After decades with less disruption than a German train schedule, Hollywood media is rocking from a tumultuous year of deals and reinvention. Nothing less than the future of B2B publishing is playing out, and the story (spoiler alert!) has a surprise ending.
Just last month, Deadline/Hollywood, a four-year-old blog that airs showbiz’s dirtiest laundry, trumpeted that it blew past its two legacy-burdened rivals in November: more unique visitors, more total visits, and more page views than Variety.com and HollywoodReporter.com combined, according to comScore (NSDQ: SCOR). And D/H didn’t care if you tossed in the print circs for Variety and The Hollywood Reporter as well. D/H still had more readers (assuming D/H’s uniques stop to read and not just scan for their own names).
The numbers are arresting, more evidence perhaps of the ascension of new media and the demise of the old. But what, exactly, does it mean? How does Deadline/Hollywood’s burgeoning readership translate, as Variety would say, to coin? Is D/H now worth more than either THR or Variety alone, let alone together? That’s how media works, right? You attract the biggest audience, assuming it’s the right audience—the Super Bowl, Howard Stern, American Idol, J.K. Rowling, Avatar—and you’re king of the world, right?
Well, not so fast.
The competition hasn’t been lounging poolside. Just at year’s end, Nielsen threw in the glitzy towel and sold off a slate of B2B pubs and shows that included THR, the industry’s #2 book. A new private equity-backed company, e5 Global Media, reportedly paid about $70 million for the bundle, which also featured Billboard, Backstage and AdWeek. THR, despite losing half its revenue and a third of its readership in the last couple of years from collapsing circulation and advertising, attracted trophy-property interest, with many buyers looking to pry it loose separately. Lest there be any doubt that it will be nix to Nielsen’s old trix, e5 immediately hired a CEO nicknamed ““Mad Dog.” ‘Nuff said.
Meanwhile, market-leader Variety made news in August for not being sold amid Reed Business Information’s systematic housecleaning. And despite fresh gossip that Reed has flip-flopped and put Variety on the block, the company’s British and Dutch masters are signaling they see plenty of value and potential in the century-old brand.
Back among the barbarians, TheWrap.com, a blog founded and edited by ex-New York Times correspondent Sharon Waxman and backed by Starbucks’ Howard Schultz through his venture fund, launched a year ago this month and has become a player at internet speed. It has broken major stories, including Comcast (NSDQ: CMCSA) buying NBC Universal (NYSE: GE), and has seen its audience surge since the summer.
As for D/H, the site grabbed headlines itself last spring when Mail Media Corp., a second-rank portal funded by Quadrangle Partners, bought the blog for somewhere between $15 million (the Financial Times) and “the very low seven figures” (paidContent). Given that revenues for the year trailing the deal probably didn’t exceed $600,000, the low end of the range seems likely. What’s more, most rational buyers deeply discount one-man or one-woman shops, since the owner/founder/editor/writer—in this case, the marauding Nikki Finke—can get hit by a bus tomorrow. This appears doubly true here, since half the studio execs in Hollywood would like to be driving that bus.
So with all this investing, divesting, hiring, firing, kicking and screaming, how are things shaking out? And if D/H isn’t really the new #1, why not?
As with any good script, the storyline runs straight through the character with the most to lose. That, of course, is Variety. While the paper’s paid circulation has fallen only 10%, advertising has nosedived and a third of the editorial staff has been axed in recent years. After experimenting like most publishers with variations of free and paid access to its content-rich website, Variety is now putting the trim on a new, leak-proof pay wall. This was Variety’s only choice.
This is not to suggest that free has no place in B2B. Free—aka controlled circulation—has an honorable and profitable history in trade publishing, long predating the commercial internet. However, free has typically not been the business model for the first-in/market leader. At the same time, the notion that professionals won’t pay for content is crazy, but no crazier than the notion that they will pay if there’s a free alternative. And, most critically here, the only free alternative for Variety’s paid subscribers was Variety itself via its open-access website.
Why, you might ask, would Variety ever consider stepping out from behind a pay wall? In part, perhaps, out of naïveté over the self-destruction it was unleashing. More likely, though, the sirens’ call of advertising. After all, free access + desirable content = lots of web hits. (Variety has recently been attracting 2+ million uniques and 12 million monthly page views, according to internal data). The prospect of Coca-Cola, Wal-Mart (NYSE: WMT), and similar heavyweights advertising online is inviting, but the real cost in cannibalizing the paid product makes for a fool’s choice. The revenue potential from today’s digital ad market can’t remotely fund Variety’s news operation.
Understanding what has driven Variety to erect its pay wall also explains the dilemma facing The Wrap. Ownership and management clearly aspire to more than bathrobe blogging. The company has a talented roster of reporters and editors and portrays itself as Variety 3.0. But advertising is The Wrap’s sole revenue source, and it’s unlikely, especially in the near term, that advertising can underwrite the breadth of original content needed to rival Variety or THR. Even more disheartening, if The Wrap angles its reporting toward the consumers needed to attract big-advertiser budgets, it will dilute the insider coverage demanded by its core B2B audience. If it targets the professional entertainment community, readers will deliver plenty of page views and spend many minutes on the site, but the number of uniques will shrink.
Without paid subscriptions and other revenue streams that underpin a diversified B2B media company and leverage its content – conferences, trade shows, books, licensing, databases, workflow tools – the odds of success (as a venture investor defines it) are slim. This is all the more so since the Hollywood ad market is suffering both a cyclical downturn and a secular shift. Special print sections bulging with self-congratulatory and behind-kissing hosannas are a fading memory; “For Your Consideration…” budgets have been slashed; and online suffers from the same oversupply and underperformance afflicting most niches.
Meanwhile, though Nikki Finke’s newfound security is surely nice, it’s apparent that what drives her is pricking Hollywood’s bubble. On her own, she could keep that up for as long as her strength held out while earning more than most bloggers. The danger she faces now is the pressure from her new owner to grow the bottom line. In fact, D/H’s legendary one-woman show added two supporting cast members in recent weeks, including a star reporter filched from Variety to open a New York bureau. I’ve never met Nikki Finke and only know her from the single Triumph of the Will photo she shows the world. It’s easier to find a recent snap of J.D. Salinger. Nikki was admirably profiled in the New Yorker a few months back, even as Gawker was gutting her like the catch of the day at the Polo Lounge over her publishing ethics. Until now, no one except Gawker has cared whether she rewrites old posts to seem prescient when she’s not. But others will care if D/H continues to morph from blog to publication of record, and the consequences won’t be so benign.
The wild card in Hollywood media is undoubtedly the new THR. With fresh leadership and deep pockets, the stars are aligning for a healthy rebirth, especially if the new management realizes it will be best to co-exist with Variety – endorsing the “say no to free” campaign – rather than trying to take it down. Their world has been turned topsy-turvy, and poor execution could doom either or both of them, but Hollywood’s two warhorses can still dominate the industry, assuming they truly and fully embrace the economic, technical, and social revolutions instigated by the web. In fact, it wouldn’t be surprising to see THR buy The Wrap, absorbing the energy and internet ethos it will need to challenge Variety as both brands ultimately leave their print legacies behind.
So—surprise ending—neither of the digital upstarts will ultimately topple the old order. D/H can claim some online bragging rights (and admittedly, bragging rights alone can get you a damn good table in this town), but nothing more. Rather, a new B2B ecosystem is forming, not unlike the world that emerged after that giant asteroid hit the Earth 65 million years ago. That smash-up, like the more recent one, killed off the dinosaurs and left a much leaner, fleeter, and smarter throng of survivors.
Disclosure: DeSilva + Phillips is not currently working on behalf of any of the companies mentioned in this piece, but has in the past. The bank has also been a sponsor of ContentNext.