January 9, 2024

What’s Next for The Messenger?

It’s now the second week in the new year, which means we should all be back at work by now, right? Good, because there’s something I’d like from you. Last year, I conducted a survey to understand how media operators are feeling about the ad markets. And many of you answered. So, we’re back again this year to do the same thing.

Click here to answer five quick questions about how your ad business is performing. And don’t worry… the answers are completely anonymous.

Is The Messenger out of time?

In news that is entirely unsurprising and, yet, happened so much faster than I expected, The New York Times reported that The Messenger was nearly out of money. According to the story:

The site generated about $3 million in revenue last year, according to two people with knowledge of the company’s financial results. And it has told potential investors that it had only $1.8 million in cash on hand at the end of December, after losing about $38 million last year, putting it under severe financial strain.

The operating results of The Messenger — which until now had not been fully disclosed — underscore the difficulties facing the company. The founders, who raised $50 million to start the website, initially said their aim was to transform coverage of U.S. politics, culture and sports. But it has run into editorial and financial troubles.

Well then…

The Messenger was a media company launched with a strategy that comes from an entirely different era. When platforms are getting stricter with their outbound traffic and there’s inherent fear of AI replacing much of search, a mass-scale traffic play was not going to work.

But what’s unbelievable about this is how badly it hasn’t worked. When The Messenger initially launched, the expectation was that it would hit 100 million users in 2024 to support the expected goal of $100 million in revenue. To be fair, it is only January, so I guess that’s still possible—hint: it’s not—but to get there, you actually need cash. And as The Times reports, cash is hard to find.

Let’s look past the money for a second and understand some key facts. First, SimilarWeb reports that from October to December, the company got an average of 12.04 million monthly visits from roughly 6.425 million unique visitors. To be honest, I am impressed. On the other hand, with how much money The Messenger has thrown at creating content, maybe ~6.5m unique visitors isn’t all that great.

Whatever the case, The Messenger is now in dire straits. And it has very few options. According to Semafor:

Four people briefed on the meeting told Semafor that on Friday, The Messenger summoned its board members to a meeting to debate the future of the news organization. Founder Jimmy Finkelstein and the company’s board discussed the dire state of the company’s finances: At the time, the organization only had enough money to last several more weeks, and would need to make steep cuts and secure additional funding to survive. Two people with knowledge of the details of the meeting also told Semafor that The Messenger could shut down altogether, and that Finkelstein had also expressed a willingness to sell the organization.

So, it’s options are to either raise more money, sell the organization, or shut down entirely.

Axios reported that The Messenger was looking to raise $20 million and then quickly followed that story with talks about a possible acquisition. According to Axios:

The proposal — $30 million for a 51% position — could provide The Messenger with a much-needed lifeline, but it would require Finkelstein to give up control.

It [investor group] includes Omeed Malik, a financier who backed Tucker Carlson’s new media venture; Garrett Ventry, a Republican political operative; Ryan Coyne, founder of digital media agency Starboard; and George Farmer, the former CEO of Parler who sits on the board of Britain’s conservative news network, GB News.

Here’s the problem… The Messenger spent $50 million in 10 months. That’s $5 million a month—and we should assume it spends more now since it hired so many people. So, a $30 million investment buys it, at most, 6 months. There is no path to breakeven and, therefore, no path to this being any sort of viable business.

So why do it?

There’s an argument to be made that amalgamating conservative media assets is a way to compete more head on with the much stronger Fox News. We’re moving into an election year, which is likely going to be quite contentious, so owning various assets that are tied to that could be a strategy.

There’s also the fact that Tucker Carlson, which financier Omeed Malik backed, is not getting the numbers he once got from Fox News. Before losing his job, he was getting 4 million+ viewers a night. Now? His videos get 100k+ on YouTube (and X’s numbers are unreliable since it counts tweet views as video views). Could there be some sort of cross promotion where The Messenger and Tucker Carlson get closer?

Whatever the case, there’s a lesson to be learned here. Value accrues over time. You may want to make a splash, but your fixed costs are often going to be much bigger than your monetization potential when you’re first starting out. And so, you have to be mindful of that. Your financial runway matters a lot. What’s obvious here is that The Messenger hired a massive team expecting it to translate into immediate success—that just isn’t how it works.

The next few weeks will be critical for the brand. My money is on the Axios-reported deal happening simply because it gives them runway. Otherwise? The days are numbered.

How do you optimize your editorial workflow for better content experiences? How can publishers protect their traffic in the age of SGE? What are the best tech tools for publishers?

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Creators carry key-person risks

There’s a good story in Semafor about the struggle the media company Will Smith and Jada Pinkett Smith own, Westbrook, has been having since The Slap. According to the story:

In fact, the Smiths sat in the front row at the Dolby Theater on March 27, 2022, as the proprietors of a promising new business: Westbrook was on track to generate some $170 million in revenue from various entertainment production deals, including with the show Bel-Air, the movie King Richard, and a variety of series for Disney+, Apple TV, Snapchat, Netflix and Hulu.

Two sources with knowledge of the company’s recent financial situation told Semafor that since the incident in March 2022, Westbrook has struggled to land major deals with the streamers and other entertainment giants, forcing it to make steep cuts.

Revenue dipped last year to $100 million, Semafor has learned, forcing the company to lay off half of its employees, including much of the staff it brought on in 2021. Many of its partners also decided not to renew their existing deals with Westbrook.

Let’s just be clear… everyone in streaming struggled last year. Everyone in media struggled last year. It is what it is. But this does present an interesting risk tied to the whole concept of “creators as businesses.”

The argument has always been, “people like people.” And so, the creator economy was the belief that an audience would feel a much tighter connection to said creator, thus making it a stronger business. And yet, a creator is a key person. In other words, there’s massive key person risk—where one or a few people possess all the knowledge or skills—with creator businesses.

Take A Media Operator, for example. If I leave, AMO is dead. When I was at Morning Brew, anytime a writer left, we simply hired a new one. Did it suck in the short-term? Sure, for about six weeks. But then someone new joined and it was business as usual. Not for AMO, though.

Here’s the problem… key person risk weakens company value because there is fear that the key person could leave. Or that something could happen to the person. It’s why there is key person insurance, to cover a business if something catastrophic happened.

In the case of Westbrook, the unintended risk was that the key person would get on stage and slap a comedian, become persona non grata and, therefore, there’d be less money coming into the business.

In the case of a creator business, the only clear way around this is to introduce other voices. The creator may be the north star, but unless there are other people creating content and connecting with the audience, the business has a natural ceiling to its value. Barstool Sports had to do it and even there, founder Dave Portnoy is still the biggest voice.

I very much believe the creator economy works, but so long as it is directly tied to the individual, it’s not a great asset from an M&A perspective. And so, for creators that are thinking about one day selling, beginning the process of pivoting from a creator to a brand is a necessary step. And that step is hard. But it’s why I named this brand A Media Operator and not Jacob Talks About Media. And it’s why I am bringing on other voices. I want to build value.

Thanks for reading today’s AMO. If you have thoughts, hit reply or become an AMO Pro member to start receiving even more AMO. Your membership includes a second newsletter sent on Fridays, an invitation to the private AMO Slack, early bird access to upcoming events, and so much more. Have a great week and see you soon.