Last week Internet content pioneer TheStreet.com announced layoffs. TheStreet.com competitor Business Insider was quoted as saying that it would “go over the names of people who were laid off, but it's easier to say who is staying.” While we hope those affected will bounce back sooner than later, the company’s recent past is a worthwhile case study.
(By way of disclosure, I should state that back in 2007 I met with some of the company’s senior brass to discuss a strategic partnership after CBS acquired Wallstrip --the nascent video content startup that covered stock market themes.)
TheStreet.com Paved the Path for Publishers
TheStreet.com has been around since 1997. Today the company boasts a market value of $72 million off $57 million in 2011 revenues (1.2X revenues).
What’s troubling, however, is that the company’s enterprise value (market cap plus debt less cash) is actually only $40 million (or 0.7X revenues). Indeed, as of December 31 2011, the company’s balance sheet carried $65 million in cash/short-term securities and $33 million in total liabilities.
The company is worth less than its revenues, arguably, because a) revenues are down from $70 million in 2008, and b) it lost $9 million in 2011, and ic) it faces a barrage of competitors big and small.
Lessons from TheStreet.com
Despite being a finance buff, I’ve never been a regular reader of the site, but I’ve always kept an eye on the company as an investor, executive and entrepreneur.
1 - Diversification of content verticals works. It’s smart to launch with one vertical, but over time, you need to go horizontal to really serve your readers and viewers. BusinessInsider launched with a business focus but today covers multiple verticals including entertainment, lifestyle, travel and sports.
2- Everyone is betting on video. To TheStreet.com’s credit, it’s not cutting back on video. According to the same Business Insider article, video reporter/analyst Debra Borchardt and video producer Gregg Greenberg will remain with the company. That’s no surprise, given how all publishers are focusing their attention -- and allocating their resources -- to video.
3 - Subscriptions and paywalls create opportunities for new competitors. The Web’s infrastructure is built, the platforms have emerged; we’re now filling the pipes with content -- free, ad-supported content.
TheStreet.com always mixed free content with subscriptions, leaving an opening for competitors, including BusinessInsider and also SeekingAlpha, the crowd-sourced community. Forbes also saw the threat and has added a SeekingAlpha-inspired base of outside contributors.
4- Finance is TOO timely. Finance is one of the most valuable verticals in both an absolute and relative sense: total advertising across the banking and financial services sector is amongst the largest, and CPMs are high -- allowing for publishers to create content profitably.
But the vast majority of finance and stock market information is too focused on immediate (and immediately disposal) news. Other verticals have a longer shelf life and thus, higher lifetime value. Content creation is expensive; you need to recoup the investment over a long payback period. With finance, it’s almost impossible.
5- Jim Cramer is too binary. One of the main drivers of success for content creators is (supposedly) to have big-name personalities leading the way. That is true to some extent to cut through the clutter, but studies and anecdotal evidence suggest that users care more about the information than the voice. As such, TheStreet.com’s mercurial founder Jim Cramer was a double-edged sword who turned off as many fans as he won over.
Despite what the critics say, I think he’s a priceless asset, but TheStreet.com failed to balance out Cramer with other voices.
6- Vertical is a winner-takes-all strategy. I’ve previously looked at the pros and cons of a vertical vs. horizontal strategy, and the fact remains, adopting a vertical strategy requires a winner-takes-all outcome to succeed. Not only did new competitors eat away at market share and mindshare, but larger horizontal players like Yahoo and MSN can boast larger finance verticals than TheStreet.com anyway -- so even then, TheStreet.com’s vertical focus was somewhat moot to marketers.
7- Costs matter. While its revenues probably tower over its competitors’, its legacy cost structure hampered it over time: TheStreet.com is spending $5 million per month. That’s a lot of money, to be sure.
8- Video is a disruptive innovation. I’ve long argued that video is a different beast than articles, and so long as a publisher’s core focus is text content, then videos will always be treated as a stepchild. I don’t watch too many videos from TheStreet.com, but considering how evergreen videos trump timely ones, TheStreet.com never stood a chance in this domain.
9- Past performance doesn’t guarantee future success. TheStreet.com has one of the strongest brands in the online world. With the right strategy it can come back as strong as some of the companies it covers.
10- Content can disrupt content, too. However, the big lesson for content executives is that content can sometimes be disrupted by other content, too, and not just solely by technology.