Why media startups are a wildly important trend

And no, VCs shouldn’t be investing in them

Most investors won’t touch media companies. The reason for that is simple. Prior investments, for the most part, have not worked all that well. Buzzfeed, which was supposed to usher us into the new era of online journalism, just shut down its news division. There’s been a drumbeat of layoffs everywhere, including the LA Times and TechCrunch. And strategy at the leadership level seems to be shifting constantly. 

And yet, there have been a few bright spots that highlight both potential for innovation in media, media as a tool in brand building and customer acquisition, and maybe, just maybe, some investment opportunities. The Information is growing and it has now become essential news for the tech industry. Stat News shone in the pandemic and everyone I know in health-tech subscribes. And there are dozens of breakout newsletters across every sector churning out fantastic analyses, some of which even have venture funds attached. 

For startups focused on building an audience to reduce customer acquisition cost – there are some really valuable lessons here, as you are essentially building a small media brand. Some of this also translates into finding your first set of customers as a startup, regardless of what you are selling. Paid acquisition has become more expensive than ever, so investing in high-quality content is an edge for many of the companies I see. 

So getting back to it, is now the time to be paying more attention to digital media? 

For context, I spoke to Jacob Donnelly, founder of A Media Operator, a newsletter about (you guessed it) the future of media that’s targeted to operators building in the space. Donnelly is also formerly of Morning Brew, a company that sold its newsletters for more than $75 million. This wouldn’t be a breakthrough outcome for a venture firm, but it’s a meaningful one nonetheless depending on the size of the fund. 

Here’s a breakdown of our discussion - enjoy!

AV: Can you share a little about your background and how you got into media?

JD: I previously worked at Coindesk before moving over to Morning Brew for three years as the publisher of their B2B business. We built that from $4 million topline to $23 million before leaving. While at CoinDesk, I launched a site about how I thought people should build media companies. That’s how I got my role at Morning Brew. I always liked media. I did some freelance writing in high school and built websites in college. But I fell into it as I originally wanted to be a doctor. 

AV: What made Morning Brew work when so many others have failed?

JD: When those guys launched the company they were methodical about putting out one single focused product and building a direct connection to the reader. If you’re sending an email to over 4 million people, and you are going to get replies and get a sense of who is interested and who is not. Whether daily news, or the b2b portfolio, we spent a lot of time making sure the quality of content was great and we never got lost building for algorithms. We built for peoples’ inboxes. It’s easy to unsubscribe so they were super intentional about building great content. They didn’t deviate from that for a long time and it took 4 to 5 years before they moved into other things. 

You have to think about your audience as a person and not as a robot. 

If you’re Banana Republic, the cost for sending email is so low and potential for return is so high. So you’ll get a lot of junk. Premium email senders have to put out something people want. 

AV: What is the future of news in your opinion, particularly in light of all these layoffs?

JD: Let’s take a step back and understand the history of the media. If we look at newspapers, they worked because they had a geographic monopoly. They could get away with writing the same stories. No one stopped and asked: “Do we need to be writing that same story?” But they [early digital media sites] did write that same story. It got cheaper to publish on the Internet, and now everyone is still writing the same story. Search for “Biden,” or “Trump”, or it’s the SAME STORY. Content got derivative. 

General interest media companies had no moat. Newspapers did have that geographic moat. But digital media companies today don’t have one other than exclusivity and scarcity, meaning information that you can’t get anywhere else. Stat News is a good example and they are behind a paywall, you can’t get that information anywhere else.  Media companies fail when they put out the same crap as everyone else. 

The news organizations that will win are those that will put out something different – not fake, biased or slanted, That’s what people are willing to pay for. Though people will often pay for biased information because it confirms their own, internal bias, true longevity comes to media that shares something unique. I am biased towards publications about business because business has the biggest impact in the world.  

You just need to understand who the audience is that you need to serve. Any publication needs to clearly articulate who their audience is. And define your personas clearly without trying to serve everyone. The Information, by the way, is very clear about who their audience is. 

AV: Is media an area that VCs should be investing in? If not VCs, then who?

JD: Media doesn’t render well for VC-level growth. VCs need billion dollar exits and there will never be another billion dollar text-based, news based, media company. It's not going to happen in the timeframe that VCs want to see returns. It takes decades and decades, which is too long for VC. New York Times started in 1851 and has a $7B market cap. It takes time! More technology tools like Beehiiv (JD is an investor) and Substack could be great businesses. But publishers have an inherent problem where their costs are tied to the content.

So no on [raising money from] venture. But yes on high net worth individuals and family offices. 

You can raise a modest amount of money and get to profitability – pretty straightforward, not easy, but the playbook is known. The easiest way to make 7 figures is to launch a media company and the hardest way to make 8 figures is to launch a media company. 

Monetization would be through subscription or ads. You can get creative though: events, which more people can look at. Especially if you’re niche. You can get creative on how to monetize them. There’s also advisory businesses. 

AV: What are the best ways to make money off of a Substack or any kind of newsletter?

JD: A blended ad [and] subscription business. I also did an event for 130 people this year. The hardest part isn’t the monetization; it’s the die hard audience. There is a personal angle to it. People who came to my event in October came because they wanted to support me. But we are all going to have to slowly transition from it being the “Jacob show” to a brand name. Because there is key man risk. But if I can evolve the brand so that my newsletter - AMO - has multiple voices, it becomes more interesting. 

AV: Are podcasts overdone in your opinion? Seems like everyone needs to have a podcast these days. 

JD: I don’t subscribe to the belief that there is too much content, but there is too much ‘samey’ content. Can you bring something unique to the table? There’s so much opportunity on the Internet. 

AV: Tell us about A Media Operator or AMO…?

JD: There are a lot of people in this world who like the media and want to build in the space. The purpose of AMO is to provide owners and executives and teams the information they need to grow their audience first, as well as to create prosperous and sustainable media businesses. We profile companies that are making it work and discuss strategies to keep them growing. We encourage people to get to sustainability and profitability and to always have more money coming in than going out. No investor is going to bail you out. 

AV: What technology stack do you use for your own newsletter?

JD: I left Substack and built something my own with some help - it’s essentially Wordpress as a CMS that has a plug in that connects to a campaign monitor (ESP). I use Memberfull for subscription management. And I would use Beehiiv if I started over (note: JD is an investor). 

AV: Are there opportunities to invest in the stack for these newsletters?

JD: I don’t think it would be a good use of venture money. 

AV: What should founders know about the opportunity to “go direct” i.e. to build their own audiences via social versus to pitch the traditional media? And when is it appropriate to do one versus the other?

JD: It’s not an either/ or. You should go directly to your audience sometimes, but it’s short-sighted to ignore the media. That said, don’t get trapped in the vanity of traditional media. Understand your objective. Are you trying to get a story out there for recruiting? More investor interest? And when talking to reporters, don’t be lazy. Media companies that survive are the ones who put something different out there, bring something interesting and unique to the table.