Newspaper Support Group

Here at OwnLocal, we can’t seem to agree on our favorite streaming music service. Some are on Team Pandora, some are on Team Rdio, some on Team Spotify.

Spotify recently released a few numbers (via TechCrunch). It’s illuminating. It’s also a crystal clear demonstration of why so many music startups have gone big and ultimately been wrecked by the industry they’re making money for. Only Pandora was able to hit escape velocity so far and go public (with $75 million in quarterly revenue and $74.25 million in quarterly expenses!). But the last ten years are littered with really good streaming services that have been forced out of existence by oppressive licensing agreements or onerous charges.

Down to the numbers:

- Spotify has 13 million active users.

- 3 million are paying about $10 per month.

- 10 million are listening for free with ads (mostly ads for upgrading Spotify near as I can tell).

- Spotify is on track to do $889 million in revenue this year.

- They’ll do about $360 million on paid users ($120 per user).

- They’ll do about $529 million on unpaid users ($53 per user which actually seems impossible based on their frequency of ads and that they’re mostly house from my experience).

That last number sounds really impressive, and while it is, it’s not quite what it seems. Spotify is still losing money every quarter. For every song played, Spotify needs to pay the music labels and artists about 70% of revenue before they cover their own operational and marketing costs. The bigger they get, the bigger their losses have become. In the meantime, music labels are going to get paid $662 million and pass very little of that onto the artists.

The music labels, despite much concern over their future welfare, have created an industry baked around letting very talented teams build software that catches on only to face certain annihilation (or a quick fire sale like Imeem).

Netflix, despite their size, is in the same position. It just took the movie studios a little longer to come around to the same position as the music companies.

The pattern is repeated over and over again:

Build something great. Make it awesome. Engage users. And when contract negotiations come back around, raise the price of content to a level that sabotages the service and claws back as much of the profits as possible.

We’re left with large zombie technology platforms doing significant amounts of revenue, making almost no money, and without the means to continue to innovate.

Great entrepreneurs become sharecroppers.

No one disputes that artists and labels deserve to make money on music streaming services. But this situation can’t go on forever.

The music companies get to take their short-term profits. But make no mistake. It’s only setting them up for the day when someone really will destroy them.

Stephen Morse, Journalism Fellow at CUNY (and dead ringer for Amir Blumenfeld) debates Felix Salmon about the efficacy of Kickstarter funded science publication, “Matter”, and inadvertently makes a really important point: “Anything could be sustainable if it’s small.”

Morse is concerned that small publications won’t scale and that this doesn’t really present any sort of path for the industry as a whole. After all, it’s hard to imagine a Hearst or Gannett reinventing themselves with a product that makes $20,000 per week.

Here’s why it’s necessary.

When everyone is trying to consolidate and look for organizational efficiencies, you end up crushing the teams who create innovation. Letting small units create sustainable products and brands begins to look like a stellar way to reinvent yourself.

Over the years, we’ve seen publications aim to control costs rather than attempt to build products people really want to pay for. But small teams already have low costs. And they can have different goals. Matter’s aim is to write one awesome science article each week and sell it for a dollar. Lots of people think this is a great idea and have said they’ll pay for it.

Morse’s point is that the total potential market is small and may only be 20,000 people (I think they can be very profitable with less than 10,000 if they pay themselves the salaries a typical reporter makes).

At 20,000 though that’s a nearly $1 million revenue business. With five employees, they’ll have a better profit margin than most news enterprises today.

In this case, less equals more. You can always figure out a path for a sustainable business to expand. Right now, the news business is trying to figure out how to take an unsustainable business and contract it into a sustainable business that can expand again. The first one is easier.

If your business can only work on huge opportunities, swing for the fences initiatives, and invest in $100 million opportunities, there’s no doubt you’re absolutely going to miss out on the next big thing.

It’s the next small thing that’s going to grow up to kick your ass again and again and again.

I took this picture nearby the Marriott Wardman Park Hotel in Washington, DC. That’s where they held this year’s NAA conference. Filled with antiques, flower gardens, and terrific landscaping, it has been home to Presidents Herbert Hoover, Dwight D Eisenhower, and Lyndon Johnson, Vice Presidents Spiro Agnew, Charles Curtis, Henry Wallace, and Chief Justices Vinson and Warren. Pretty posh, right?

While people were eating fancy meals, watching President Obama and Governor Romney speak, staying in $400/night rooms, and having a party each night in the hotel bar, this was around the corner.

While it’s good to see everyone, hear what people are working on, and meet some really great people, this picture should bring us back to reality.

The newspaper business is still broken and upside down.

After a few days of feel-good panels, we all need to get back to work fixing it.

Every team that has ever gone through Y Combinator (and just about everywhere else) has been encouraged to launch as soon as they have a minimal viable product, get users, and then iterate based on user feedback. It’s the cycle that drives innovation for most companies.

“Oh, it would be really cool if this integrated with X.”

“Oh, it turns out that most of our users are coming from industry Y and the thing that would make this really killer for them would be feature Z.”

The key insights that you couldn’t have had otherwise.

I know launching late. In my first company, Paul Graham once exclaimed that “we were the 40 year old virgin of startups”. Y Combinator funded us anyway but ouch, right?

At OwnLocal, we launched pretty fast, partially as a result of PG’s voice forever ringing in our heads. Partially, because our customers demand innovation in an industry where no one has stepped up to the plate in a really long time.

But more importantly, the reason almost every startup you know launched too late is because you don’t have a good idea what your true minimum viable product is until you launch. You’ve made an educated guess and it’s wrong. While there are many companies that die from launching too late and suffer the consequences of putting too much time and money into their products, are too optimized for one industry or path, or a competitor releases the right product faster, startups don’t usually die from launching too early.

That’s okay because you may have more money and time to figure out what you should really be doing. Many times this looks like an iterative process and it turns out that a failed MVP puts you on the track to launching faster trying to find your audience.

But for those startups that are successful, you probably don’t know the exact MVP line. If you’ve built something of value, you’ve likely built that MVP+1 feature that turns out not to have been important at all. It’s a hard problem trying to optimize for the exact quantum of a useful initial product that also catches on with users. That will be wrong too. You probably didn’t need something you thought you did. But, really, who cares?

Focus as hard as you can on building something awesome and launching early. If it turns out you’ve built something people want, you’ll probably look back and realize you launched too late with some features your users didn’t really need. That’s the power of hindsight.

Seriously, it’s okay. Stop all the handwringing. You’re not a bad lean startup entrepreneur. Besides, you need to get back to work.

There are users to take care of, features to iterate on, and dreams to code into existence.

I had to laugh out loud the first time I saw Pew’s Report that unfriending on Facebook was on the rise. I laughed even more when it was accompanied by typical media prognostications that if this trend continues, it would dramatically hurt Facebook’s ability to monetize their audience. I’ve seen it mentioned several times now.

Are people really this bad at math?

The number everyone was so getting bent out of shape over: 500 million unfriendings occurred in 2011 up from just 138 million unfriendings in 2009.

It’s a crisis. It’s an epidemic. Oh, wait, that’s less than one unfriending per active Facebook user per year (.6 unfriendings per active user, actually). In the same year, each Facebook user is on average adding way more than a single friend.

Is there an unfriending trend? Nope. Not one that matters anyway.

I’m reminded of the scene in Citizen Kane where upon being told he’s losing a million dollars a year running his newspaper:

“You’re right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars next year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in… 60 years.”

Except imagine Mark Zuckerberg saying “the average user (if he or she never friended anyone else) would run out of friends in… 200 years.”

He’d probably have the same giant smirk Orson Wells had.

We hear a lot of publications fretting over their social media strategy. But I never hear anyone talking about e-mail.

E-mail is way bigger than social networking, demands people’s attention multiple times every day, and is a default installed application on every phone and computer.

So what’s your e-mail strategy?

Tomorrow happens to be the most exciting day in Silicon Valley. Yep, Y Combinator Demo Day.

While founders are preparing last minute tweaks to Keynote decks (It seems rare to find YC Founders without a Mac), adding that last piece of polish to the demo they’ve spent three months hacking together, you just can’t help but feel proud to have gone through it all.

When I look back at my Y Combinator Demo Day in 2008 (!), I remember meeting an amazing group of people who came to watch a bunch of young guys show off their stuff. We were the last batch in Boston and the investors probably hadn’t been that cramped into cheap plastic Ikea chairs for ten hours since they were in grade school.

It was a miraculous, nerve-racking kind of feeling. I don’t remember much except that hundreds of VC’s were excitedly talking to us.

I think back to Garry Tan taking a few snapshots of our devices to help us with our investor demo. I remember Sachin Agarwal doing his best Steve Jobs impression. I think back to Dan Haubert drinking a beer afterwards, floppy hair hanging in his face (Dan taught us all how to be cocky with investors who really want you to play paintball with them). I remember Eddy and Enrique showing off the digital picture frame you could e-mail photos to from my donated OLPC. I remember how the CO2 Stats guys were already solidly profitable on a piece of javascript and a little math. The Backtype guys were always quiet but made beautiful and brilliant software. I remember Alex Schliker pulling out a pair of scissors and taking forever to cut a piece of paper. I remember Sonic Algebra being the top seller on PopCuts. I remember Scott Brown scaring the hell out of Jessica while he was asleep on the YC closet floor. I remember PG’s advice and admonitions about how to present (I don’t care what anyone says about his public speaking ability, the man knows how to craft a successful demo and you’ll hear a pin drop while he’s giving a talk).

It was all an awesome blur. It’s a hell of a thing to be a part of.

Feel proud, YC Founders… for the thirty minutes between when you’ve finished and when you need to get back to work.

Good luck tomorrow! You’ll be great.

 

Hacker News used to be a beautiful place.*

It’s just not anymore. And I don’t mean story quality has degraded.

It used to be that when sailors left home, everyone came out to watch. When they returned, that was the victory. If they came back with treasure, that was amazing. But really, if they were alive, that was reason enough for celebration.

Whether people have never been part of a startup themselves or just look on with a critical eye, it seems the community has largely lost the ability to welcome people home.

The appropriate response to someone shipping their product has always been:

“Awesome. Great work! Keep it up. I can’t wait to try it!”

Then offer up a few suggestions on how you think their product might improve or who you might know who would be their perfect customer. Ask them if they want feedback from a potential investor. It’s polite, it’s optimistic, it’s encouraging, and it’s humble. It’s an attitude that seeks to be of service to our community.

The appropriate response to someone selling their company should be:

“Awesome. Great work! I can’t wait to see what you come up with next!”

If someone failed, the appropriate response has always been:

“That sucks. I know it’s hard. What do you want to do next? How can I help?”

Today, I just see people publicly shitting on the hard work of others.

Loopt, Posterous, OMGPop, or really any startup that’s been acquired lately has just utterly been condemned as “losers” “poisoning the well”, just a “talent acquisition” or outright failures. This is clearly delusional. All earned a well-deserved welcome home and congratulations for their success.

Last night, Dustin Curtis (who was part of my team at Frogmetrics) put together an unfinished project called svbtle for himself and a few friends with the intention of opening it up at a later date. He shared his rationale and design choices with the community. The old HN would have been supportive, glad he had shipped something, and asked where they could help. Instead the community turned on him, one member spent the night copying it without speaking to Dustin or asking how he could assist, and the community essentially agreed that this was okay. Design, philosophy, choices, hard work and all. It’s one thing to learn to hack by copying a successful project, it’s quite another to ripoff a fellow startup on the day they’ve launched.

For the record, it’s not okay. It’s jealous, petty, selfish and sad. I’m not sure why kindness, humility, and optimism have gone, but they’re largely missing these days.

Hacker News has gone from being largely inspirational and filled with good people to being overrun by haters.

I’m a YC founder, but I’m taking a break from HN. I suspect many of the best of our community have already done so as well.

* Y Combinator itself is still a beautiful place with these superior values largely intact. It’s just the Hacker News community that’s gone off the rails.

Neither was James Frey, Ahmad Chalabi, or any other story embellisher who got his fifteen minutes of fame (or a New York Times backed war). Nope, this one is on the journalistic profession.

“The fault, dear Brutus, is not in our stars, But in ourselves.”

If it could happen to the folks at “This American Life” (which likely has higher standards than your average deadline newspaper), it’s happening all the time at lesser outlets. And since the stories aren’t nearly so high profile, they’re not getting corrected.

While it’s thoroughly satisfying for members of the press to blame Daisey, attack a self-described artist who makes his living in the theatre, complain that “he lied to us!”, and think through every step of his decision to deceive America about their favorite Angry Birds platform (Won’t someone think of the children?), that’s not how the game works. We all know it and to pretend otherwise is the true travesty.

Mike Daisey’s going to have to live with this on his reputation and we may just have to assume Foxconn isn’t quite as egregious in their labor practices as stated. During the big pile-on, we’ve avoided the big questions:

Just how often are we getting fooled? Just how often are we unwittingly deceiving our readers?

Mike Daisey is a distraction. There are any number of lesser (and greater) charlatans who have gotten away with deceiving the press. I can’t imagine their ilk will be going anywhere soon. Instead of pretending this is an isolated incident, we should be having an honest discussion about what is likely a rampant problem.

Hundreds of folks stopped by for our SXSW crawl, if you did, thanks! You can find your photos here. (more…)

Breitbart didn’t invent sensationalism. He certainly didn’t pioneer “ambush journalism”. Nevertheless, he and his protegés certainly came close to perfecting the partisan yellow journalism most associated and frequently peddled by Fox News, the Drudge Report, NewsMax, and his own sites (breitbart.com and BigGovernment.com). While most of us would consider this to be a dubious honor, he would have given every indication of being proud of this accomplishment.

It’s difficult to find kind words to say about a news man whose ethics were driven not by the truth, but by loathing. While we should attempt to be respectful of the dead and their families, this wouldn’t have been Breitbart’s first inclination.

Perhaps he will attain some level of martyrdom in conservative political circles. He will likely be remembered for aiding the destruction of Anthony Weiner’s career. But he should also be remembered for producing a fake video that resulted in ACORN being defunded by congress and for selectively editing Shirley Sherrod’s inspiring NAACP dinner speech into something she lost her job over.

Even still, he must be considered one of the pioneers of online journalism and one of the primary creators of breaking-news style websites. He was a disruptor, not an especially honest one, and at the end of the day, he will be missed by those who agreed with his motives.

After the Ted Kennedy’s death, The Digital Journal reported:

‘Andrew Breitbart, Washington Times columnist and operator of Breitbart.com, called Kennedy a “villain,” “duplicitous bastard,” and a “prick” on Twitter hours after he died. Breitbart continued his opposition to Kennedy by posting: “I’m more than willing to go off decorum to ensure THIS MAN is not beatified,” Breitbart wrote. “Sorry, he destroyed lives. And he knew it.”‘

Sometimes a man’s words are his own best tribute.

Sometimes journalism is a life-and-death proposition. Our hearts go out to the families of Syrians who lost their lives attempting to save the lives of foreign journalists.

Three of the four journalists remain trapped (but alive) due to the Syrians’ sacrifice.

From the Washington Post:

“Thirteen Syrian opposition activists were killed during a daring and chaotic attempt to smuggle four foreign journalists out of a besieged Homs neighborhood, human rights groups said Tuesday, illuminating the risks taken by the networks that routinely ferry injured people out of stricken Syrian cities…

One of the journalists, injured British photographer Paul Conroy, managed to escape and was whisked across the border to Lebanon early Tuesday after three of those accompanying him were killed, according to Avaaz.

But the ferocity of the attack scattered the rest of the group, Avaaz said. The three other journalists were forced to turn back and remain trapped in Baba Amr. Ten more activists escorting them were killed in the confused retreat into the neighborhood, which has come under sustained bombardment for the past 25 days…”

Yesterday, Mark J. Perry, posted a graph from the Newspaper Association of America that’s stirring up quite the conversation on the Internet:

It displays nothing other than a titanic shift in where advertising dollars are being spent. It’s a decline far faster than many in the newspaper industry have acknowledged. And it certainly doesn’t look pretty. The newspaper industry has lost more yearly revenue from their 2006 high than Google’s entire revenue for 2011.

It reminded me of this chart Bain put together a few years ago about the music industry:

Since most book publishers are part of private or larger entities, it reminds me of the stock graph of Barnes and Noble:

 

 

What this reflects is an undeniable reality. Physical media is dying. And nothing has come along yet to replace these revenues even if people are consuming more news, music, and books than ever before. What you’ll note on these graphs is a steep drop off around 2006. So what happened?

Correlation doesn’t equal causation. Napster didn’t kill the music industry when it arrived in 1999. The New York Times has been online since 1996. iTunes and the iPod arrived in 2001. The iTunes music store showed up in 2003.

Well, text has always been the easiest thing to share. A quick copy and paste and the entire online newspaper could be yours. The decline of the newspaper industry inversely mirrors the growth of Craigslist (in fact, with a little bit of lag in the calculation, you could make a convincing case that this graph fits almost perfectly with newspapers’ loss of revenue). This would seem to fit nicely. Craigslist would be an excellent scapegoat for the woes of the newspaper industry.

But, again, correlation doesn’t equal causation. Since 2006, Facebook has a similar looking graph. So does Twitter. So does smart phone adoption. It also mirrors newspapers cutting back on quality original news reporting.

So what’s really disrupting newspaper revenue streams? Everything.

Newspapers are getting hit from all sides. The fact is that as an industry they will never be as big as they were ever again.

Can they be smaller, more sustainable, and more innovative? Can they produce recurring revenue streams that can carry them forward? Will they break through the Innovators’ Dilemma?

OwnLocal has a few answers. Join us for a discussion of the future of newspapers over pancakes and beer at SXSW. Click here to RSVP.

Pancakes and Beer probably won’t save newspapers, but we might as well give it a shot!

Take a break from the interactive conference, panels, and keynote speakers and join OwnLocal at our worldwide headquarters in Austin, TX only blocks from the Austin Convention Center for a free lunch, beer, and talk about where professional journalism is going, and how we can save it.

We will be serving all sorts gourmet pancakes and only the best local brews will be flowing from our taps.

JC Penney is under new, focused leadership. CEO, Ron Johnson, is looking to translate his success creating Apple stores over to the tired department store world.

This is bad news for newspapers status quo, but very good news for those looking for innovation. JC Penney is about to lead other department stores away from the constant sales that have been their bread and butter for decades. We’re almost certainly going to see fewer newspaper inserts.

I wouldn’t be surprised to watch the other stores follow.

(more…)

We live in exciting times.

And one of the most exciting products I’ve seen in the long time is this contraption:

What is it? Well, it’s a Raspberry Pi. It’s a little computer with specs from a decade old computer and I’d bet that this little guy will end up changing the world.

It’s $25 which means that much of the world can scrape together enough money to afford it. It uses HDMI for video which means it can connect to most modern televisions, it has ethernet for internet, and USB for connecting to peripherals and wireless cards. It’s also the size of a credit card.

I love that they’re shipping it without a case (which means you’ve got to build your own). I love that they’ve built it to be hacked on. I love that the operating system most people will choose to run for this little machine is free. I love that the execution and branding is so thoroughly competent and friendly.

This computer won’t be for everyone. But like the Apple I, the Altair, and many other early computers, the kids who hack on this computer will grow up to change the world. This is what the One Laptop per Child should have been.

It’s an utterly brilliant development.

Alexis Ohanian, cofounder of Reddit, angel investor, and member of OwnLocal’s advisory board makes a correct and passionate case against the pending SOPA legislation on Bloomberg TV (in a suit!).

I read TechCrunch nearly every day, but the decline of the book publishing industry seems to have sparked a rare bit of truly enjoyable writing in John Biggs as he waxes on the glory days:

“As much as I want the halcyon days of Raymond Carver sending off his ream of short stories to Gordon Lish in New York to return – the old bear-man sighing contentedly as he finishes his last bottle of gin, burping gently as his eyes caress the waning sunlight falling over the hood of his new hard-won Cadillac as the publishing industry churns in that vast belly of the East Coast Moloch – let’s be serious. The real money makers – cookbooks and crossword puzzles – are clearly not even making B&N much cash, which suggests that the other publishers who depend on fast-turnaround, low-cost content to support the grand publishing pyramid where The Corrections is supported by sales of Kim Kardashian’s tips to a better marriage, are pretty much sunk.

The long tail is curling up on itself. Books that never would have seen the light of day, full of vampires, florid prose, and covers that look like they were done by a medicated third-grader, are selling like Dickens for 99 cents a pop. Back catalogs are being decimated by digital reprints and even the dream of print on demand is reaching it’s obvious conclusion. There is no such thing as vanity publishing anymore, just writing that is good and writing that is bad. The market then decides.

Pour out a little strong coffee for B&N’s book stores, folks. The captain is disembarking ship.”

Brian Deagon of Investor’s Business Daily Makes an absurd prediction for the new year:

“1. Apple will lose its cool factor.

With the iPod, iPhone and iPad, Apple (AAPL) redefined markets and defined cool. But what’s left? The iPhone is boxy, flat and feeling stale. The Samsung Galaxy smartphone seems cooler. With Google’s (GOOG) Android platform now the fastest-growing mobile OS, Apple’s software advantage will diminish. Smartphones and tablets will become commodity items and Apple will be eaten by the collective Android gang. Apple’s next big hope is the TV market, a tough nut to crack and where Samsung is king.”

I’m not sure what world he’s living in. Buying Apple products isn’t just about being “cool” the way it was “cool” to wear your jeans backwards for the few months when Kris Kross was popular in 1992. It’s a trend thirteen years in the making.

iPhones and iPods are relatively inexpensive status symbols. It’s hard to think of any other area where the very best thing you can buy (even if you’re a billionaire, the president of the United States, or a movie star) is exactly the same thing anybody can walk into an Apple store and buy for $200. The Ferrari of phones is still an iPhone.

For years now, newspapers have been looking for people to cut. I’ve written before that this is the wrong focus. The real mark of a successful organization is who they hire, not just who they fire. After all, the people who are actually at your company are going to have a bigger effect on its performance than those who aren’t.

The way your organization behaves a year from now is going to be the average of the people working for you today.

Are they curious? Do they solve problems? Do they come up with great ideas? Are they passionate? Do they create high quality work? Are they inventive? Do they demand excellence from their peers?

What about you?

So instead of spending your time on who you’re going to cut to meet your budget, focus on hiring the people who will make your company great.

Great companies will be around in the future.