Media M&A - [Business Breakdowns, EP.230]

· Blake Saunders

[00:00:00] S1: Some of that's bounded by how Google News serves up content. Everyone's probably seen this. You see breaking news and you go to the New York Times, they have one paragraph and you're thinking, wait, why did they post this? It was all to effectively make sure that you were at the top of Google News, because Google News used to give people priority who posted first. And a lot of this is changing. They used to have an embargo where they would push people off of Google News if it was within a certain content window. So if it was the first six hours or the 12 hours, they would say, okay, we're going to let them come to your website. Now they're keeping those people on the site for even big news brands. They're struggling to maintain the organic traffic that they once had, and it's happening really fast. Some of these changes and traffic drops, people will tell me, oh well, this public company is doing fine. And I have to remind them, yeah, the numbers you're looking at, everything's historic. So when a company's reporting, it's a couple months old because it's looking backwards. The numbers I'm hearing are double-digit declines from organic traffic. There's a lot of fixed cost at publishers. Most of them are already very thin today because organic traffic is free—they didn't have to pay anything to get it. So you start to get into this world where the whole economic model of a publisher, and I think the New York Post is probably a bit more insulated from this, but anybody that's below the top 10 or 20 in a category if it's a broad category, and then a smaller number if it's more of a niche category, they're already suffering minimally. It has a dramatic impact because there's a lot of fixed costs in these businesses that they can't cut as quick, and they've already done a lot. Some of the fastest-growing publishers at a smaller or mid-size have basically completely changed their publishing model to cater to the algorithms, which sucks because most of their content is not as well-researched. But they're focused on publishing more, faster, and in a lot of cases there's not really direct reporting—it's just copying what everyone else is writing about. Yes, the decline in the New York Post is happening across the publisher landscape. New York Times is focused on a sub number. That's how they're growing their business.

· Blake Saunders, Matt Reustle

But I think more and more publishers talk about Google Zero, which is the day where they get no organic traffic. [00:00:00] S0: Is there a solution? I do believe that sometimes secular declines are too hard to overcome. But do any of the new outlets offer a cushion to slowing that decline down? Or if you were in their seats, is there anything you could do to offset that? [00:00:00] S1: No, it's kind of scary, but there's nothing to do. That's the problem when you enter this world where the platforms control who can view your content—it gets really tough. There's just going to be less media. From a strategic perspective, what you see the media companies doing is being more thoughtful about where they're talking to their consumers. They're collecting more data, they're trying to make their websites more like a destination. For the New York Times, they should try to be targeting you—if you like sports, what sports teams you like to watch, lean into the content verticals where there's probably resonance. But if you're just a generic content news website, or pick any vertical, the future is really tough unless you have direct connectivity to the users. [00:00:00] S0: I stopped getting my news from some sources. I mean, social media has overtaken the news feed so quickly that that's incredibly hard to dig out of, especially if it's not well-researched. Everything that we've talked about has a tie to what's happening in AI. But would you just wax poetic in terms of the impacts that AI are having on the market? From any angle you want to hit on, what would you say stands out?

· Blake Saunders

[00:00:00] S1: The biggest thing is people still question if it's going to have an impact and then use weird analogies to say that everything's going to be fine. Society is very fragile. The reason why we had a shutdown during COVID was not because half of the population had COVID—it was because a couple of percentage points and we had to stop the spread. So when you think about how our economy is built, the amount of people that are actually working in the US is not whatever 300 million plus people; it's a lot less. And the amount of people that actually pay taxes is less than that. AI doesn't really need to impact that many jobs, but if it impacts a couple of them, it will need to radically change how we deliver value to people that aren't working. This idea that the more free time we get, the more creative we get—it's not true. We have more free time than we've ever had. And most people are stuck on their phones and they have more anxiety, they have less friends, they have less sex, we're more overweight than we have ever been, ever. If there's one fact that someone can point to to say all this extra time and all this extra technology has made our life better, I don't see it. I made this point last week: the only way to coexist with AI in a normal way is to disconnect, not connect more. The COVID point is we underappreciate how significant the tax rates will need to increase, not just on ordinary income. I think the safe haven of capital gains—and you start to see regressive tax societies in Europe and other places where they start to come after retirement. And it's the Elon Musk tax of let's just figure out a way to tax assets that you haven't sold yet. It has to come because you're going to have to rebalance out how people make a living, which is going to be UBI. It's a weird debate that I get into with people and most of the times the other side of the debate is just it's going to be so great and stuff like that. Great in their minds, which they don't see yet: is everybody on GLP-1s, everybody on social media 24 hours a day? To me that's not good.

· Matt Reustle, Blake Saunders

[00:00:00] S0: If the AI is naturally deflationary, where it could do all the road work and it can teach in the schools, pick your various government expenses, then maybe there's some offsetting impact? [00:00:00] S1: I recently bought business class tickets to Japan and I was thinking, this is so cheap and I can just buy for a personal expense. I would normally not buy business class tickets on a 15-hour flight. Yes, the world will be completely deflationary and I think most things will be cheap. The problem is most people will be given effectively government money and the people that are creating assets and creating value will make a lot of money and basically be able to do whatever they want. Yes, everything will be cheap, but most people won't be able to buy it. [00:00:00] S0: It's very dystopian. But I hear you in terms of the reality of it.

· Blake Saunders

[00:00:00] S1: I'm not trying to be the 3 a.m. radio show of the aliens are coming—play out these basic trends. So if everyone gets an extra hour because of technology, are they going to put down their phones? I see this every time I take my son to the playground. Everyone else is on their phone, which is crazy to me. Put your phone down. If people are given an extra hour, AI is going to be more addicting, not less. The world's not going to end. For people that are operating businesses, it should be okay, but you just need a recognition that is probably why I started my own firm: you have to be a creator of economic value. That's the only way to sort of exist. You can't be an employee and then there has to be a significant recognition—one or two percentage changes in the economic base and how people are employed. If we just take out drivers in the US, semi-truck and Uber drivers, that's a big hit to the income base. It has happened before when we had to pay back the debt from World War II, where the tax rates were much higher for an extended period of time. It's less about worrying about it and more about looking at where the trends are going. If you have the realization you could see the COVID lockdowns coming a couple weeks before, and I think you can see this coming now, where the income base is going to go down, the taxes are going to go up. There's still a society that you and I want to exist in which is less technology and more creative. I think there'll be a lot of creativity happening, but for the majority of Americans, and that is today, 60% of Americans are overweight. It's just a fact.

· Matt Reustle

[00:00:00] S0: It's fascinating. I think there's a lot of points that tie into everything else to wrap things up. If I take what you're saying, if you're to measure attention as being value, which we can debate, social media, the platforms, they're gaining more and more of that share, getting that addiction humming stronger, faster, harder. So those feel like obvious winners. You can make the case that the individual creators or the upstarts who are creating this real connectivity to an audience, there are also net winners in this new environment. Is there anyone else that you would point to that you think could be a winner that emerges from all of this that maybe isn't as obvious?