| |  | TOGETHER WITH |  | | Welcome, friends, to another Sunday Deep Dive. Before we roll up our sleeves and get into it, let’s spend a minute talking about every investor’s least favorite topic: Tax Leakage. This Sunday’s Deep Dive is brought to you in partnership with Caliber — The Wealth Development Company — which comes to the table with a powerful solution. Thanks to opportunity zones, a tax-preferred program that was passed into law in 2017, investors can tap into the power of compounding (also referred to by Einstein as the "eighth wonder of the world") and pay no tax on additional gains. If you’ve got capital gains of $50K or more — whether it’s from selling a business, stocks, crypto, property, or other investments — Caliber can help you put your gains back to work. They have put together a special guide to help you cash in on the substantial perks. Learn how to unlock tax advantages AND the power of compounding on your capital gains. Okay, let’s get to it. | |  | | The Downfall of News, Explained
Three decades ago, the news lived mostly on paper. Today, as you’re well aware while staring at your screen this very moment, it lives online.
The shift to the digital age blew a hole in just about every news-media revenue stream. The revolution in free online news sent the number of paying subscribers to news publications into a twenty-year tailspin, while the emergence of the most sophisticated tech companies in history — Facebook, Google, and Amazon — saw Silicon Valley conquer the digital ad industry, sending news media into an existential (and fiscal) black hole.
Which brings us to today. The story of news media is the story of the 21st century, of the internet changing everything about how we consume information. The news industry, which initially struggled to adapt to the new modus operandi, is fighting a battle where its chief competitors, the internet overlords from Silicon Valley, get to play referee, changing the rules of the game as it’s being played via algorithmic changes tiny and titanic.
That’s what we’ll be looking at in today’s deep dive — the state of play in media today. How’s that for clickbait?
They Might Be Giants
It is hard to overstate just how devastating the emergence of the internet, and Silicon Valley’s dominance of it, has been for the bottom line of the news business.
|  | Google, Facebook, and Amazon amassed vast repositories of user data, which enabled them to sell ads targeted with the sort of laser precision the sales departments of news publications could only dream of. The new rulers of the internet thus effectively conquered the digital ad market at the expense of news ad revenues: - Last year, digital ad revenue in the US jumped 35% to $189 billion, according to a report from the Interactive Advertising Bureau. Google, Amazon, and Facebook parent Meta took home 64% of the pot.
- In 2020, the US newspaper industry made just $9.6 billion in total advertising revenue, according to Pew Research, compared to $50 billion in 2005. That’s over 80% of a critical revenue source gone in 15 years.
Under these conditions, news publications have endured a period of desperate cost-cutting for survival. The number of newsroom employees in the US fell from 71,000 to 35,000 between 2008 to 2019, according to Pew Research, and another 6,150 news workers were laid off during the pandemic period from March 2020 to August 2021. From 2004 to 2019, 2,100 US newspapers went out of business. Blame Facebook: Even newsrooms designed with the digital landscape top-of-mind have struggled to perform consistently. Vice, BuzzFeed, Vox, and other digitally minded, paywall-free companies have made valiant efforts to publish quality news that anyone can read. BuzzFeed’s Pulitzer Prize-winning news division is undergoing significant cuts after its parent company went public via SPAC merger and watched its stock plummet. Vice’s own SPAC merger fell apart last year after its financials underwhelmed investors — in August, the union representing the company’s employees called layoffs a “macabre annual ritual.” Leaders at both companies place part of the blame for dented bottom lines on Facebook’s shifting algorithms. In 2018, the social network slashed the amount of news content in users’ home feeds and a year later paid a $40 million fine for overstating video advertising metrics, which led publishers to spend millions to “pivot to video” in pursuit of an audience that didn’t exist. The Atlantic counted at least 350 people at national media companies laid off from 2016 to 2018 due to Facebook algorithm changes (thousands of jobs were lost at local papers in the same period). The Turnaround The hope, of course, is that when one page ends, another begins. It’s no news that finding sustainable revenue has been a struggle, but there are signs that some companies are on the cusp of a sustainable digital future. Take the 170-year-old New York Times, possibly the best example of a legacy media organization charting a profitable course. Since 2012, The Times slowly began turning its back on the era of free news, reducing the number of free articles it offers to non-subscribers. Digital subscriptions now drive the paper’s business, and asking readers to pay up has paid dividends: - The Times had 7.6 million cumulative digital and print subscribers, including 6.8 million digital subscribers, as of year-end 2021 — up from 1.6 million digital subscriptions in 2016.
- The Times’ parent company has also branched out into subscriber verticals covering cooking, games, and sports (it bought sports site The Athletic for $550 million in January, along with its 1.2 million subscribers).
Other major legacy outlets — the Jeff Bezos-owned Washington Post and News Corp’s The Wall Street Journal — have also doubled down on digital paywalls, drawing 3 million and 2.5 million digital subscribers, respectively. The Post’s subscriber base has tripled since 2016. Longtime Listener, First-Time Monetizer With the decline in traditional advertising, podcasting has become a white knight in the quest to find new media revenues. It represents the hope of a new horizon for many, with big-name successes like the NYT’s The Daily drawing 2 million listeners per week and crossing over to syndication on 250 public radio stations. |  | In a recent Reuters survey of newsroom leaders, 80% said their outlets will invest more in audio, and it’s easy to see why. Podcasts and audio streaming are the fastest-growing digital ad revenue segment, surpassing streaming video, social media, search, and display-advertising growth. Last year, the segment grew 58% to $4.9 billion. Spotify, the world’s largest music-streaming company, got in on the rush by snapping up podcasting media outlets Gimlet Studios and The Ringer for $230 million and $200 million, respectively. Check Your Inbox A new prong in monetizing the digital content world is increasingly popular among publishers: newsletters (hello, hello). While media organizations once used the format as a means to simply push web content to readers, in recent years newsletters have been transformed by plucky new upstarts into inbox-native products: - Axios counts 2.2 million subscribers across its national and city-focused newsletters, and expects $100 million in revenue this year, according to a recent NYT report. One leg of the company, Axios HQ, creates a newsletter-formatting software for corporate clients, and generated $3 million from 210 customers in 2021.
- In November 2021, newsletter platform Substack said 1 million people were paying for subscriptions to writers publishing on its platform. Many of its biggest stars, like former New York Magazine writer Andrew Sullivan and Vox co-founder Matt Yglesias, left legacy media organizations.
Of particular note is that newsletters, because they provide a direct line to readers, offer promise in a coming world without third-party cookies. The tracking tools that are a cornerstone of digital advertising on the web are set to be phased out by Google next year. Even news-agnostic tech companies have seen the value of being in the newsletter business. Twitter bought Dutch newsletter company Revue last year, while Facebook has launched its own platform, Bulletin, to try and counter Substack’s rise. |  | Companies to Watch After slumping by more than half, from $3.3 billion in 2006 to $1.5 billion in 2016, The New York Times Company's revenue grew to $2 billion last year. The company also brought in $220 million in net income, the most in over 15 years, validating its subscription-led strategy. Rupert Murdoch’s News Corp saw its revenue jump 13% year-over-year in its most recent earnings report and said its flagship Wall Street Journal had a nearly 20% jump in digital subscribers. Gannett is the largest newspaper chain in America by daily subscriptions, but what this really means is that it owns an extensive collection of struggling local publications. Even after it put USA Today behind a paywall in April 2021, Gannett shares are down about 14%. Buzzfeed’s stock is down 50% since its SPAC merger in early December. Execs thought going public would let them scale the advertising business through acquisitions, but that will prove difficult after the company raised significantly less money from the merger than expected. Takeaway: Outlets like The Times and WSJ have succeeded in part by investing in their newsrooms and creating a product with national appeal — and, crucially, it's a product loyal audiences are willing to pay for. Both outlets have also successfully tapped revenue streams across multiple mediums. Finally, some news the news can use. ***** A message from our sponsor: What To Do With Your Capital Gains of $50K or More... Did you know, there are now extremely attractive ways of reinvesting your capital gains and putting them to work, while legally giving the tax man a rain check for several years. There’s a valuable incentive from our friends at the IRS designed to encourage private investment into the economic development of typically underserved areas of the USA. So, how familiar are you with Qualified Opportunity Zones? If your answer is “very,” then you know just how powerful they can be when it comes to after-tax returns. If not, well, you’re in luck — because this guide from Caliber has everything you need. Get access to “ The Accredited Investor’s Guide to Qualified Opportunity Zone Investing” right here. Caliber’s guide will show you how to cash in on substantial perks (like tax deferral until 2027 on certain capital gains, and avoiding taxation completely on growth above your original investment) — and help you navigate the pros, cons, myths, and misconceptions of opportunity zones. Grab the guide today at no cost and learn how to capitalize before key deadlines expire. | | | | | | Written by Brian Boyle. | | No longer want to receive these emails? Unsubscribe here. Copyright © 2022 The Daily Upside, LLC., All rights reserved. 1230 York Avenue, Box 154, New York, NY 10065 | | | | |
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