The state of UK media startups – Mark Maddox and Kevin Sutherland of Vida Media highlight their challenges and opportunities
The last few years has witnessed a rationalisation in the UK media with the number of premium brands diminishing as a result of mergers and acquisitions.
At the same time the changing landscape has created opportunities for agile startups to establish themselves in niches that the bigger companies have chosen not to focus on.
Yet how do entrepreneurs take their company from a nice idea and a few thoughts on a spreadsheet through to a money-generating entity?
It is a question that is uppermost in the minds of Mark Maddox and Kevin Sutherland. A few years back the pair set up Vida Media to help nascent British media brands make the journey from startup to scaleup and beyond.
Here Mark and Kevin take a long look at UK media startups, highlighting both the challenges they face and the opportunities that are open to them. They look at the issues around funding, the myriad of monetisation options that gave emerged in recent years and pinpoint some of the niches that might yield the publishing powerhouses of the future.
What is Vida Media?
VIDA is a mix of advisory and growth partner for what we call Next Generation Media Brands, or NGMs – essentially content and community-powered businesses. We operate as a kind of incubator to startups and an accelerator to businesses that are ready to scale in the media, publishing and Direct to Consumer space.
These businesses are hugely diverse, from a b2b community for General Counsel to an online and print magazine produced by and for women of colour and non-binary people of colour.
What unites them is that they are community-builders, they are revenue-diverse from the get-go, they are multiplatform innovators and their growth often comes from serving underserved audiences – making them attractive M&A targets once they start to scale.
Why did you set the business up and what do you see as its key role?
We could see huge potential on the ‘supply side’ as the early movers in what’s now called the creator economy – and valued at over $100bn – started to mature, evolving from being personal-brand influencers to community-led SMEs. New tech platforms keep coming through to help these startups to grow their community and monetise their audience. But most of the investment was going to the tech – the distributors, or enablers – not the creators and businesses building the audiences and creating the value.
We saw a massive gap in funding and growth support for these ‘next-gen’ media businesses – a whole startup sector that needs support to grow.
And we could see corporate venture builders, publishers and media groups all looking at new and innovative ways to acquire brands, audiences and talent – e.g. Mailchimp’s acquisition of Courier in 2019, HubSpot buying The Hustle and Future’s acquisition of GoCompare last year.
So our mission became to build an ecosystem that allows these innovative new brands to flourish, giving media and other corporates access to talent and M&A deal flow with a new breed of investors participating along the way.
What would you say are the main challenges facing media startups at the moment?
They are absolutely brilliant at core community building and content creation. But they need help with audience development, commercial strategy & revenue development, product development and brand building in order to reach sustainable scale quickly enough to avoid ‘the valley of death.’ And here’s the rub; they often lack access to the capital and resources that would enable them to do this, because investors prioritise tech business models over media businesses thanks to lower valuations for the audience-based business models.
In fact, even the word ‘media’ can be a challenge.
The good news is that Next Gen Media business models are being reappraised because they are rich in first-party data and have massively engaged and intensely loyal communities of fans.
So from a commercial point of view these NGMs are a prime example of what LUMA Partners refers to (in their analysis of Commerce Media) as a ‘sales cylinder’ – a highly targeted audience with high purchase intent, trust and willingness to buy whether that’s DTC products from the brand itself, or from third parties.
Has Covid-19 been a positive or negative for those startups?
On balance, positive. For obvious reasons the Pandemic led to a significant and swift shift towards digital community experiences and gave many people more time to spend on their passions and interests. As a result we saw widespread growth in community and media startups, a growth in audience reach and engagement across the board, and increased subscription revenues. For instance, we work with one business who launched their membership proposition in Feb 2020 which now represents over 30% of their revenue.
And in contrast to the bigger, more mature media brands, NGMs are typically less reliant on advertising revenues so were less affected by the downturn in ad spend.
They are more likely to work with advertisers on brand partnerships and sponsorships and many of them used the time in lockdown to develop studio offerings – giving brands access to their audience, and creating authentic and engaging content and comms for distribution on both their channels and the advertisers’.
What does the investment landscape look like now as opposed to two years ago?
Most angel and seed money stopped flowing over the last couple of years, as you would expect but we are seeing more businesses looking to raise funds – perhaps benefiting from the fact they bootstrapped their venture during lockdown or have grown sufficiently to bring on growth funding.
However the big problem in the UK is there aren’t the same number of Private Equity or VCs and there isn’t the same willingness to invest in media ventures as we see in the US.
And it’s because the economics don’t add up for them – a tech startup might be valued at a multiple of 10x revenue where a media venture might only attract 1-2 x revenue, maybe higher if they have subscription or membership revenues.
But as we said earlier, we’re starting to see that change (and we’re helping to drive that change!) by building an ecosystem of Next Gen Media businesses that are powered by their communities and behave like D2C brands selling products, services as well as subscriptions and ads. These businesses need to be valued differently as they are a hybrid of audience, content, retail, membership, DTC, etc.
Looking further ahead we are starting to see the promise of Web 3.0 being realised in the creative economy; from creators retaining ownership of their IP via Non Fungible Tokens (NFTs) through to new opportunities for creative collaboration via Decentralised Autonomous Organisations (DAOs). And Decentralised Finance (DeFi) may just open up entirely new ways to raise investment and enable many more people to back Next Gen Media projects via tokens in the near future.
And if you were an entrepreneur given your knowledge which media sector would you be looking to launch into?
There’s a lot of interesting innovation in specific sectors; women’s sport, sustainable lifestyle, sustainable business, sustainable investment, food and lifestyle content for specific diets and health issues – e,g, Low carb / Keto, crypto investing.… but the answer to the question is that it could be any of these. Or rather, all of them, because really it’s all about the niche.
It’s never been easier to ‘find your tribe’ – whether you’re a creator, or someone looking for information, inspiration or belonging. Which means that with a diverse revenue model – especially one including subs revenues – a next-gen media startup doesn’t have to scale in the way that a traditional media business had to in order to be successful and sustainable. And this isn’t about limiting ambition (or investor returns). Looked at through a global lens, a niche operator can get pretty big.
Industry Dive is a great example of niche B2B publishing in action, launched in 2012 from scratch with a handful of newsletters, bootstrapped and building its audience from zero to over 11m across 25 titles, generating an estimated $80m this year.
As a sector we think B2B has huge underdeveloped next-gen media potential. In fact, we’ve even launched a B2B division called Volume that specialises in helping businesses develop content platforms and communities.
Are there any emerging monetisation strategies that you have seen being delivered by media startups? What do they see as the main route to monetisation for smaller media businesses? Is advertising still central?
In terms of emerging monetisation strategies we’re seeing a handful of smaller media businesses and startups in The US exploring crypto tokens as a way to generate income or raise investment – see The Tilt, Dirt, and Mirror. That might become more mainstream as and when the UX of Web 3.0 becomes more accessible and democratic.
Another future-facing trend is ‘media’ startups planning and positioning for a post-advertising future. For example, Juliet Warkentin, co-founder of MPowered Women, was a guest on a panel we hosted at The Publishing Show in September and she spoke about how they launched as a media proposition with a DTC income stream, but that the balance and focus had tipped so they are now primarily a product business built on content.
If anything, advertising revenue is relatively less important to smaller next-gen media businesses, but some of that is simply down to economics; they lack the scale, tech and resources to sell their brand and inventory in the traditional way.
However, the upside of being a niche operator or a specialist with a well targeted audience and highly targeted community is that brands will pay to partner with you to reach that audience and connect on a more meaningful level. So we’re seeing successful examples of startup media leveraging this to grow revenues from national brand partnerships – Crafty Counsel and Muddy Stilettos being two good examples.
And how do you feel about media startups launching agencies? Is this a sensible pivot, or do you think this shows a lack of ambition and confidence in the main product?
Based on the answer to the previous question, it’s not really a pivot and absolutely not evidence of a lack of ambition! It’s more a case of playing to their strengths.
Next Gen media startups have real, strong, meaningful connections with their audiences, and a community comes back time and time again for their content. It’s natural for third party brands to want to access that. And I’m not sure that these next gen media, or the brands they work with – or their audience for that matter – think about brand or sponsored content any differently from the ‘main product.’ That’s a pretty 20th century way of looking at things – we’ve moved on from ‘Church and State’ to something way more agnostic!
In fact, we work with a number of millenial/Gen Z startups and it is amazing to see how many of them are a blended mix of content creators, community builders and creative agency, running their business across audio, video and editorial from day one. Their reference points are social media, influencers, creators, not publishing or Big Media. So dealing directly with brands makes total sense to them, and vice versa.
What inspired the next generation media concept? And how will you develop this in the future?
When we were starting to scout, analyse and work with startup media brands we attended the launch of the IAB’s list of the top DTC brands in the UK – many of which were built on the holy trinity of content, community and commerce. And it occurred to us that a similar list of startup media brands would be useful to everyone with an interest in the space; startups, investors, advertisers – and VIDA…
And we knew there wasn’t anything out there already that consolidated and analysed the trends and businesses in the space. There are literally hundreds of tech startup lists, and a handful of influencer and blogger PR databases, but literally nothing for startup publishing and Next Gen Media. So we launched the idea at a live podcast recording at the start of 2020, then immediately went into lockdown. But we used the time to compile a really strong inaugural list for the 2020 Next Gen Media Brands report and the response was amazing from investors, corporate partners and media startups alike.
So we did it again in 2021 – with similar results – so now it’s an annual thing. (So do let us know if you, or a startup you know should be on the 2022 list which we’ll publish late springtime).
As for the future we’re planning on expanding in two ways. The first is to walk the walk and develop a true community for, with and about Next Gen Media startups, investors and partners.
And the second is to expand – we’re looking in particular at the activity in mainland Europe, where there’s a lot of interest and some investment in the startup media sectors. For example via corporate accelerators from the major media companies in Germany. And of course, the US, where there’s far greater access to capital for media, content and community startup ventures.
And which of the next generation brands do you think will shape the future?
Perhaps the most important, defining characteristic of a Next Gen Media brand is that they often serve underserved audiences. Black Ballad, Live Frankly, Thred, Delicate Rebellion, or This Girl is On Fire are all examples of community, content and next-gen media businesses launched by their founders because there was nothing out there that spoke directly to them.
So, black-owned business, mid-life media, ethical shopping, new ways of working, and saving the planet. These businesses are not just on a mission to shape the future, they are tapping into passionate audiences and untapped revenue opportunities and they are shaping a future that mainstream media hasn’t focused on so much, until now.
And we believe those Next Gen Media who are genuinely focused on growing their community to build their business will win in the longer term. A community-led strategy leads to stickier, more loyal audiences with an inbuilt, direct and clear feedback loop, high purchase intent and willingness to spend money with a brand they are not just personally invested in but actively participating and contributing to as well.
But we suspect that the next gen media brand that will really shape the future will come out of the experimentation and innovation in web 3.0 over the next year or so. Because the real opportunity here – and what we’re most excited by – isn’t actually the ‘tech’ but the potential for entirely new ways for people to interact, create, collaborate – and make money.
