5 Mind-Bending Insights from Erik and Byrne's Media Masterclass

I recently came across this fantastic episode from the Media Empires podcast where Erik Torenberg discusses the evolution of media with Byrne Hobart, CFA , who writes the very popular 'The Diff' newsletter.

Here are five insights that stood out to me, each more surprising than the last.

The Newspaper Golden Age was an anomaly rather than a great business model

Byrne dropped a bombshell by suggesting that the highly profitable era of newspapers was more of a historical anomaly than a sustainable business model.

The idea that newspapers were always destined for financial success is deeply ingrained in our collective consciousness. However, Byrne argues that this "golden age" was brief and resulted from unique economic circumstances, not inherent business strength. This perspective challenges the narrative of journalism's decline from a stable, profitable industry to its current struggles.

Byrne explains: "When I went back and looked at some of the history of the media business, it's just amazing how great it was to actually own or work for a newspaper from roughly the seventies to the early nineties also kind of similar thing for print magazine. [...] But a lot of that is disturbed by how great it was to own a monopoly newspaper. But the newspaper as a monopoly is actually a fairly recent development."

"It used to be that the structure of the newspaper business in the US was that any major city would have at least two newspapers. There was usually a morning paper and an evening paper. [...] But as the, as the US de industrialized it and you know, as there was some economic chaos in the seventies, a lot of those two city or two paper cities became one paper cities."

"But then by the nineties, you started to have alternative media outlets. So there was room to market through radio, not for classifieds, but for other stuff. And cable started cutting into things and then the Internet just destroyed classifieds. It turns out that a lot of the media model was just cheaper to deliver a sports and stock quotes and weather and local news and international news and classifieds and obituaries thing as just one big package"

A new business model for Investigative Journalism: Funded by Short-Selling?

In perhaps the most provocative insight of the podcast, Byrne proposed a radical solution to the funding crisis in investigative journalism: short-selling exposed companies.

Instead of relying on subscriptions, donations, or advertising, journalists could potentially fund their work by betting against the very companies they investigate. It's a concept that's as brilliant as it is controversial.

Byrne elaborates: "The reason I wrote about investigative journalism years ago was that I, mother Jones, did a really good story on for profit prisons. It was a long investigation and they spent a lot of money on it. Someone worked full time on it for I think many months and was actually embedded in the system and things like that. And I think what they said was that they got like five k in subscriptions or donations or something and that it was actually a money losing proposition for them. But when that story came out, the big publicly traded for profit prison company stocks dropped like 30 or 40 or 50%, something crazy like that. So if they had spent as much money on puts as they did on funding that journalists, then they would have been able to do like 50 such stories with the profits. And I think that's actually, that is legitimately true and it is a legitimate motivator of deep investigative journalism, is if you can make 50 times your money in a month on puts, then you are extremely motivated to find every bad thing that a publicly traded company has done, put together this bulletproof report on it and then blast it out."

The Aging Celebrity Pool: A Side Effect of Media Fragmentation

In an intriguing observation, Byrne points out that as our media consumption becomes increasingly personalized, the pool of universally recognized celebrities is shrinking and aging. This challenges the assumption that new media creates new celebrities at the same rate as old media, suggesting a fundamental shift in how fame operates in the digital age.

Byrne explains: "Yeah, so I wrote a post a while ago called, is everything getting old? Or why is everything getting old? So someone replied and pointed out that one reason that celebrities in particular are getting old is that mass media used to mean that we all had pretty much the same celebrities. Like, if there are only a few radio stations, you're probably listening to the same radio station as somebody else. There are only a few tv stations, you're watching the same stuff as somebody else, et cetera. And other kinds of media get marketed through the media. So if you are watching tv or listening to the radio, you hear the ads or see the ads for movies. So you're watching the same movies as other people. And that means we all kind of agree that particular people are very famous. But once you have algorithmic feeds, someone can be famous to you and not famous to somebody else. And this is like, some of this is just a fact of life for people who are over 30, is that you will hear about someone as like, the most famous celebrity ever, and you think that they're just fictional. It's just implausible to you that this person is at all well known. But then it turns out they have millions of fans."

Boring is Profitable: The Paradox of Business News

Contrary to popular belief, Byrne suggests that in financial news, the most lucrative content is often the driest and most data-heavy. While this content may be the most 'boring' to general audience, the news and the raw data exhaust is valuable to those making decisions.

"Business news is almost lucrative in rough correlation to how boring a given piece of the content would be to someone who is not actively trying to make money at it."

"If you think of, let's say you're thinking about the oil news business, and you could imagine doing one really thoughtful, deeply researched piece about the unmeasured emissions from these leaky gas. Leaky gas wells that are still pumping, but barely. That is something Bloomberg did a nice story on a while ago. Um, another. Another thing that you could produce, like, another piece of content you could produce would just be like, a list, an extremely granular list of oil production and, like, where all the rigs are and who's drilling for what. And latter one is probably one that you can sell for a whole lot more money than the deep, thoughtful piece."

".... it does turn out that the really lucrative part is often the raw data. So they do have content that is sort of to increase their service area. It is also a nice compliment to the data business because the deeply researched stories do give people something to start actually looking into as an investment or as a business decision."

AI Layoffs: A Shift from Consumer-Facing to Internal Optimization?

Byrne offers a fresh perspective on the recent wave of AI-related layoffs in the tech industry.

Rather than simply being a cost-cutting measure or a sign of market contraction, these layoffs might be the result of companies pivoting their AI efforts from consumer-facing products to internal optimization.

Byrne elaborates: "So what I suspect has happened is that a number of companies have made the, the big fixed AI investment. Like they made their big push in that direction, and that perhaps their original plan was something consumer facing, something user facing. But they have concluded that that's actually a really tough market. The consumer facing AI stuff, a lot of it is really impressive, but you have this small cohort of products that have just totally changed the way people do certain things, like chat. GPT has changed a lot about my research process and my programming, and then code, code completion tools, copilots, readable AI, things like that have changed the way that I write programs. But it's a lot of the other user facing AI products, they were a cool gimmick for a while, and then people forgot about them. The churn rates on these are insane, and the fixed cost is non trivial. So you really can't sustain very high churn plus low margins, plus high fixed costs for very long. But a lot of companies, a lot of their proprietary unique data is internal. It's what are the emails they've sent internally, what are the metrics that they track within their business, and how can they optimize those?"

Hope you enjoyed reading these extremely interesting insights as much as I did. Here's the link to the episode: https://www.podpage.com/media-empires/the-transformation-of-media-with-byrne-hobart-of-the-diff/