How the news addiction is bleeding the media and advertising industries
Apr 5, 2017
SEO richest words: news
How news addiction is damaging media and advertising industries, fueled by irrational obsession with novelty and inflated valuations.
Following anything in the media today is a frustrating exercise in FOMO control, but once in a while, some things hook you. An interview with a top exec from Digiday's advertising had this effect on my media debriefing after a colleague's post. The exec spoke, bluntly, about how the advertising industry (and the media industry, by extension), has a fetish for novelties that is completely irrational. Until the system finds some checks and balances, the situation will only get worse.
The question here: well, part of it is in the DNA of an industry that thrives on predictions about future markets. More than any other sector, the technology niche forcibly assesses and bets on what will happen and to a certain extent ignores reality. The distortion of reality, however, is not in the speculative nature of the niche, but in the runaway hype that the last decade has exponentially amplified. The business logic that applies to all industries has been replaced by an approach in which what matters is not what the thing is, but what it seems - and promises.
Millionaire Warren Buffett, who became the messiah of safe investment after the 2008 crash due to his caution and efficiency in investments, has a mantra: "I never put a penny into a business that I can't understand how it will make money".
In theory, this is the voice of capitalism incarnate. Businesses never have a purpose other than to achieve the highest possible return. From Adam Smith to today, through Karl Marx's reading of Das Kapital, no economist would disagree. But in the technology environment, participants feel free to put money into what they don't understand (and sometimes, into what no one understands).
The evaluation of a start-up (any, not only media-tech niche) is done on concrete values, without room for "guesses" (this is a simple but functional infographic), but things have gone awry. Three months ago, Tech Crunch ran an article addressing the exaggeration of "unicorn" valuations that ends like this:
The bubble will not continue forever. Sectors that used to be super hot such, as cloud computing or mobile apps, are not disruptive anymore, and in a few years AI and automotive will also lose their shine. It will still take quite a few years for all these innovative companies to meet real infrastructure and cultural change, and the innovation industry is about to crunch. When that happens, consumers will realize they don’t need so many me-too products around them, and as the interest rates begin to rise again and VC vintages are over, we may see valuations turn the current game much more “interesting” — or perhaps even a much less friendly term.
Doesn't sound encouraging, does it? But it's worse than that: the problem isn't just that competitors in a certain niche won't survive and even companies that achieve surreal success may turn out to be far less profitable than their carefully crafted business plans proposed. Just think that Twitter, which is by far the most useful tool for society as a whole, failed in its revenue targets and ended up being sold to Disney, largely due to the relationship of one of its founders on the board of the world's largest entertainment company.
At the end of 2015, in his first speech to the newsrooms of a major media company, a well-known name in American journalism challenged his own subordinates by determining that they should forget about wanting to be successful with Manhattan audiences and other sophisticated centers to pay attention to Midwestern American families, because (here, my observation) 99.9% of the world's broad media operations only have a chance to sustain themselves when aimed at massive audiences and not, trendy elites of chic neighborhoods.
Translating: if you don't want to talk to a niche, you need to talk to everyone - and not to those who are cool. A select group of cunning middle-men are skinning advertisers and publications by selling technological solutions that are very attractive, but that sell little fish at the end of the day. The account only closes with the fish sold.
It's true that it's much more seductive to talk to those who are cool than to "the crowd". It's much better to be the investor of a company that bets on the exploration of Jupiter than on a micropayment app in Africa, but the real world makes no concessions and before going to Jupiter, the market needs to solve the problem of micropayments in Africa. The valuations of technology companies, with particular incidence in the media, continue to move away from reality even after symptoms that the flight is not in clear skies (such as Buzzfeed's halving of annual revenue forecast).
This is a clear symptom of the "bubble" mentioned by Tech Crunch and is totally in harmony with the historical reading of moments shortly before the implosion of overheated markets. But we don't learn, do we? The irrational moment in the world is not only in what elects Trump and "bombs" the chances of Dória and Bolsonaro. It is systemic, not localized.