Volume 6: We're All Learning Chess

This is my first post since October. Nothing of global consequence happened while I was gone, right?

Just kidding. I may not have been publishing, but I was right there with you three weeks ago compulsively refreshing Twitter and watching more cable news in four days than in the previous four years.

Understandable for the week of November 3, but it was nevertheless a reminder that Americans spend a disproportionate amount of time consuming news about national affairs that are ultimately quite distant from our everyday lives (however much they strike a tribal nerve). I've pledged over the next four years to engage much more with local media, which, when done right (which is sadly no guarantee these days), is not only more relevant but more fulfilling in the sense of community it inculcates. Local media also desperately needs the help, which is a matter I'll cover in another newsletter.

In the meantime, enjoy Thanksgiving (hopefully that's local, too) and stay safe.

News Feed

Netflix + Linear

Netflix, which has done more than any company to catalyze the shift to on-demand consumption, is testing a linear channel in France. (Cue the jokes about Amazon opening bookstores.) There is an obvious product angle to this: despite huge advancements in content personalization, decision paralysis remains a challenge for Netflix. Jeffrey Katzenberg used to suggest you could watch an entire Quibi in the time you waste searching for something to watch on Netflix (which of course assumed Quibi didn't suffer from the same problem). HBO Max highlighted it as well in its Investor Day presentation last year (see embedded slide).

But, in typical Netflix fashion, this product innovation is also in service of a broader strategic goal: its push to control programming costs by reducing the influence of algorithms. Content personalization is a wonderful consumer value proposition, but it's a bad business model for a non-UGC service that actually has to pay for its content. Netflix's valuation has always been premised on the expectation that content spend would slow as it scaled. But competition as well as new legislation requiring localized content in France and other markets are making it harder to achieve operating leverage across territories. The solution is to concentrate viewing across as small a slate of shows as possible, not unlike the golden age of broadcast television. Netflix took a big step in this direction in February when it launched Top 10 lists, and linear channels would likely accelerate this power law dynamic of consumption. In a blog post announcing the Top 10 lists in February, Netflix was transparent about how evolving its UI would serve its broadcasting ambitions: "When you watch a great movie or TV show, you share it with family and friends, or talk about it at work, so other people can enjoy it too. We hope these top 10 lists will help create more of these shared moments, while also helping all of us find something to watch more quickly and easily." Based on the victory lap Netflix just took to tout the success of The Queen's Gambit, it seems to be working.

Amazon + Pharmacy (link)

Last week Amazon announced it was launching an ecommerce pharmacy business. It has now become a trope of Amazon beat reportage to chronicle the stock market sell-offs that its big announcements precipitate, and although Amazon telegraphed this move when it acquired PillPack two years ago, shares of CVS (-8.6%), Walgreens (-9.6%) and Rite Aid (-16%) were nevertheless all hammered upon the news. For media observers, another second-order effect to consider is the implications for TV advertising. The healthcare/pharma category was the third-largest traditional TV spender in 2019, according to Kantar data, and it figures to grow its relative share, given the low incidence of cord-cutting among the older audiences many pharma brands target. While Amazon makes plain that personal health information will not be used for marketing purposes without consent, it is not clear what latitude it may have to leverage aggregated data or incentivize opt in while remaining compliant with HIPAA.

Georgia Runoff + Local TV Advertising (link)

Bloomberg has a good piece (see link above) on how the two Georgia Senate races could yield half a billion dollars or more for local stations, benefitting a group that includes Tegna, Gray, Meredith and Nexstar. At a time when ad buyers are fleeing traditional media, the windfall is a reminder that political campaigns are in some ways a bizarro form of consumer product. TV networks sell against an 18-49 demo because, ordinarily, advertisers pay more to reach younger consumers whose brand loyalty can generate high lifetime value (making a 25-year old a Ford buyer for the next 50 years is a lot more valuable than converting her grandfather). But political campaigns are single-shot games – Jon Ossoff isn't spending to win the 2026 senate race. In fact, in political marketing, the older viewer is actually more valuable than the younger viewer, given the older skew of voter turnout and the fact that any impression served to a viewer below age 18 is waste. What's a good place to find older audiences? Traditional television, which the average American 65+ spent 7 hours and 14 minutes watching during Q1 of this year, per Nielsen.

Buzzfeed + HuffPost (link)

Two distinct but thematically related moves happened last week, as Buzzfeed acquired HuffPost from Verizon Media Group and Ezra Klein, a founder of Vox.com, announced he is leaving the site to become a columnist and podcaster for the New York Times. In May 2014, when the Times's seminal Innovation Report was leaked, digital publishers were riding high. HuffPost had been acquired by AOL for $315 million three years earlier. Vox Media had just raised a round of venture capital valuing it at $235 million. And Buzzfeed was a year away from achieving unicorn status. The Times report, which highlighted its deficiencies relative to those competitors in "the art and science of getting our journalism to readers," among other digital capabilities, amounted to a burning platform memo for the paper of record. To its credit, as I've written about before, the Times pivoted aggressively in the six years since, enabling it to reach seven million subscribers in October. Helping drive that growth has been a digital publishing talent raid of which Klein is only the most recent example: Buzzfeed's Ben Smith earlier this year, Recode's Kara Swisher two years ago, and, way back in January 2015, the poaching of relentless Trump chronicler Maggie Haberman from Politico (purportedly for her proficiency on the Hillary Clinton beat, however; that she would become the best-sourced reporter covering a president who was still five months from announcing his longshot run was the Times' great luck). This will likely only continue; the Times is building an elegant flywheel not altogether different than Netflix's: more differentiated content drives more subscription revenue, which can be reinvested in more differentiated content.

But what of the digital publishers? One way to think of them is as the media industry's free R&D lab – rapidly churning out novel products and revenue streams but never building a defensible moat around them. In other words: treadmill, not flywheel. So, as Buzzfeed CEO Jonah Peretti predicted two years ago, we've seen increasing consolidation, with combinations like Vice and Refinery29, Group Nine and PopSugar, and now Buzzfeed and HuffPost. These acquisitions should help a sector that has struggled to achieve profitability better manage costs, but a sustainable strategy remains unclear.

Content Recommendation Algorithm

• Watch: "Belushi". R.J. Cutler's new documentary on the life of John Belushi is the most intimate portrait of the comic ever produced, thanks to the participation of his widow Judy and her incredible audio and epistolary archives. I found myself thinking often of "Amy," the Oscar-winning documentary – composed in similar style, with interview subjects off-screen – about Amy Winehouse, another gifted artist whose life was cut short by drugs.
• Read: Trends, Analysis, Lies, and Statistics. My friend Tal Shachar has just launched a newsletter. If you enjoy Strange Bedfellows, you'll love TALS, since it's basically a smarter version of what I'm capable of mustering here.
• Listen: Benedict Evans on Content Moderation. Benedict Evans recently covered content moderation on his new podcast, a timely topic in the wake of great debate about the role of internet platforms during the recent U.S. election (and its ongoing aftermath). There are no easy answers here, and Evans is uniquely skilled at situating the key questions in historical context, including a fascinating analogy to the social upheaval wrought by mass urbanization in the 19th century.

Note: This is the sixth edition of the Strange Bedfellows newsletter. You can find the others here. If you enjoy it, please consider sharing it with someone you know.