Business Breakdowns
· 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?
· Matt Reustle, Blake Saunders
[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? [00:00:00] S1: I think it's both. Every company is really different. The way that you navigate it is different. Some of them, when they have family ownership, are still led from the top. So someone will say, go buy this and I really don't care what we pay for it. So they have a corporate development team that's good in negotiating pricing, but they're not price sensitive. But it's a mix because there are a lot of people coming to market. In podcasts, yes, assets are for sale, but typically I think some of the best deals are born out of longer-term. Think about the Free Press. That relationship is not something that I guess they started at the Allen & Co. Conference, but I don't think Bari was for sale technically. [00:00:00] S0: On the point around media always seems to hammer on the importance of content: is that still the holy grail in your view?
· Blake Saunders
[00:00:00] S1: There's a nuance to that, and what I mean by that is Facebook and Snapchat and TikTok, they're oriented to ensure that UGC content is the most addictive because they don't have to pay for that. Instagram is a lot like a media company, but they don't pay for any of the content. One of the reasons why I have very strong views on how to fix Substack is because I want places where premium content can fully monetize to continue to exist. It's like the American diet, and I think this happens to everybody. You go to Europe, you lose weight and you're like, I'm going to come home and I'm going to eat healthy or I'm going to try to eat that way. And you go to the farmer's market and you read the packaging for a couple weeks and then you go back to eating at McDonald's. The unfortunate thing is premium IP matters, and we can talk about that in a second with Paramount, but the platforms have made shitty content highly addictive. That goes back to why certain YouTube channels will be less valuable or more valuable in the hands of a media company. But I think it's because they're creating premium-like content, maybe not using the budget of premium content, but creating premium content that users, using the analogy of food, are getting real value from. An interesting thing with Paramount: they spent a lot of money on South Park, spent a lot of money on the UFC, and I think what their strategy, because they have the budget to buy stuff, is instead of worrying about where the stuff is going to live, ultimately they want it to live in Paramount+ and people to subscribe. But I think their positioning is they used to have the zeitgeist with MTV and all these cable channels—that's gone. And so it's how do we turn that back on instead of worrying about where it lives? Today, I think they're most focused on: let's go figure out our target customer and what are they watching that we can actually go easily get. The two things I just referenced, those are major draws. South Park, even it's whatever 22nd season or 21st season, still is funny and still is relevant and still is making news. The UFC, I think, is one of the most watched sports. They did a good job during COVID basically turning themselves back on really quickly.
· Blake Saunders, Matt Reustle
They're bringing it in the form where you're not going to do the pay-per-view, but I think it'll still feel like a premium product that you can only watch on Paramount. [00:00:00] S0: Yeah, it's interesting for both of those properties. You seem to hit a specific demographic as well and you have this die-hard audience, for lack of a better term, where you can feel more comfortable that they're going to port over with you versus there's many other large audiences where if it went behind a paywall—I always referenced The Economist had an 85% drop in its podcast listenership after they brought their podcast behind a paywall, which there's, I'm sure, other things going on in the numbers. But it's interesting to me where there's a test of when something is free versus when something moves and you see that same audience go with them. So it's interesting just to hear the dynamics of what they targeted. How many assets do you think are out there that are that particularly powerful in terms of they have the scale, but they also have this engagement which feels stronger than you would find? Top decile is what I would say easily.