businesses including DC. When assessing both parties’ final offers, the panel considers how the benefit that DC receives from Digiplat is affected by this bargaining power imbalance derived from Digiplat’s status as an ‘unavoidable trading partner’ for Australian news businesses.

To do this, the arbitrator considers arguments in the final offers about the size of the benefit that would likely be provided by Digiplat to DC when compared to a hypothetical scenario where there is an absence of any bargaining power imbalance.

The hypothetical scenario the panel decides is appropriate in this circumstance is one in which audiences may reach DC through other means (such as users directly visiting DC’s website or accessing it through other news aggregators) and where DC and other Australian news businesses are not reliant on Digiplat to reach those audiences.

This is also what happens when you base a law on a myth; you create hypotheticals that, if taken seriously, would not change anything about the current situation. The fact of the matter is that every person in Australia — indeed, nearly every person in the world — “may reach DC through other means (such as users directly visiting DC’s website or accessing it through other news aggregators)”; Google and Facebook don’t decide what websites users visit, users do. That they choose not to “directly visit[] DC’s website or access[] it through other news aggregators” is the result of publishers losing in the market with more choice and less lock-in than any other in history. Which, again, is the real problem: businesses built on being the only choice don’t do well when choice suddenly appears.

To that end, when the Australian government references “bargaining power imbalances”, what they mean is that publishers need Google and Facebook much more than Google and Facebook need the publishers. Publishers could, if they wanted to, de-list themselves from Google’s index; if their content were as valuable as they claim, there is absolutely nothing stopping readers from seeking them out. It’s the fact they won’t that is the real problem, which is why the bill also prevents Google and Facebook from simply declining to list sites that are demanding payment.

The New York Times’ Brilliance

I am being pretty hard on publishers here, but the truth is that news is a very tough business on the Internet. The reason why readers don’t miss any one news source, should it disappear, is that news, the moment it is reported, immediately loses all economic value as it is reproduced and distributed for free, instantly. This was always true, of course; journalists just didn’t realize that people were paying for paper, newsprint, and delivery trucks, not their reporting, and that advertisers were paying for the people. Not that they cared about how the money was made, per tradition.

The publication that has figured this out better than anyone is the New York Times; that is why the newspaper, to its immense credit, has been clear about the importance of aligning its editorial approach with its business goals. From 2017’s 2020 Report:

We are, in the simplest terms, a subscription-first business. Our focus on subscribers sets us apart in crucial ways from many other media organizations. We are not trying to maximize clicks and sell low-margin advertising against them. We are not trying to win a pageviews arms race. We believe that the more sound business strategy for The Times is to provide journalism so strong that several million people around the world are willing to pay for it. Of course, this strategy is also deeply in tune with our longtime values. Our incentives point us toward journalistic excellence…

Our journalism must change to match, and anticipate, the habits, needs and desires of our readers, present and future. We need a report that even more people consider an indispensable destination, worthy of their time every day and of their subscription dollars.

The way in which the New York Times has covered the Australian media bargaining code is a great example of how this approach has paid off; this article, published around the same time as the afore-linked Washington Post one, is far better reported: unlike most of American media, which has framed this dispute as being about paying for news, the New York Times acknowledges that Google and Facebook pay for news elsewhere, and are instead objecting to the specific ways the Australian code is implemented.

It is the description of those objections, though, that reveal the downside; note this section about algorithms, which, I would note, were not even mentioned by the Washington Post:

One potentially groundbreaking element of the proposed legislation involves the secret sauce of Facebook, Google and subsidiaries like YouTube: the algorithms that determine what people see when they search or scroll through the platforms. Early drafts of the bill would have required that tech companies give their news media partners 28 days’ notice before making any changes that would affect how users interact with their content.

Google and Facebook said that would be impossible because their algorithms are always changing in ways that can be difficult to measure for a subset like news, so in the latest draft, lawmakers limited the scope.

If the bill passes in one form or another, which seems likely, the digital platforms will have to give the media 14 days’ notice of deliberate algorithm changes that significantly affect their businesses. Even that, some critics argue, is not enough for Big Tech.

“I think Google and Facebook are seriously worried that other countries will join in Australia’s effort,” said Johan Lidberg, a professor of media at Monash University in Melbourne. “This could eventually cause substantial revenue losses globally and serious loss of control, exemplified by the algorithm issue.”

But, he added, using threats to bully lawmakers will not do them any good.

“Google’s overreaction perfectly illustrates why the code is needed,” he said, “and beyond that, the dire need for all governments, across the globe, to join in efforts in reining in and limiting the power of these companies that is completely out of hand.”

That is how the article ends, and the point of view — delivered through a quote, of course — could not be clearer. Google and Facebook are a menace, and need to be reined in, and their objections are proof of their guilt. Never mind the fact that there are millions of sites spending untold amounts of money trying to game the companies’ algorithms, and that revealing changes in advance would be unworkable, unfair, and fraught with unintended consequences. The article is “match[ing] and anticipat[ing] the habits, needs, and desires” of the New York Times readers, who, as I noted in Never-ending Niches, assume that everything tech does is bad.

NYT & a16z

At the same time, as I wrote in that Article, I don’t begrudge the New York Times their approach; in fact, I quite admire it:

I wrote in a piece called In Defense of the New York Times, after the company wrote an exposé about Amazon’s working conditions:

The fact of the matter is that the New York Times almost certainly got various details of the Amazon story wrong. The mistake most critics made, though, was in assuming that any publication ever got everything completely correct. Baquet’s insistence that good journalism starts a debate may seem like a cop-out, but it’s actually a far healthier approach than the old assumption that any one publication or writer or editor was ever in a position to know “All the News That’s Fit to Print.”

I’d go further: I think we as a society are in a far stronger place when it comes to knowing the truth than we have ever been previously, and that is thanks to the Internet…the New York Times doesn’t have the truth, but then again, neither do I, and neither does Amazon. Amazon, though, along with the other platforms that, as described by Aggregation Theory, are increasingly coming to dominate the consumer experience, are increasingly powerful, even more powerful than governments. It is a great relief that the same Internet that makes said companies so powerful is architected such that challenges to that power can never be fully repressed, and I for one hope that the New York Times realizes its goal of actually making sustainable revenue in the process of doing said challenging.

Indeed they have, and I see the ongoing criticism of tech as a feature, not a bug.

To put it another way, what the New York Times has become is not so different from what Andreessen Horowitz is proposing to build. Margit Wennmachers said in that introductory post that “Our lens is rational optimism about technology and the future”; as a long time subscriber of the New York Times, I think it is fair to call their lens rational skepticism about technology and its effects. What is notable about both is that their lenses are perfectly aligned with their business models (and, I would note, both claim to be motivated to change the world).

Again, this is a good thing. While I am open to the argument that governments ought to tax Aggregators and fund news — this is what Australia’s code is in practice, and I would be much less harsh about it if it admitted as such — I think that a news organization like the New York Times thriving on its own is much better (and I have faith that readers will adapt).

After all, it is not as if the alternative to business incentives is unimpeachable objectivity. Go back to Pulitzer: the man was an unabashed political activist; the entire reason he sold the St. Louis Post-Dispatch was because his managing editor shot the law partner of the candidate Pulitzer was opposing dead (the law partner had entered the newsroom armed after the managing editor had called him a coward). Pulitzer took over the New York World and his energetic campaigning was credited with Grover Cleveland being elected president. This is the way newspapers operated when readers paid the bills, and while an advertising business model encouraged a veneer of objectivity, those days are long gone. Publishing is back to the future, even if awareness of that reality is not evenly distributed.