DEEP DIVE

The Creator-Company Paradox

Not so long ago, content creators were simply employees at media companies, i.e. journalists, reporters, marketers, etc. 

They were there not because they wanted to work for a media company, but because they simply had no choice — it was the only way to do what they loved while making a living wage. 

The onset of The Creator Economy changed that.

Thanks to platforms and tools like Substack, Canva, and Patreon, more creators than ever are able to strike out on their own. These tools have given creators the ability to manage, operate, and monetize their content with ease. 

And this has led to what I call the Creator-Company Paradox:

• Creators seek employment with a media company because they need and/or want the resources, capital, and support it provides, but… 
• Many of the best creators strike out on their own because they feel undervalued by those companies — and, often, have ambitions to build their own personal brand.

Frequently, it’s a lose-lose. Media companies lose the talent that makes them great, while most creators struggle to really make it on their own.
 

The graduation of 10X creators

If SaaS companies need 10X engineers, then media companies need 10X creators. These creators lower CAC and increase LTV — as well as just about every other major KPI of a media company.

In 2018, Jarrod Dicker wrote one of the most thought-provoking pieces in recent memory, The Next Media Opportunity: Talent, Reputation and Lessons from Record Labels. He argued that media companies should act like record labels, saying that “your business model is your product strategy”. 

At that time, many media companies brushed off the need to change their business model…. but since then, there’s been an exodus of “10x creators” from the most-circulated publications, like Barstool, Tech Crunch, Morning Brew, and others. 

In short, media companies are experiencing a graduation problem. Once creators “get big”, they don’t stick with the team — they strike out on their own.

Why? Because they haven’t adapted to Jarrod’s “record label” model.

Instead, most media co’s business models rely on undiscovered talent. They hire great creators when they’re early in their careers, build them up — and then, as the publisher becomes bigger and better, they replace them with undiscovered talent to maintain the status quo (i.e. lower salaries). 

These media co’s use the margin they save on creators to build out other lines of revenue or diversify into less profitable channels. This is particularly true with newsletter businesses. They play a qty not qlty game. 

Know who you are 

It’s time we start viewing ourselves as one of two things: (1) a talent center or (2) a distribution center. 

The reality is, you can’t be both. 

The choice is a difference in philosophy. Do you believe a media company needs top talent to sustain success? If yes, build for a talent center. If not, build a distribution center. 

Talent-centered companies will attract the best and brightest creators for long periods of time but will have smaller margins on their core media business (example: advertising). They’ll put the creator — and their success — at the center of their product strategy. This will open opportunities to more easily diversify into consumer revenue streams. 

Distribution centers will cycle through undiscovered creators that they find. They will arbitrage the salary of creators for as long as they can. They will build the product strategy around the institution rather than the creator. They will focus on hiring the best operators. Their core drive of revenue will come from mass distribution and attention, with super healthy margins. 

There are pros and cons to both. The important thing? Decide which way you want to go, then build for that — don’t get lost trying to build for both.

Successful talent centers 

Axios, The Athletic, and a select group of others have proven that they can attract top talent and keep them on the payroll for a long period of time. What are some lessons?

Embrace individuality
Axios allows its content creators to be at the forefront of their IP. Here is a great example with Dan Primack’s Pro Rata newsletter. 

Fair pay with incentives of growth
The Athletic built a business model that was simple: attract the best talent from local newspapers by paying them more and giving them bonuses for growing subscribers. Even though the business is a bit shaky, I’d say they’re doing a lot better than newspapers. 

Listen to their needs
For most content creators, the thing they resent the most is being viewed as a COG. They want to be championed, they want their ambition enabled, they want balance in their life, they want creative freedom, they want extraordinary benefits, they want to own their IP. Every creator has different needs, but if you’re building a talent center, you need to listen to your creators and pull the levers that make them happiest. 

Look at DAOs 
This may seem crazy to some of you, but DAOs could be a great solution to attracting the best talent while creating enterprise value. Creators can earn their pay based on contributions, operators earn their pay based on performance, and it allows your readers/community to earn while they consume. It’s a win/win, but executives and founders have to be ready to cut their equity in half… at least. 

Don’t be stubborn

Jarrod Dicker was ahead of his time. He knew what was coming — and with the explosion of crypto, the exodus of creators will only accelerate. 

If you can’t tell, I’m a believer that the media company that can attract and retain the best creators will win. It’s not an easy thing to figure out, and the idea of creator rev share or giving up half your equity probably makes a lot of operators’ skin crawl. But it’s time to rethink how we structure media businesses so we can solve this Creator-Company Paradox.

Perpetual’s Perspective

Inside.com is raising on Republic

TLDR:  Inside.com, Jason Calancis’ media company, is raising another crowd funding round. The goal is set between $25K and $5M. Inside previously raised $2.7M via SeedInvest. As of the afternoon of 11/30, they’ve raised $14,050 on the platform between 46 investors. The valuation cap is $25M and the company crossed just over $1M in revenue last quarter.

Perpetual’s Perspective

I hate to be the guy that says this, but yikes. Inside.com was launched in 2016. Jason said he planned on launching 250 newsletters at the time, today they have 14. With revenue just crossing $1M a quarter, they’ve grown quite slowly, even with a spurt of growth the last couple of quarters. Only raising $14K in about 24 hours shows the power (or lack thereof) of their audience. For comparison, The Hustle raised more than $300K+ within 48 hours back in 2017 from their audience via SeedInvest. I think this is a last attempt to try and save the business by asking investors who don’t do diligence to invest. Whether they raise or not, I don’t see a promising future for this business.

The top solo investors on AngelList are all creators 

TLDR: It was recently announced that 7 of the top 20 investors on the fundraising platform AngelList are solo capitalists. Solo-capitalists are able to earn allocations in great deals by making quick investment decisions, offering founder-friendly terms, and providing a different set of services than what a founder might receive from a traditional VC firm. Almost all of the top solo capitalists built audiences by being a content creators first.

Perpetual’s Perspective

Moving VC money into the hands of content creators is a huge power shift. Think about this: In 2014, an “influencer” was paid a few grand for an Insta post. In 2020, the “influencer” launches their own product, but doesn’t have the expertise to scale. In 2023, the “influencer” will have invested in the top company in their space and used their influence to make millions with little to no work. Kobe proved this, Packy’s proving this, and this trend will only continue. My question: What happens to mediocre VC funds?

Netflix releases a new rating system

TLDR: In the past, Netflix has been criticized for how they report on their streaming numbers and data (i.e. delayed reporting, biased measurements). Now, they’re reporting weekly numbers by how many hours a program is watched and how many weeks it’s in the top 10. This isn’t the first time Hoffman and the crew released new viewership metrics, but this time around there’s a lot less grey area — and they’ve partnered with EY to verify metrics.

Perpetual’s Perspective

78% of consumers in the US are subscribed to a VOD service, a 25% increase in the last 5 years. With box office numbers trending the other way, this may be the best way to determine the blockbuster hits going forward. I also expect filmmakers will start to build compensation packages that will pay them an additional $ by the number of hours watched or weeks in the top 10.