Opinion: Publishers don’t have a clue about unit economics

Damien Hoffman is the CEO and co-founder of Cheat Sheet, a men’s lifestyle digital publication.

I feel old. Almost all the hot topics in our industry are about vanity metrics rather than unit economics. And the FOMO is reaching a fever pitch in spite of massive red flags such as BuzzFeed whiffing on financial projections  —  which is a huge OMG regarding business-model fit for new media publishers.

We publishers have a multibillion dollar problem on our hands, and only unit economics can save us.

Turn off the oculus and see the economic rift
Let’s get some perspective because sometimes the digital world needs an ol’ fashion analog analogy to wake up from the Matrix: Collectively spending millions of dollars to produce free videos for Facebook (or any platform) is the equivalent of wholesalers or manufacturers giving Amazon or Walmart free products.

In which universe does this make any business sense? Only the one where VCs and strategic investors with FOMO are subsidizing the costs, then spreading FOMO to publishers who are not receiving this form of welfare, who then keep the flywheel spinning for the platforms’ cash flow statements.

Therefore, technically speaking from a financial perspective, Facebook Video is reallocating capital from pension funds and institutional investors to Facebook’s balance sheet, where VCs, strategic investors and publishers play the role of conduits.

Who is to blame for this madness?
Let’s be clear: We can’t blame Facebook. Mark Zuckerberg and his braintrust are tasked with figuring out ways to best monetize their assets.

So, why should they do anything differently if publishers are willing to supply free content via the crowdsource model? Facebook is merely shrugging its shoulders and saying, “Well, if you don’t care about unit economics, sounds good to us!”

If the largest and most popular publishers in our industry had any common sense and backbone, they’d have demanded the retailer (i.e., Facebook) start with a business model where the wholesaler/manufacturer (i.e., publishers) received the customary share of unit economics. But hey, this is the media business, only second to the music industry when it comes to lack of business sense!

This is what Warren Buffett laughs about and what we all as publishers will be disgraced by when we look back in 10 years. (And don’t get me started on how we’ve let ad tech vacuum our margins.)

So, what can we do to start winning?
When eyeballs are more important to us than to optometrists, that’s the signal we are usually screwed from a business-model perspective. Here’s your minimum effective dose of pithy wisdom: Businesses require old-school economics under new-school user interfaces. (“New-school user interfaces” here means new ways of delivering fundamental value as media publishers.)

Rather than buying eyeballs, let’s buy ourselves some pride and remind our distribution and ad tech partners that content is king and good content costs real money to produce and sustain livable wages for our content creators and teams.

They brag about their 50 percent-plus margins, so we know they can afford to give us the manufacturer’s customary share of every dollar.

Publishers, whether we like it or not, we all are part of the same unit. Let’s get a clue about our irreplaceable value in the ecosystem and reclaim some winning economics!


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