Bitcoin publishing: Why the digital media bubble is about to burst

Previously published at WGBHNews.org.

The digital media bubble is neither as ephemeral nor as notorious as the bitcoin bubble. After all, no one is getting rich from digital media. And when the bubble finally bursts, it’s not going to destroy the life savings of ordinary people who should have known better. Nevertheless, the digital media bubble is very real, and if it crashes it could diminish the journalistic landscape in 2018 and beyond.

In recent years, a number of digital-only media organizations have risen to prominence. Some, like BuzzFeed and Mashable, started out as viral sensations and gradually added high-impact journalism. Others, like Vice and Vox, have embraced quality from the start. Indeed, Vice’s “Charlottesville: Race and Terror” may have been among the most important documentaries of 2017.

What these projects all have in common, though, is that they are free or mostly free, with business models that are dependent on advertising revenue. And with the giant platforms Facebook and Google soaking up 89 percent of all new digital ads, as Ken Doctor reports at the Nieman Journalism Lab, there is virtually no likelihood that they will ever attain consistent profitability. Meanwhile, they subsist on vast seas of venture capital — and the investors who supplied that capital are beginning to realize that they may never get their money back.

“The big picture is that Problem #1 (too many publications) and Problem #2 (platform monopolies) have catalyzed together to create Problem #3 (investors realize they were investing in a mirage and don’t want to invest any more),” wrote Josh Marshall in an influential blog post last month. “Each is compounding each other and leading to something like the crash effect you see in other bubbles.”

How serious is the problem? Last March, Lucia Moses of Digiday reported that $15.6 billion in venture capital had been invested in digital media during the previous three years, a huge increase over the $4.5 billion invested during the three years before that. The idea, Moses wrote, was to invest in companies with the potential for annual revenues of at least $100 million a year. Some have succeeded; but others seem unlikely to reach that threshold, leading to some mighty anxious investors.

The weakest link at the moment appears to be Mashable, recently bought by Ziff Davis for $50 million. As Maxwell Tani notes at Business Insider, the site had been valued at $250 million only last year. Tani obtained documents showing that Mashable was gushing red ink at the time of its acquisition. The most significant problem: Mashable relied on digital advertising for 72 percent of its revenues at a time when Facebook and Google were hoovering up the vast majority of new spending.

But, you might say, Mashable was a bit player without a clear identity. Yet even mighty BuzzFeed and Vice are having their problems. In November, Amol Sharma and Lukas I. Alpert reported in The Wall Street Journal that BuzzFeed would miss its revenue target by $50 million to $70 million — a shortfall of 15 to 20 percent — and that Vice was flagging as well.

“Some companies courting investors or buyers are finding a disappointing level of interest,” Sharma and Alpert wrote, adding: “Across the industry, digital media companies are finding that lines of business that caught fire for them early on — like creating custom content for brands — are becoming harder to scale up. Meanwhile, with each passing year, Google Inc. and Facebook Inc. [yes, them again] are tightening their grip on the online ad market.”

So what, if anything, works? Look around, and you’ll see that, fundamentally, the digital media bubble was created by a belief — a hope — that investors could become fantastically rich by putting their money into journalism. There was an era when that was actually true, especially at the television networks and at prestigious magazine companies like Time Inc. and Condé Nast. Those days are over. But it doesn’t mean that sustainable news organizations can’t be created at a more realistic scale.

Take, for instance, Josh Marshall’s news organization, Talking Points Memo, a liberal political site that’s so old it was part of what we used to call “the blogosphere.” Over the years TPM has grown gradually from a one-person operation to a company with about 15 editors and reporters. Although there are ads on the site, much of the revenue comes from membership in TPM Prime, a paid service that offers additional content and a better user experience.

On a larger scale, The New York Times and The Washington Post are proving that a major national newspaper can move toward sustainability through digital subscriptions — something regional papers like The Boston Globe and the Los Angeles Times are attempting to do as well.

At the local level, attention tends to be focused on high-profile players hitting the skids, like the Gothamist network or, sadly, Washington City Paper, the latest alt-weekly to struggle with an existential crisis. Yet the country is peppered with local and regional news projects, some for-profit, some nonprofit, that provide a real service to their communities.

What’s driving the digital media bubble is money, not journalism. If it bursts, then some good and important stories won’t be told. But once the dust settles, there will be a chance to build something smaller and more sustainable in the long run — not to mention something that helps meet the information needs of a democratic society.

That’s more than you can say about bitcoin.

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