Business Breakdowns
· Blake Saunders
[00:00:00] S1: Yeah. If you're thinking about hiring someone that's copying and pasting a presentation from even two or three months ago, it's probably changed. The demands and the desires of larger media companies and where they want to invest is changing rapidly. Perfect example is Substack. I think you'll start to see more and more M&A around Substack. You saw Bloomberg a couple days ago announced that they're going to turn on Substacks. CNN said they're going to lean more into newsletters a couple months ago. There's a reason why this happens. A lot of large media companies have been trained to be slow movers. When the platform started to get bigger, they would offer unique things. Facebook turned on Facebook video and they did all these partnerships with larger media companies and they were like, build video teams, create video for Facebook and we'll help you with the monetization. The monetization never happened and Facebook shut that down after a year. And then they let everyone else suffer and clean up the mess of, okay, what do we do with this team of five or ten that we just hired? A lot of media companies have been slow movers to adapt to change, but as soon as their competitors start to make moves, then there's a fast follow. That's what I expect to see. It seems like more of them are getting wise to some of these new mediums. The biggest one that I'm sensing now is YouTube. Think about the late night shows and don't think about it in the context of them all getting canceled. But prior to that, they used to use YouTube as a place for shoulder or adjacent content. So say Jimmy Kimmel did a fun lip sync or something like that, he would clip it up and put it on YouTube. And so they always thought of the YouTube as a second run place to continue to cultivate their audience to get them back to TV. And what you're starting to see with the larger traditional media companies and it's just happening now is them realize, oh wow, we should think of YouTube as a first run spot. So let's actually make content for that. And the reason is because the brands and agencies are finally willing to buy direct on YouTube and buy it like they do TV. So I think Hot Ones, this show that the business sold at a pretty good multiple because they sell it like TV. TV sells adjacency. Yes, they sell reach, but they also sell adjacency.
· Blake Saunders
So when large brands want to buy advertising, they want to make sure that the content aligns with the person that they're going after. And everybody has done a lot of studies around this. Even premium content that has the wrong negative connotations, even if it's a premium show that everyone loves, it could actually harm a brand by having the interstitial of a commercial in it. And so brands care about adjacency. And a show like Hot Ones can effectively go buy their inventory from YouTube and resell it to brands. And that's what they do. They go to Procter & Gamble or Coca-Cola and they say, hey, we're going to have these two actors on this week. Will you come in and buy this week? And this is your reach and this is who you're going to be next to. And that's been really profitable for that business. Larger media companies are starting to spin up digital ad sellers and think about the YouTube ecosystem in a much different way. This is the backdrop to say digital media done right will continue to be more valuable. Yes, it's going to be hard to sell a creator led YouTube channel. Totally get that. But I think Hot Ones is a good example of a business that yes, there's a host on it, but I think what people forget is there's been hosts on most TV shows. There's actors that are specific to those shows. Seinfeld has a lot of value and we sometimes forget this key man risk that exists in most content. Even with Hot Ones, there was a little bit of salacious gossip around the host and people forgot about that in two seconds.
· Matt Reustle
[00:00:00] S0: People reference Hot Ones, they don't reference Sean or Sean's show. It's a good framework. And that particular anecdote about them buying back the inventory from YouTube and then selling it was interesting and kind of a missing piece to me just in terms of the sale. So that's interesting. In the weeds, applying the same thought process to something like Substack, which feels a little bit less obvious to me where YouTube has this natural analog to television. When you see more movement into Substack, to me that's a net positive for Substack as a platform. You've seen plenty of brands now just lean into that. What is that telling you just in terms of is this a signal that Substack is now considered where you can get eyeballs for newsletters? What are the dynamics that are driving that in your mind?
· Blake Saunders
[00:00:00] S1: For media companies, their whole goal is to reach an audience. Substack is purely a platform. It's easy to reference Substack. I think you could just say the category of newsletters. I think a media company would buy any newsletter. Just some of the fastest growing newsletters happen to be on Substack. I think if a media company buys a Substack, they're stupid to take it off. I think they're starting to see it more as a platform instead of a competitor. There are some people on Beehiiv, but where the best talent has gone seems to be Substack. I make this comment that I think we'll look back and we'll say that there's never been a cheaper time to buy YouTube channels. That gets a retort of, well, what about this one? What about this one? That's not a specific comment around a specific person. And the same thing with Substack. I'm not making a claim that every single Substack can be bought. YouTube, every channel is different. Same thing with Substack. People group all of these together. The Substacks that will get transacted on are ones that are basically harmonized with the content of whoever buying it. This is a random example. If someone has a really good cosmetic tutorial or something like that, you could see a cosmetics brand buying that or a news one where it's just links. You could see a news company wanting to buy that because it fits within maybe a premium product. So there's such a diverse group of YouTube channels and Substacks that you can't say, oh, every single Substack is going to be valued at X and they should all sell for Y. It's not going to happen. It's more about very specific types of content.
· Matt Reustle, Blake Saunders
[00:00:00] S0: The buyers. Do you see them as the legacy media channels like a Bloomberg or a New York Times? Or is this filtering into the territory of cosmetics brand and corporations where every entity is now a media entity? When you think about strategic buyers or who's dominating the buyer side of the equation, where does that tend to lie? [00:00:00] S1: I think anyone that has to pay a toll to Google and Facebook to acquire a consumer, there's a really cool B2B newsletter and website all around this gig economy. It's the number one site to help Uber drivers and Lyft drivers sign up and then they communicate all the new rules and things like that. It's a completely private site. Would Uber buy that? Maybe because they pay so much to get every single driver to sign up and complete the application on their platform to then a driver, and they have a high churn. So when you go through cycles and the valuations are starting to go up, you see people enter the fray that want to pretend they can operate a media company. It usually never works. Cosmetic companies got into YouTube channels 10 years ago. I think Estée Lauder had a whole push into a beauty YouTube channel. I don't think it worked out that well because most people that are not media companies can't operate a media asset. I think it will be a mix. And that's again why I think on some assignments we can basically be better positioned than other large platforms is there's not 20 buyers for these businesses. There's three to five. And you really have to communicate in a direct way what the value is.
· Blake Saunders, Matt Reustle
[00:00:00] S1: I think anyone that has to pay a toll to Google and Facebook to acquire a consumer, there's a really cool B2B newsletter and website all around this gig economy. It's the number one site to help Uber drivers and Lyft drivers sign up and then they communicate all the new rules and things like that. It's a completely private site. Would Uber buy that? Maybe because they pay so much to get every single driver to sign up and complete the application on their platform to then a driver, and they have a high churn. So when you go through cycles and the valuations are starting to go up, you see people enter the fray that want to pretend they can operate a media company. It usually never works. Cosmetic companies got into YouTube channels 10 years ago. I think Estée Lauder had a whole push into a beauty YouTube channel. I don't think it worked out that well because most people that are not media companies can't operate a media asset. I think it will be a mix. And that's again why I think on some assignments we can basically be better positioned than other large platforms is there's not 20 buyers for these businesses. There's three to five. And you really have to communicate in a direct way what the value is. [00:00:00] S0: And just to hammer on that point: this list of potential buyers—are they actively seeking to find solutions to whatever problems they're having, like what you mentioned? Or is it coming in the opposite direction where sellers are looking to strategically place themselves with buyers and you need to pitch the buyer on the reasoning?