Ep7 - Group Nine's Ben Lerer on Breeding New Media Brands

Thrill List brand Lehrer started himself. He spoke with me in his capacity not just a CEO, but as managing partner of venture capital fund Lehrer Hippo. I think you learned a lot from our conversation about the current state of the digital media world and where it's heading next. So without further ado, here's Ben Lehrer. So I want to first start with where Group nine is, because it's been a year. Just talk about the formation of that

in the rational several years ago. Started to sort of pick my head up a little bit from building thrills and just say what else is sort of happening in media? What are the companies that were investing, what are the trends that we're seeing, And came to this thesis which was that we were going to be entering a period

of consolidation. And when you look back and sort of study the history of media, uh, we actually thought that what was happening in in digital media in many ways mirrored what happened thirty five years ago with cable, where you had sort of a new pipe get created and a bunch of brands emerge that were uh that went deep into specific verticals for specific audiences, um, you know, and and in in a in a decade you saw the launch of everything from ESPN, HBO two, CNN, MTV

and all these great big brands got built, but uh, it wasn't clear that they were going to be great big brands or big successful businesses in the early days where there was still lots of questions about the efficacy of cable and how big it was going to get blah blah blah, and so uh, I think what we saw happening in digital media was something similar, were you had a new set of pipes, really driven by social media,

where a whole new generation was consuming content. Differently, there was a bunch of startups that were creating uh, new brands that were speaking to various specific audiences just like the cable networks had done thirty five years earlier, and but they were operating independently, and there was lots of questions about how big they could get and the business model and the money that was existing at the platforms versus going directly to the the brands blah blah blah,

and and said, look, Thrillist is a cable network. It's one network, but we need more scale to really matter. We think consolidation is gonna be coming to every sort of layer of media. And obviously a huge number of moves have happened since we put these brands together. But through that sort of thesis, we I looked around, I said, if I was starting throw us again today, what brands? What would I want this company to look like? Who

would I sort of aspire to be? And very specifically, we we saw the Dodo and now This as two brands that I thought were being built in a really modern, really creative and thoughtful way, truly built natively for the social pipes. From day one, Dreaming in Video incredibly um intelligent about how they use data to influence the way that they thought about content creation. And when you say, by the way, Dreaming and Video you mean, Well, so I use the word dreaming in video because it doesn't

mean only creating content in video necessarily. I think about somebody who's bilingual, what language do they dream in? Um, what is the thing that they feel most comfortable doing? And so I believe that content there, every story should be told and whatever the best format is for the story.

And uh, but but I think for us, as we sort of think about what Group nine is, we want to be a company that dreams in video, that first thinks about telling stories and sight, sound and motion, but then totally acknowledging that there are amazing and really valuable ways to tell written stories and stories through all different types of formats. So that's what I mean by dreaming

and video. Got it. And in terms of this consolidated environment that you are putting together, this Group nine entity, in has it played out this past year both in

the marketplace and within Group nine as you thought it would? Yeah? So, I you know, I know it's sort of everyone's always doing the everything is great, We're crushing it version of entrepreneurship, and uh, the reality is, uh, everything has not played out exactly the way that I would have like sort of projected but the overarching story is, as far as I can tell, really best case scenario, we are operating

like one company. UM, It's taken a lot to get there and to figure out how these cultures work together and to figure out, you know, building a holding companies are really uh it's a tough thing because, um, these brands are different, and they stand for different things, and they have different workforces and uh, figuring out how to build a corporate entity that provides value to them but

allows them to be themselves is really difficult. And I think I underestimated how hard that was going to be, uh culturally and how hard it was going to be to build trust amongst the brands and to build a leadership team that was strong enough and and teams at the corporate layer that we're able to provide a level of service to the brands that would be greater uh then the brands would be able to provide for themselves.

And so building that infrastructure was really hard. UM. An incredible learning curve for me and for our leadership team over the last year. But I'm I can genuinely say we've done it. We've been we've you know, we've outpaced the market We've grown, uh, every in every which way from audience to influence to financially um in really spectacular ways. And yesterday was our new frontum, which is sort of a it's a good moment to take a little barometer.

It's like, you know, it's a it's a moment to take a temperature of where are we And you can think back to a year ago where we were at our new front and uh, we're we're in a really great place. I mean, you know, and that that doesn't mean it's easy, it's super hard. Well that's the thing.

I mean. You hear about companies like Vice and BuzzFeed and what they have gone through in terms of the challenges and monetization, and I compare that to this sort of blue sky version of hey where the new cable networks? And I don't know which end of the spectrum we're at right now. It feels like this is it's hard to imagine these businesses becoming the kind of success that cable was given where they're at right now. I fully

fully get that. I think that up the other side of the coin is when you go talk to people who work in the cable business US, it's not like they're sitting around feeling like they're on top of the world because they there's there's pressure coming from all sides right now. And so I don't believe that, uh, there's a straight line to just going and sort of usurping Cable and suddenly having a business that has, you know, net revenue margins like the beautiful model that Cable had

for the last generation. UM. I also don't think that the last generation Cable model exists for Cable. And I think that the real currency here is attention and obsession and building brands that matter. And so I'm a big believer actually in the intersection of the last generation media model and the new generation media model and sort of

where those things come together. And actually, when we created Group nine UH, we did so with a meaningful investment from Discovery, not only financial investment, but also apart partnership where the spirit of the partnership was to really help one another figure out how to UH thrive in this challenging environment. And we've made a lot of progress and I think learned a lot from one another, and as

time goes on, that partnership continues to strength. And really excited that they did the script deal as I think that creates more opportunity, more free cash flow, there, more uh ability to sort of take some risks and try some new things, as well as bringing some brands into the fold there that aligned with some of our brands really beautifully. And so just really thankful for that partnership.

And and you know, I would be lying to say that I know exactly what the future looks like, but it amazes me when a company like Discovery and this is there far from an anomaly, make significant investments in digital publishers given where things are right now. Is Discovery doing this but because you guys help them figure out the future? I think discoveries doing it because they're they're

really smart. They can see that how the business is working today is not indicative of how the business is going to work tomorrow, and that a younger audiences have very different behaviors, very different habits, very different interests. And to build a multi generational media company today means needing to have a deep understanding of all the screens and

distribution pipes that matter. And while we're still living in a world where we may be dealing with you know, digital dimes, ah, the pieces are moving and marketers are moving, and you know, there's a lot of there's a lot of structure around how media dollars transact. There's a lot of structure around how digital right now is wired around Facebook and Google and Amazon and dollars sort of going

through the pipes. It's really interesting if you look at the cable model, the dollars don't go through the pipes. The dollars go through the publishers, and digital has sort of been wired differently. And I do believe firmly that there is a much better and bigger business model for publishers who continue to focus on and take a long term view on the value of their relationships with platforms like Facebook and Snapchat and uh and Twitter and Instagram

and YouTube. So so here's the interesting thing about some of the relationships with these platforms, which is it is maddeningly slow. But if you were to take a pin and put it in the publisher business model with Facebook two years ago today, you would say, there's not a dollar coming from video. Facebook is not paying for any content there is. There's essentially no business model whatsoever. If you were to put a pin in a year ago, you would say, we're starting to monetize video a little bit.

We are still not really in a bus there's still not really buying any content or underwriting any content creation. But the revenue is exponentially bigger than it was a year ago. And if you were to do the same thing today, you would say Facebook is now starting to become a larger buyer of content. They've announced that there will be a buyer in the news category as well. Um with the stuff that Campbell Brown's running. They are

now testing pre roll. Facebook Watches is growing and there's a mid roll product that is not only available for publishers to monetize on backfield, but there's a handful of publishers who are actually able to sell their own inventory, of which we're one of. And do we feel that we were being fairly compensated for the value that we're creating on Facebook today? No? Do we feel like we're

better compensated than we were a year ago. Yes. Do we feel like we're having more engaged conversations and that there is a genuine desire to figure out how to

make this work for publishers. Yes, I'm a little bit of an anomaly because we are one of legitimately the one or two largest Facebook premium Facebook publishers that exists, and so the relationship that we have maybe on the absolute front end or the sort of the cutting edge of where uh Facebook is going to participate with publishers, and so we get to be partnering with them, and not only sort of we're we're the front of the spear, not the you know, the tip of the spear and

not the end of the spear, which is which is a good place to be, which is maybe why I have more confidence that we're going to get to where we get where we need to get to there. But

this is going to take a long time. And I actually think one of the issues that you've seen with digital media is as companies forecast growth in their business, they assume that changes are going to happen more quickly than they do, and they forecast revenue coming from these sources, by the way, really high margin revenue, because it's essentially against content that right now is being unmonetized, and that

when it doesn't show up, it really hurts. It's very painful when you expect a dollar from Facebook and the dollar doesn't show up because you made the content, so it just hits your bottom line, and so I think what we're being pretty smart about is ah is continuing to see growth against our distributed revenue, but also knowing that this is a medium and long term play and that to day the business model isn't knocking us out

of our seats. With that being said, we build big reach, we build big audience, is we build big influence, we build big brand. We're selling amazing, innovative, best in class branded content products. We're finding ways to create more scalability in those products. In the ways that we seamlessly are

able to repackage advertisers content and redistribute it. We're able to make um really smart decisions around the content that we create and distribute for advertisers based on all the data that we have around how audiences behave in the way that they respond to content. Um I I genuinely believe that there will be there is an more and more money to be made by publishers on these platforms.

Um I don't think we're going to get to the place that Rupert Murdoch would like us to get to and that a lot of people would like us to get to, where we're just going to get an affiliate fee but I do believe that there will be some version of an affiliate fee that will be paid out in a meritocracy where the brands that create the best content, create the most engagement will be able to share in

the wealth that Facebook creates. And I think it's because Facebook is a Facebook does what's best for Facebook, and I genuinely believe what's best for Facebook is creating an environment for premium publishers to thrive. So dealing with platforms has its challenges, but you're encouraged by progress from year to year in the recent years. Where does your pin go next? What do you what do you want to see happen in beyond? It's a really good question. I

think it's different for each platform. Um, what I'd like to see for Facebook is getting to the point where we share in newspeed revenue. Right now, they create interesting opportunities for sharing and revenue in sort of ancillary other locations. And because Facebook's audience is so enormous that money is not irrelevant, particularly to publishers with the scale that some of our brands have. That being said, I think we get to a point, or need to get to a

point where Facebook shares news feed revenue. It can be based on the quality of engagement that is created, certainly, um, but that's where we want to get to. I don't know if we'll get there in twenty or twenty nineteen. I honestly think it's in Facebook's best interest to do it immediately. UM. And I feel that I have a venue to actually have those conversations with folks at Facebook,

which I think is important. UM. At the you know, at the same time, there are there are different things and different progress that needs to be made on each

individual platform. UM. The place I would really ultimately like to get to, and where I believe we'll get in the not too distant future but probably not, is where a publisher like Group nine has the ability to sell transactional advertising across all of our social channels, and so where a brand could come to us and we could sell them pre role or mid role across our Facebook, YouTube, Twitter, Instagram,

and Snapchat channels. And right now we can sell snap we can sell as part of a beta Facebook Watch mid role, not pre role. We can sell YouTube, Um, there's no monetization to speak of it Instagram yet, um, and that will be coming. And we can't sell Twitter yet. But I believe that that will be coming. As recently as this week it was rumored that it was coming soon.

And um, we think that the Twitter folks are super smart and engaged and asking all the right questions and so getting to the point where you start to have the ability to turn brand on at scale across your premium content on all of these channels starts to feel more like TV. And I think that's the future that we're coming towards. And I think the smart, big traditional

media companies can see a world where that happens. And if they're not set up for it, and if they're not making investments in partnerships and acquisitions in the best digital publishers, it's going to be really, really unpleasant for them because they're going to have let the massive advantage that they have slip away. And that's one of the things that I one of the reasons I think Discovery is so smart that David is not waiting for Yeah, is David as Love is not waiting for the the

sort of the other shoe to drop. He's seeing where the future is going. Um, and you know, he's a We're we're really lucky to be in business with him. Well, what I'm wondering about is you talk about the monetization opportunities these platforms. Is are you also going to David's as Love, the CEO of Discovery, and saying, hey, I need to sell my shows to television. That's where the real money is. June nine, we launch a show called

Dodo Heroes on Animal Planet. UM so one of our brands, the Dodo um we'll be launching a full season of linear TV globally in three and sixty million homes in partnership with Animal Planet. Will also be launching it digitally across all of the Dodo's channels in different formats. But I think that is part of the future. Uh So, you know, I'm not one of these people who says digital is everything. Linear is dead. It's a little bit like some of the director consumer retail startups five years ago.

It's like Director consumers everything. We would never sell our product through a third party. And then you get to a point whe're like, hey, you know a lot of people still go to Walmart. Like there there's some version of linear TV still exists. Those companies are not just going to roll over and die. The idea that we would uh forsake those platforms actually is a little bit, uh would be hypocritical of our real philosophy, which is to superserve audiences, go to them, go to wherever big

audiences live. And even though TV audiences are in decline, who are we kidding, there's still lots of people watching linear television, and so we're I want to be everywhere. I want to be on all these platforms. I want to build big brands that you trip over that our household names. And part of building brands like that means not turning your nose up at at linear television. And so we're going to be pitching more and more programs

like that. Yesterday we announced at our new front program that we're creating between Seeker and Discovery called The Swim, where we're gonna be following an amazing guy who's going to be the first person to swim across the Pacific Ocean. He leaves next month, and that's a that's a program that is going to live across linear and digital channels, I think in a really innovative new way. UM So I'm all for sort of testing and trying all these

different formats as long as we're making great stuff. Is

it easy? Given each platform has its own different creative nuances programming in a way where something makes sense on Snapchat and Twitter and TV because it does feel like more and more, particularly Snapchat where I think you've got a new venture going with the now this brand and doing a breaking news Uh to talk about how that works well, So all the platforms are different, uh, and they they sort of reward and incentivized content for driving

different kinds of behaviors. And obviously you know, everything from vertical video to sixteen by nine like there are there's also technical differences in the content. Uh. I think the strength of Group nine is a really nuanced understanding of those different platforms and of the sort of the best practices and the ways to be innovative on one platform versus another. That being said, really compelling stories have a home on all of them. And so you know, let's

use the swim as an example. It's an amazing story. We're doing a bunch of scientific experiments, or about the health of sharks, the health of phytoplankton, what the radioactive spill in Japan has done to the oceans around there, and how far it's had impacted the sea studying the physical and mental health of the guy swimming, looking at the great garbage patch, all of these interesting studies. There's

so much content that comes out of this. Will be telling stories on staff Chat that will feel totally native to and relevant for Snapchat and will be something that our audiences there will get to uh to experience and will tell a totally different version of that story in Facebook through live updates from the boat. But we'll also create a Facebook Watch show where we'll do like more in depth episodes studying specific themes that are happening in

the boat. Those episodes may also be able to live in that exact format or a slightly different format on YouTube, which may not work at all for how we want to go and create a listicle on the website about the ten scariest things that he encountered this week. So I think the point is great stories live in a bunch of different way formats and versions and will be

packaged differently for different platforms. But as long as the core is a great story, there are there is life across all these places, and so I don't think that you have I think that there is. There's sort of two schools of thought and neither of them are quite right. One of them is every piece of content you make lives everywhere, and you just think of them as pipes and you make it one place and you distribute it everywhere else. That would be really nice. It's just simply

not the way it works. You see that problem sort of most being most pervasive for marketers. So a brand, they still make a TV spot and then they're like, cool, let's jam that spot into YouTube, jamming into Facebook, jam and jammin and jammin and cut the TV spot to six seconds, and it's like, no, it's the TV spot wasn't made Like the TV spot not made for Snapchat.

Stop doing that. That's never going to work. So you have that school of thought, and then you have another, which is every single thing has to be so incredibly bespoke to each platform that you can never tell the same story anywhere. And then the cost of content creation are two owners to really build a business on, and so figuring out the nuances of how to how to get the most bang for the buck and get the most out of each story that you want to tell

is something that we're maniacally focused on. Building a lot of technology around UH being able to track and understand the value of i P. So, if we have a story, how much value are we able to extract from that story across all of these different platforms. What's our cost in to create and what's our cost out to monitor? What's our revenue out from a monetization perspective, And so that's a big focus for us, is sort of starting to track the value of i P. It's something that

TV companies did really well forever. It's something that digital companies never have thought about. Uh. I would actually say probably the digital company that has done the best job of this is probably Complex. I think that they've they've done a nice job of picking some shows, really leaning

into them, making the multi platform. A lot of respect for what they've done on the i P developments side, and I think that it's something that we're leaning really hard into and we're gonna get very sophisticated about quite quickly. One last question, take your Group nine hat off, put your Laryer hippo hat on. Are you finding in this climate tough as it is that you're you're you're seeing

investment opportunities and media still? Yeah, absolutely, I think we've made in the last you know, year two a handful of really exciting investments. We invested in a company called Bratt, which is Rob Fishman's uh, I guess not so new now, probably about a year and a whole year and a half old company focused on UM young young young sort of teen and preteen girls, UM, doing really interesting cool stuff around scripted uh shows obviously digital first that that

he's having a lot of success with. We're really excited about. Another one's crypt t V, which is a a horror company where they seed sort of create and seed characters and and and build communities around them in social and then go and take that I P and bring it to new screens. Really clever. Uh, great founder Jack Davis doing cool stuff there. Um, there are there are not it is. Our bar is very high. Uh. You know,

we've we've done it. We've done well investing in media and have been uh we've been successful doing it, and I think we have a good sense of what's happening in the market. But there are still super innovative, interesting companies being launched. There's not a lot of money for them, so part of it is there there are never that many vcs interested in funding media, no matter what the environment. It's just not a category that typically lends itself very

well to venture capital and so uh in. As a result, there's less ideas because there's less people going into categories where you can't really raise money. But there are certainly breakout companies that are emerging that we're incredibly excited about, and um, you know, I'm just a believer in there's there's no such thing as a time when there's not

going to be new, innovative, cool stuff happening. There's just too many clever, weird people in the world that you're always gonna have no ideas well, it sounds like a good optimistic note to end on. Thanks for talking to Thank you so much for having me, Thanks for tuning into another episode of Strictly Business. Make sure you subscribe for all future episodes in tune in next week when we'll be back with Playground Entertainment CEO Colin Calendar.