WTF Is a Vertically Integrated Media Co. and Why Would I Want One?By Sam Slaughter May 20th, 2015
If you’re one of those people that follow the ins and outs of the media world, you’ve probably heard the phrase “vertically integrated media company” tossed about a lot of late. And if you’re a person without an MBA or experience working in management consulting, you probably have a relatively tenuous grasp on what that means. Well, you’re in good company.
When I first started looking into this topic, an anonymous source led me to a well-known classic film called Miami Vice. To be clear, we’re talking about the Jamie Foxx/Colin Farrell/Michael Mann version—Don Johnson and Philip Michael Thomas were all about horizontal integration (hehehe). Anyway, Foxx and Farrell are talking to an informant about a Colombian criminal syndicate, and he tells them “they’re vertically integrated,” to which Foxx replies, “You mean they walk around with constant erections?”
Which actually is not what vertical integration within digital media is about—but it might as well be, given how much people seem to actually understand anything about the topic. Truth be told, the drug trafficking metaphor is actually pretty relevant to media companies.
A vertically integrated company not only assembles and sells a product, but also controls portions of the supply chain and sales. For media companies (and drug traffickers) that supply chain includes the creation, distribution, and monetization of content/drugs. A decent example of a vertically integrated media company last century might be a local newspaper, which owned printing presses, employed reporters and editors, and also controlled newstands and paperboys. In the drug trafficking world, this would be the poppy/coca fields, the refinery, and the corner dealers. If you prefer a more conventional case study, think the Ford Motor Company in the early 20th century, which not only owned dealerships and factories but also at one point even starting making its own steel.
What’s increasingly unclear—and here’s the news hook—is what that means for the digital media world.
It seems like every media company is trying to replicate this vertical integration model in some way—hence AOL’s acquisition by Verizon last week. Theoretically, it gives Verizon the content creation piece of the stack (Huffpo, Engadget, etc.) while also improving its distribution and monetization through AOL’s mobile and ad tech businesses. Our cell phones, the theory goes, are the new version of newsstands and the ad tech behind them are delivery trucks. That’s why Verizon is at such pains to call itself a media technology company now that it has acquired the Tim Armstrong collection.
The AOL/Verizon deal is just the most recent example of media companies trying to replicate the vertical integrated models of the past. Conde Nast and Hearst are desperate to get into the film, TV, and digital video businesses. Vice wants to take over CNN Headline News. BuzzFeed owns a motion picture studio. More channels to distribute content means more places to make money, more efficiencies, and (theoretically) a bigger moat against competitors.
But while publishers struggle to rebuild the vertically integrated business models of the past, one question worth asking is whether it’s really feasible in the internet era for a media company to own every (or even any) part of the supply chain.
Which brings me to Facebook Instant Articles, last week’s other giant story. In our drug trafficking metaphor, Facebook is a network of street dealers of unimaginable scale and efficiency—one that knows exactly what type of drug its users want and which corners they hang out on. Publishers are giving the product (content) to Facebook with the promise that revenue will be coming back, but that means giving up the distribution piece of the chain—in essence becoming less vertically integrated.
Whether that’s a good idea or not depends on a lot of factors, but one of them is whether you think scale truly is the way forward for publishers. Just because monetizing large audiences through advertising has been their business model for decades doesn’t mean its the right one. After all, there are advantages to being off the corner.Image by RG-vc