How Media Actually Makes Money | Blake Saunders

0:00A one-off media property, it's like hand-to-hand combat where you're selling ad sellers into the field effectively and having meetings and having to basically pitch and say, this is why you should advertise with this. What Google, Facebook, and all these platforms have is consumer attention. This is something that you want to beat the drum when you're looking at media companies. It's like, what's repeatable, programmable, and scalable? A media company can have 50 events, but it's taxing the team. It's really not generating that much contribution. So Bending Spoons went public a month and a half ago.

0:31Half of their business is AOL. They bought AOL for roughly four times EBITDA and now they're trading at like 16 times EBITDA. And that's like six months later. I think time kills deals. And like at three o 'clock in the morning, I've had lawyers decide that they wanna stop working. And I had to call everybody and wake them up and say, you're gonna get this done right now.

1:02is this thing on yesterday's price is not today's price

1:17welcome back to run the numbers my name is cj i'm a recovering tech cfo and today we are talking to my friend blake saunders blake is the founder and managing director at core advisors an investment banking firm that concentrates on the media industry. So I got my old CFO bat phone. Whenever I got a question about deals that are going down in media, how different things are monetized, Blake is the guy I pick up the phone and call or text. Honestly, I text him a lot because I hate when people leave voicemails. It's so annoying. Blake and I go deep into the different monetization models within tech.

1:48And we go back in time to say like, hey, how did some of these original newspapers start making money? And then trace that today with the creator economy and everything that's going on with podcast deals. We also talk about the value of IP libraries, and he takes us through some really cool deal experiences that he's had negotiating within the technology, media, and communications sector. If you are somewhere adjacent to ads, which I think we kind of all are, I mean, this whole AI CapEx boom is driven by ads, if you didn't know that, or media, you will really dig this episode. Stay tuned. Blake, welcome to the Run the Numbers podcast.

2:22Yeah, thanks for having me on. I always think that what I have in my brain is not that interesting, but people seem to like it. So you're like my media Sherpa, man. Like I'm a CFO out here in the wilderness, just trying to crawl through this whole media landscape. You've been in this game for like two decades now, explicitly focused on media. I'm at a small investment bank that I actually started last year, but I've been in media investment banking for over 15 years. And a lot of the things that create value in media are the same. They just sort of look different. And so I think where I can be helpful, we're helpful with our clients is just giving them good advice on like what actually works versus what's shiny and what everyone's talking about on LinkedIn.

3:01So you're both a banker, but you're also a founder because you founded the joint. I want to start off with a question here from our mutual friend, Matt Russell. I'm totally ripping off his question. But what does media mean to you, Blake? To me, it's the creation of content that's distributed to affect some sort of change. I was originally thinking to affect people, but I think more and more what you're seeing is people are realizing that they need to also impact the LLMs and these agents because consumers are B2B media. They're not actually engaging directly with the content, but they're allowing some technology layer to get the answer for them.

3:36And in terms of impacting or affecting people's change, it's monetization, people's perception of something, changing habits, things like that. So media is pervasive. It's effectively our attention being changed by something that we see or hear or interact with. Your answer did change a bit from when you were on his Business Breakdowns podcast on the Colossus Network. And it's interesting because in the last year, I've started to get both newsletter subscribers and podcast subscribers from ChatGPT, Perplexity, and Claude, which was not a thing six or 12 months ago. On an anecdotal and like specific level, the advertisers are demanding different things from media saying, I need you to help me show up in the search results.

4:21Or my CEO said, what is the best XYZ company? And we're not showing up. Like we will pay you whatever it takes to fix that. I think what's pretty wild, like obviously, you know, Google search results and showing up organically. There's been like a, you know, a tested method of getting backlinks and things like that. But these models are changing so quickly that people are having success, having the changing the results. But it's like this ever evolving landscape of how to impact what these machines are feeding back into the humans. And it's not fully there yet, right? Like if I look at mostly metrics, I probably get between 25 and 35 new subscribers a day that just come from SEO, from people finding.

4:59Like if you've written 500 articles, like a crazy person like me, you're just out there on the web. And I probably get one, two or three from these LLMs. so it lags further behind, but it is a net new channel for people to find me. Their corpus of knowledge and the way that they're using the signals to figure out what to surface in terms of links is similar to what Google and the other search engines do. So like a lot of the things that you're already doing, it's helping you surface it. And I think more and more as the engines get better, they'll have a bit better perspective of is this company just gaming the system by having their company mentioned across a bunch of top publishers, things like that.

5:33So there's so much demand, there's new agencies, There's all these things being stood up and grown really fast. And then also media companies themselves having to change their offerings to basically say, oh, we have this new thing called GEO, the AI clothing of SEO of like making sure you're showing up at the top of the LLMs. And then that continues to evolve because, and I'm noticing this in my day-to-day work is like the agent world is like taking up more and more of my share where I'm talking to them more than doing the direct work. And so I think, you know, as OpenAI releases this peripheral, that's like a way to engage with the world, be a voice, like they'll guide more and more of our daily direction.

6:14Let's talk about how media makes money, because as a CFO, any company I look at, Blake, I'm probably similar to you in this sense. My first question is, just tell me how this thing makes money. How does media make money today? And has it changed in any ways over the last 20 years? At the heart of it, it's effectively like monetizing your attention. There's an equity analyst that went into investing, Mary Meeker. She was at Kleiner Perkins, and now she has her own firm, Bond. And she would always put these really good slides together every year, which showed the intersection of attention and monetization.

6:47The reason why she started publishing this is she was showing how there needs to be a shift from traditional media, TV, newspapers, radio, all that, magazines, over to digital. Now that's completely happened, right? She would always show how newspapers had some attention, but their monetization was much higher. That was like 10 or 15 years ago. Now all that's moved over to digital. And so effectively what she's showing at a high level is this is the attention that the companies are getting in terms of people interacting with them. And this is how they're monetizing it. And Google and Meta are focused on advertising.

7:16They do allow some of their creators to have subscriptions and things like that. There are, for most media companies, there are other streams of ways to earn revenue, right? So you have advertising, people license, IP, there's events, and then there's also data. Is there a Maslow's hierarchy of monetization models here or some more valuable than others in your eyes? Yes, and I missed one. So one is subscription. So I think when you step back and you look at, and this can apply to any company, but I think this is something that you want to beat the drum when you're looking at media companies. It's like what's repeatable, programmable, and scalable?

7:52Because a lot of times everyone's talking about this proliferation of events. But unless you do it in like a repeatable, programmable, scalable way, a media company can have 50 events, but it's taxing the team. It's really not generating that much contribution. So the one where you see companies getting higher public multiples and larger multiples in transactions is subscriptions, right? On the consumer side, if you have someone's credit card and you can charge them on a monthly or annual basis, and you can sort of run a couple of models and figure out how much it costs to acquire a customer and how long you can retain them, I think that's a pretty valuable revenue stream.

8:28Depending on the media company, advertising is usually the most significant part. And people look at like, how long have the advertisers been around? Sort of how do they like the product? Things like that. I think that the one at the bottom is probably the events, right? Because every year you have to kind of reinvent yourself and show up and make sure that people want to show up to either buy tickets, have advertisers come, things like that. This is so fascinating because if I think about it from the sponsor's perspective, events are actually the most valuable to them because you have that warm body in a room, right?

8:59Like that is completely attributable. Sometimes companies allocate money to events and they don't send the right people to activate the revenue. So it really depends on what is the format of the event? How is the brand being shown? I think sometimes it can be a bit of a black box where a big media brand is charging 50 or$75 ,000 for a dinner and it really doesn't yield results. So I I think it's all up to the brands and their agencies to make sure that the events yield to positive results. Part of the reason why it's easier to get programmatic advertising or other campaigns that are trackable is like it can be tied to like here is the exact ROAS on that ad buy if you're going to try to impact some sort of change.

9:39On events, it can be a little bit more sort of pie in the sky of like, oh, yes, we touched that person at that event and then we followed up with them. And then six months later, he converted or she converted. Do you think the stack ranking is any different if you're talking about it from a B2C angle versus B2B? And the example I would give is say you have a valuable B2B audience, asking for a friend here, it may be easier and a higher ticket size and less deals you have to do to go the advertising route because their attention is so valuable and you can essentially make the content free for them to consume versus how much you could get from that person if they were putting it on a personal credit card.

10:17And the good news people have corporate credit cards, right? I think it's similar, like, because, again, it goes back to the repeatable, programmable, scalable. I think that subscriptions are seen as like a much steadier form of revenue that can be scaled over time. And you should have a model that says, you know, for every dollar we put in, we get$3 out. I think the part that's really starting to change is the data layer. You're starting to see certain consumer media businesses and just consumer businesses in general, like some of these apps that have data that's valuable in the context of applying it to getting brands to spend more, but also data to feed into LLMs.

10:55And so people are bumping into like hidden gems where they're like, oh, wow, this data that we've been recording through this app, calorie trackers, like all these things. It basically changes the complete perspective of the company. But I think it's pretty similar across B2B, B2C. I think the nuances in the B2B space, the events, like the conferences can drive a lot more revenue because brands have an ability to spend like for an exhibition and all these things and make it like a real revenue opportunity where on the consumer media side, there are large events, but it's primarily driven by advertising.

11:29Our friend Brian Morrissey, there's this song, OPP by Naughty by Nature. I won't tell people what the acronym stands for, but he's like, you know what's better than that? OPM, other people's money. Ticketed events on the consumer side are getting up there. And obviously for sports, they can charge whatever. But from an oral media company, they're typically doing events activated with sponsors. And if there is picketing, it's purely to make sure people come. I got news for you. The ERP category is finally getting disrupted. And if you haven't heard of it yet, please pay attention. It's the AI native ERP built specifically to replace NetSuite.

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14:47what Google, Facebook, and all these platforms have is consumer attention. They've made their products so addicting that advertisers, if they don't advertise with them, they're not going to get in front of the people. The valuable thing about Google is if one advertiser gets mad and decides not to spend the most, then the next person is just right behind them in line to get to that person. It's a little bit scary and dystopian, but they keep telling brands and advertisers, like, just give us all of your data and we'll help you find customers wherever they exist. I think the only problem with that is these platforms start to learn how much money you're making.

15:22Their motivation is to increase their revenue and profitability quarter over quarter. And so you start to see an instance where the cost of acquiring consumers goes up. It's a natural economic phenomenon to do that where each incremental person should cost more, right? Unless you're like hyper-efficient, but they're geared towards ingesting all this data, which I get it makes sense, right? And the more they know how a consumer participates in like a transaction funnel after the click, it will help them spin up a better model to go track down these people and find them wherever they exist on Google or Meta or whatever.

15:55But it does start to lead to a place where they know how much they can move up their rates, where it stops becoming profitable to you. And they should be pushed as a business, like economically minded, they should push it up as high as they can. There is some efficient frontier there to be found, but it's the most beautiful business model in the world in a sense. that you get your own customers to increase the prices so you're not the bad guy. We leverage these tools and it's on the attention side where you're getting some enjoyment on Instagram or Facebook, things like that. You kind of keep leaning into it just because they're addictive and there's engagement there.

16:30And then Google has these utility layers too where everyone just uses Gmail, right? And it provides such strong signal data that they can use for their advertising products. I've heard you say that one of the great economics of Facebook and Instagram is that users create the content for free. And once you see that, it's kind of impossible to unsee. They don't have this Hollywood studio, right? They don't have to fund the production. How much of social media's business model do you think comes down to simply not paying for premium content? they're so profitable i mean you see youtube they're seeding premium content and then the rest of the ecosystem is sort of catching up even though they're not necessarily getting paid by youtube to make the content they're making enough money and getting enough scale that these live streaming kids that are like in their 20s are running around with these backpacks that connect them to the cell towers like and so they don't their signal never drops and like those backpacks aren't cheap they've all tried and they've all had programs to do premium video to sort of kick off the production.

17:28What makes these platforms addictive is like there's a kind of parasocial relationship with new creators, but also in your friends and family. So they're basically just stealing attention that you will probably just have by talking to your friends or hanging out with them. And then the premium stuff, like the people that are creating that are getting paid enough by advertisers and brands. So could they fund more? Probably. And you see YouTube's like really leaning in to either put some money in or provide the tools and resources to allow these creators that are putting their own money in to get more advertiser demand, things like that.

17:58I was at Providence Equity Partners back in the day, and I remember we'd made this investment in Hulu. And I often think about Hulu in its original state where it was a subscription, but still had ads as like, holy crap, how are they doing both of these things? They didn't just choose one path. Am I overthinking this, that there can be a path where you're over monetizing your audience? Or is that just like being creative in the way in much you do it. You could charge too much. I think one of the fallacies in media, and this goes back to newspapers, is like consumers have actually never paid the full cost of the product.

18:31And it actually ties back to like your social media question of like, could the platforms fund content or not? So when newspapers were in their heyday, and this is like my big knock on Substack, now they've turned on advertising, but consumers have never paid that much for the content they receive. They actually get more value back. And so when newspapers are like really strong, Consumers were only paying, of the total revenue breakdown, it was like 15 % to 25 % of a newspaper's total revenue was subscription. This is before the internet, when these newspapers were throwing off a ton of cash. They were making money from advertising, classifieds, all these other different lines of business.

19:05And so when you give the example of Hulu or you look at what Netflix is doing with advertising in order to make a really viable product is like you have to earn out the advertising in order to deliver what consumers expect from the perspective of the value of the content, because we have always underpaid for content. I think with the digital platforms is they've just basically short circuited our brains and figured out how to make things highly addictive with short form content. I don't know what your YouTube feed is, but mine is like car chasing. It's like the most random stuff that is figured out that I want to watch.

19:40It's basically like half of that is just pulling police footage and cutting it up and someone recording something over it. So back to your question on Hulu. Yeah, like I think they had at the beginning a couple of different packages. and you're just weaving in what's needed to basically support the platform and the content rights and things like that, moderating between what consumers are willing to pay out of their pocket and then how much attention they're willing to give to advertising. If I use an example, and maybe I'm tapping into what's socially acceptable here, let's say a newsletter where the profit margins are like whatever you pay, Stripe, basically.

20:14Something feels off about putting an ad and also paywalling it. I don't know. Maybe it's just me overreacting. I mean, done right. Ad shouldn't be that distracting. It should be something that delivers some value. I think what's hard on like a video is it's like a 30 second or 60 second window. And you've seen people play around with putting ads in the content like, hey, you know, you see this product, you want to link to it. But I think like the commercial component you're talking about, especially like on a Hulu where you like watch the countdown. But then you look at the Super Bowl and everyone wants to watch the commercials.

20:46So it's a mix. Blake, earlier you mentioned the cash flow generation potential of a lot of these media businesses. What's been the arc of media businesses being built to be cash flowing machines meant to hold over time, something like a Condé Nast or being built to sell? Just remember like the internet took a sledgehammer to media monetization and like consumer attention, right? So before it became what it is today, which is like, you know, mid to late 90s, these businesses starting with newspapers and that's where like the purse and the condé Nast and a bunch of other families control large portfolio of newspapers that then turned into radio and TV just threw off gobs of money.

21:25And like the EBITDA margins were 20 to 40%, 20 to 35%. And what was great is like, if you owned a TV station in the market, there were a couple competitors, right? There's only four major affiliates. So it took a lot to like mess that business up because there wasn't like another, a fifth TV station coming in. But as soon as the internet came along, you basically had a competitor. And we can just give the example of local advertisers that didn't have to abide by any rules because like TV owners couldn't own for a long time more than one station in the market. So there was always a diversity of voices and who would get the advertisers, or you couldn't own the newspaper and the radio station.

22:05There was all these rules around that. But Google came in and said, we're more efficient for that local auto mechanic about getting you a customer, right? And so that some businesses just completely blew up. So like Yellow Page is gone. For the family owners, and Hearst has done a magnificent job. Condé has other holdings at the family level of just diversifying their business because they saw what was coming. And they did it a long time ago. And so Hearst has B2B investments. They've really broadened their aperture of what they invest and grow and scale. And because as capital allocators they saw, if we buy more TV stations, it's probably not a good use of our money.

22:40Where else? What other businesses are interesting to deploy money besides just handing it back to the family? I come from the tech world where the majority of businesses are being built to sell at some point. Most of them never turn a profit. So I just think it's fascinating to compare to some of these companies that have this high free cash flow and EBITDA potential. And then looking at, well, is this thing being built to just reap the benefits of it over time? Or is it being built to eventually have some sort of liquidity? So in media, I think where the risk is compared to tech, when you're taking outside money in a media business and investing in it, your content, the most monetizable event is at the beginning, right?

23:22So you say you raise a bunch of money, produced a bunch of videos. If you don't have the right audience, like your ability to monetize it at time zero versus in six months is completely different. And like it might be 10 % in six months. And so where media companies that raise outside capital struggle and just into your point of like build, building it to sell it is that if you don't have the right audience at the time of when you're investing in all this content, your ability to monetize it is diminished. Unlike a tech company where it's like scalable, like you build the tech and you keep raising more money and make better tech and get more customers and things like that.

23:56In the headlines, yes, there's like these hyper, there's like you see these like hyperscalers and high multiples and high valuations but there's a lot of valuable media companies that aren't necessarily on everyone's radar maybe have taken in some outside money but are actually concerned about not losing too much or generating some profit and kind of build year over year across different categories where yes they may want to sell and they're selling because you know the person doesn't want to run the business anymore or there's someone came in the front door and said hey we're going to pay this extraordinary price, it's a mix.

24:28People are still building businesses in the media space to hold them, but people do take a run at, let's just grow the audience as fast as possible. But most of the buyers in this space want profitability. They're not going to just pay a revenue multiple. I think, again, people cite a few deals and they say, oh my goodness, this was this amazing multiple. That's like a one-off. You can also technically make a revenue multiple out of anything just by using division. When you get to your behind the scenes of some of these bigger deals, there weren't 10 people lining up to buy that business. There was like one and a half, right?

25:01And like the half was the buyer that showed some interest that they convinced the person that bought it that they had competition and they were able to drive up the price. That's your job, right? Yeah. Just to confirm then, the majority of media businesses are purchased off of a multiple of EBITDA, not revenue. Yeah. And where are those multiples hovering at today? What's interesting is like multiples is just a math problem, right? So as a corporate, when you're looking at to buy a business, you probably have some internal hurdle rate of return where if you deploy capital levered or unlevered, you have to get that back over time.

25:33Sometimes corporate development groups even make it harder on themselves where they don't apply like a terminal value. Back to your specific question, in terms of multiples, depending on some of these affiliate businesses that are really experiencing headwinds because they're dependent on the open web for consumers, you see them trading three, four, five times EBITDA. You look at where the New York Times is trading or some of these more subscription businesses where the revenue is much more predictable and the future is double digits. In spaces where things are growing fast, like creators, you're hearing 15 times multiples.

26:07And the reason why I cited it's like a math problem is like a multiple is being guided by like the buyer's perception of like future growth. Maybe it's capabilities like there's things they're not just like made up. Right. There's like a reason why a business, one business gets a higher multiple than another. Yeah. It goes back to what's the durability of the revenue and profits of this business model. How much belief do you have that those same customers are going to show up next year, either advertisers, consumers, B2B customers, things like that? You said something before that stuck with me, Blake, that the value of an audience is the best it is kind of like at that point in time when you get funding or something.

26:45And then you kind of alluded to it there where the value of the business is predicated on those customers that you have and advertisers you have showing up year over year. that's also a bit different than tech where in tech yes you may have some book of business and and customers but you're also banking on it getting better over time and it growing in media is a large part of how much a company is worth betting on the value of the audience now but like like is there a decay rate is that is that what you're insinuating the content has a massive decay rate right so like it's different across the categories of media people talk about producing evergreen content, but most consumers, when they read something on the internet, they look at like the date published.

27:27And so say you have an audience of one or 1 million or 10 million, the cost of the content might change a bit. But my point is if you're investing in content and your audience isn't big enough and you can't monetize it at the rate that you should, and you see this a lot, it's like people raise a lot of money for a media company. They're producing this amazing content and there's just not enough because you have to sync up the monetization and the advertisers. And that's why like you look at something like Vice, before they started raising the larger rounds, they had this massive built-in audience and started to add content.

27:58But the content creation, audience scaling and monetization just weren't synced up. So they went through a bankruptcy because they went through all that money and the revenue just never caught up to like be profitable enough to keep growing that business. They basically just had this massive content creation machine that wasn't properly monetized with the audience and advertisers. In that sense, you're growing two customer bases essentially at the same time, which is different than a lot of other business models. It's a supply and demand function that have to grow almost like a marketplace in a way where they're aligned.

28:28Yeah, and that's the power of like creator-led content is that done right, you're honing in your voice, you're building an audience, and you're scaling really leanly. And like the nice thing with newsletters is the production of it, it's like a keyboard and a computer. You pay a partner like Substack or Beehive when you have revenue. That's why some of these Substacks and other creator businesses have been able to scale well. And like the founders haven't had to raise any money is because they've built it on the back of just writing something every day or every week. Once you have the audience, you have advertiser demand, you can start to layer in other things.

29:02So add podcasts, add events, things like that. Yeah, you either die a newsletter or live long enough to see yourself become a podcast. Blake, are IP libraries becoming more valuable or less valuable? This is in some ways, I think, related to the question I previously asked. I mean, the music world and music licensing has gone through, especially when the interest rates were low or there was more and more buying and consolidation in that space. I think it depends on which ones. Video content and video libraries was something that people could articulate in a positive way. But we were like, no one wants to watch a movie from 40 years.

29:37It's like not that interesting. But I think with AI and being able to tap into potentially being able to remake some of this content is like the value is potentially like going up, right? So it just depends on what sort of form of IP it is. Before we started, we're talking about collectibles. Like it really depends on the category. I think music and music rights have been bought up and the valuations there are probably at a level that isn't going to go much higher. Every sort of vertical is slightly different. I don't know why I'm thinking about this, but speaking of things that come up on your YouTube feed, I was served this video of T-Pain talking about selling his back catalog.

30:14And like, it was like well over a hundred million dollars, whatever it was. But it's fascinating how some of these things that you think are like, I don't know, just like the static thing of the past can still accrue value on a go forward basis if it's in the hands of the right, the right company or right person. I mean, in the case of music, there are these businesses that are operating today. They're kind of scaling where they'll take a library, work with a bunch of professional musicians to make like derivative songs and then pitch those to television shows and all these places and brands and things like that to try to find someone that picks up that song and then can continue to earn music royalties.

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32:40Anrock, built for what's next. Learn more at anrock.com slash rtn. Remember when pricing was simple? One product, one subscription, one invoice every month. Those days are over. The AI economy is changing how everything gets bought and sold. We're seeing usage-based pricing, hybrid contracts, and something called a credit. The finance systems built for vanilla subscriptions weren't designed for this. This isn't just a RevRec problem anymore, because outdated revenue architecture can kill a great pricing idea before it ever reaches the market. RightRev lets you recognize revenue in whatever shape it comes in, Whether you're launching consumption credits or testing entirely new commercial models, RightRev gives finance the flexibility to support whatever pricing model comes next.

33:25So product teams can keep on innovating and finance teams can keep pace. If you're architecting revenue for the AI economy, learn how RightRev can help. Visit rightrev.com slash CJ. That's me. That's rightrev.com slash CJ. Be acquired, guys. they have all their rates online for what they charge. And for the back catalog, they're able to monetize that at 80%, I believe, of the current episodes. Podcasting is a little bit of a crazy world because the measurement is kind of off because sometimes when you subscribe to a podcast, you can, you know, say download it all. The way that you interact with the files is not the perfect measurement.

34:04So that's part of it is like you sign up for an acquired podcast and then your Spotify app downloads instead of three episodes, all of them, and they can show tons of engagement. That's a perfect example where it's like perfect evergreen content because a really good podcast with a really good guest that doesn't go on 20 different podcasts has a lot of value because Tim Ferriss saying, oh my God, this one episode of the Acquired podcast was amazing. And it drives 20 ,000 more people to download it so they can make the proposition to advertisers like, hey, this is still a really valuable audience.

34:33And that's like a perfect medium where it's not like a news topic. It's covering something that's interesting and sort of timeless. How are podcast deals for the big names structured today? It's just around advertising. So SiriusXM has the best audio monetization team. And so basically they're taking a bet on when they do one of these larger deals, they can sell that advertising to make back what they're paying whoever the talent is. I think in some instances where you see like these larger deals get announced, they may decide to take that person on at something like neutral because they know, okay, if we have Joe Rogan, we're going to get all these great advertisers.

35:10And then once they're in our network, if we get a million dollars worth of their budget this year, we can then double that next year and then offer them five more podcasts. So I think in some instances, when you see these bigger numbers, it may not always be profitable to the production partner, but it's bringing in more advertisers for the rest of their ecosystem. Oh, I never thought of that. So some of these are almost a loss leader. We're getting a little bit far afield from podcasts, but the Howard Stern in the SiriusXM deals, they were providing more benefits than just a share of advertising revenue.

35:37Yeah, it's also a reason to retain too. It's not just for net notes to keep existing around. And there are some of these bigger podcast deals that have gotten done where have not been able to sell advertising at the same level they thought. So someone like Dak Shepard, it sounds like he signed a multi-year$80 million distribution and ad sales agreement. That means they don't own his IP. And correct me if I'm wrong. It's more of an arbitrage that they can do a better job of selling it than he can. Exactly. $80 million isn't just getting spent because they like Dax Shepard. There's probably some mechanism to gate if you stop publishing your podcast.

36:10We're going to claw back this money. He has a consistency of publishing. He's committing to more episodes. They have a sense of like, we can sell this advertising because we know we have this massive sales team, things like that. Because that's the hardest thing when you talk about what's the difference between a Google and and Meta and their interaction with advertisers versus what media companies have to do. Like I have clients who spend a lot on Facebook and Meta and they don't talk to anybody there. They can't get in touch with them because there's another advertiser right behind them if they don't spend.

36:40I think what people underestimate is how hard it is to build a strong sales effort and the robustness that it takes. And so Spotify has been building it for years and like Apple News, these things don't just turn on because it's really relationship built, even though brands and their agencies should be looking at the data, like allocating budget every year isn't always a science. And so when you have a strong sales team and you have proven success year over year, it's something hard for someone else to come take from you. I want to talk about a different medium for a second here, because over the weekend, I got this app.

37:16It's called Monarch. They're not a sponsor of the show, but they'll get a free shout out, I guess. And it summarizes all your spending across all the different credit cards and stuff. And I realized, Blake, that I'm spending like$250 a month if I added up Hulu, YouTube Premium, YouTube TV, Disney Plus. Like our family is screen time all the time, I guess, because we have every single one of these. And history feels like just this pendulum between bundling and unbundling. And the promise of paying for only like the stuff that you want And last, it's just not really there anymore. Are you seeing any signs of rebundling?

37:53I think you talk to anybody and they have like this holy shit moment when they see all the charges from like Substack, especially when it's like all added together. It's tough to do those deals, especially getting two companies to work together and decide whose product's stronger, how they're going to allocate revenue. Now there's just so many different types of media. And like in some instances, you're paying subscriptions not to get access to the content, but just have a better experience. it feels like we're spending more on media than we ever have. And then to your point on social media, it's like all that stuff is just generated by the user.

38:24I think a simple example is like Google News. And you'll probably see some of these AI engines launch their own subscription products because the media companies are like, don't take our content. And so you can see bundling happening with like an Apple News product where they're going out and doing it and bringing together people under like this tech operating layer. I mean, there has to be examples, but nothing that's like top of mind that's really working. Yeah, well, to your point, I think history is also a lesson in aggregation and disaggregation. And Google has been famous for making different news feeds.

38:58And I think every person's first business idea is either a travel app or a news feed. Yeah. Let's talk about some dealmaking stuff. Who, in your opinion, are some of the smarter investors in private market media today? Maybe across venture growth or PE? People have had a really tough time in media. like having a successful record over time because things are changing with where to get audience and things like that. I would just like to point to like a recent example of a really good business, right? So Bending Spoons went public a month and a half ago. Bending Spoons is this Italian business that's basically as everyone was like risk off and stop buying digital assets, they like leaned in, right?

39:38So the biggest thing they bought was AOL for like 1.5 billion. They got Evernote and Bright. I didn't ask one breakdown, it's so fascinating. It's kind of like Constellation software for the bargain bin of the internet. Half of their business is AOL. They bought AOL for roughly four times EBITDA. And now they're trading at like 16 times EBITDA. And that's like six months later. If you looked at AOL, and the reason why I think they're smart is like, it's such a good business. The problem is private equity is so freaked out about AI and what it's doing to consumer habits that they were basically able to use this contrarian position to look past that and say, this is a real subscription business.

40:14We're providing real value to the customers and they do. And it's a valuable business. And so far, the market has rewarded them for that. What does a typical value creation plan usually look like when investors come aboard a media company? It's figuring out where to invest behind growth. There are efficiencies, but I think most of the time when a business is going to market with private equity buyers in mind, there's going to be touting of like a good management team, efficiency, using AI, private equity. That's especially in B2B media. It's about like, where are we going to invest and grow? Where you've seen the most success and just using the B2B media as an example is you buy a platform for a certain multiple, right?

40:51So you pay 10 times EBITDA with the belief and understanding that, okay, if we buy one big exhibitor or one big sort of B2B media company, there's a bunch of other fragmented ones that will trade much lower because they're smaller. And so we paid 10 times, we can go find things for four to six times and then we'll package this all up together. it's three times as big and there are some massive b2b businesses and we'll be able to sell for 12 times because they're trading at 14 times is that what you would call a platform strategy or a buy and build strategy or a roll-up yeah roll-up platform strategy to take it like in a completely different direction where you're seeing it on the on the consumer side is in some of these like newer creator channels people are coming in investing they're typically these businesses on the creator side are built in a way that they're already throwing off cash But they're adding like more structure to get additional advertising deals to extend whatever that content, the main channel is into other other places.

41:44And so that's where like the more sophisticated investors that are investing in consumer media is just helping them build out more of an apparatus to produce more content, get a bigger audience and get more advertising. What's your take on the whole content to commerce movement? So one example would be, I've loved Doug DeMuro's YouTube breakdowns, quirks and features, if you know, you know. Training group invested in him and then they started Cars and Bids, which is a marketplace. So the idea of having the front door being media, but then having some sort of service or product in the back that otherwise probably would have been more of a commodity that anyone could do.

42:18But because you have the distribution, it's uniquely qualified to hopefully succeed. I think the big thing is where are you pushing the consumers to? The nice thing about a car marketplace is like you're not selling a product. It's a really tough business. They're tough businesses to begin with. And so I think the value in being attached to a media company is you're getting earned media or you're basically getting an audio extension for, quote unquote, free, right? And so you're basically able to contextualize the product or service that you've created to a much wider audience. I think the reason why it works with Doug is he can talk about the cars on the auction platform.

42:54I think you can pay a little bit extra and he'll actually do like a video. But it works in certain areas to your point, like Houdinki is tough. But I think Houdinki is just tough because selling watches is a tough industry, right? And like, it's not easy. I think when you pair a business with the right component, like another marketplace auction site, it makes a lot of sense. But there's also been a lot of struggles when they've tried to do other ways. It sounds like you have to find this product market fit between the creator, what they're selling. But the third leg of the stool is the business model that also has to match.

43:25I think what's really cool with creators now, though, consumer or B2B is that you do this well. It's like you understand what your audience needs and desires from like a utility perspective and turning on tools, software. It's never been easier. And so I think you'll see some of these creators realize, oh, I wish I had this in my job or my audience. I met someone at an event that I hosted and they keep asking for this. I don't need to hire a development firm to make XYZ software, XYZ thing. It's like I can vibe go and then hand it off to one developer and then we can start selling a subscription to it.

43:58So I think you're going to start to see a larger proliferation of utilities and tools and other things that creators make outside of their traditional content channel that their audience really enjoys. And some of these courses are getting sold for like exceptional amounts, like$10 ,000 to take a course with a certain creator is basically monetizing their knowledge from that two minute clip that you might see as viral to like a much longer form course and opportunity to learn because yes, Mr. Beast content is like engaging for kids, but he also has a ton of knowledge in terms of running feastables and all these different business units that's applicable that people will pay a lot of money for to take a course on.

44:39And so you're starting to see people monetize in these different ways and extend their influence to get people to buy something from them. You're in the business of buying and selling companies. How much of media transactions is narrative driven? The way that you pitch an asset and talk about scarcity and things like that are important. Depending on the deal size, there's also like a reckoning with what the financials say. What's unique for some of the larger corporates is they're driven by the executive or the family member. I've been a beneficiary of this where the CEO or the family owner says, I just want this.

45:13I'll pay whatever I want. In that instance, it wasn't a narrative that we created. It was how they perceived the asset or the operator, things like that. So there's always these simple questions that people ask of like, why are you selling your business? Are you going to stick around? Things like that, that we coach our clients on all the time, because I think it's coming up with a suitable reason of why. Because anyone that's like buying a business wants to make sure they're like not catching something at the top that's going to continue to grow. When somebody with a lot of money, like a family owned business wants to buy something, the valuation in mathematical terms doesn't really matter.

45:45It's just whatever it is in the eyes of the beholder. I remember we were talking to Jonathan Mariner, CFO of the MLB a couple of years back, and he was saying like, look, there's only X number of MLB teams. The price is whatever somebody is willing to pay for it. And that's what makes the market. It does. And in that instance, people are buying it more for legacy. There's like a mix between there is an economic reason. And even when you feel like these sports teams are trading for irrational values, like over time, there's always been someone that's willing, you know, if the family person passes away and they need to sell the team, there's always been someone to buy these teams at the next value point.

46:23Like no one's basically been disappointed in owning a team, but also like some of these people just have unlimited money and they want to own something that preserves their legacy. They can be involved in. You hear a lot of times these teams under family ownership. It's like that's where the kids work, like it made the kids a job. So it has proven out over the past 30 years to be a really valuable asset to own. For our next segment, I want to ask some better questions brought to you by our friends at EY. And let me tell you, they think a lot about great questions across enterprise risk, audit, diligence.

46:56They're a smart bunch. So I'm going to ask some smarter questions right now. Blake, I've been through a couple of deal processes, and I've found that there are probably seven moments in each deal where you think it's dead. How much of successful dealmaking in your career is simply surviving those moments? Really? I mean, I think part of my job is playing psychologist to help keep founders and operators, one, not counting the money before they have it, but two, just like every day, here's what we're going to work on and get it done. Because like your emotions can go up and down. You know, someone says, I'm going to send in an offer.

47:30You don't know why they get delayed, but it goes to Monday and everyone's like thinking, oh my God, what's going to happen? Because for a lot of people, they've spent five years, 10 years, 15 years, and it's a very big deal. I try to be the even keel of like, let's just focus and get the work done. And it's been helpful, especially in processes where it was a little bit trickier, where the company didn't have as much money, like things like that, to where if people get caught up in emotion, they're not going to get the work done, answer the diligence questions, like show up well. And so I think it's an important role that you play to like, just even out the emotions.

48:05I've also heard the saying that, hey, don't worry, this deal is on the tracks now. And in that sense, the deals can take on a life of their own. From all the deals you've done, is there a moment where it does feel inevitable? And is that something identifiable? I think time kills deals. And like at three o 'clock in the morning, I've had lawyers decide that they want to stop working. And I had to call everybody and wake them up and say, you're going to get this done right now. I don't think anything is like destined to happen. Like we've had crazy stuff happen on deals. And you know, the day before we were supposed to close that completely blew up the company completely out of anyone's control.

48:42And so I think when you have someone's interested, you should work as quickly and thoughtfully as possible to get the deal done because you never know what's going to happen. It ain't real until the check clear. Nothing, especially in today's world of how quickly the internet changes in processes where ChatDBT and OpenAI come out with a new feature and it freaks all the buyers out. So the world is way more dynamic. I always joke around that I wish I was a banker like 20 years ago in media because it was so much easier selling TV, radio, newspaper. It's wild what can happen day by day. Blake, I'm going to take you into what we call our long ass lightning round.

49:17More valuable, podcast or conference? Podcasts. Best media acquisition ever? The AOL one. It's pretty good. Because my next question is worst media acquisition ever. I think a lot of the consolidation that happened in media where telco was buying cable and content, none of that worked. I mean, I think there was this idea, if you had all this consumer attention, and you were billing them across different things, you would have this amazing magical advertising moment. The problem is like Google and Meta are just so good at attracting advertising dollars that a lot of these conglomerates were never able to stand up unified ad products to get more of that ad budget.

49:52And so one plus one didn't equal three. And so that's why they're all deconsolidating now. Blake, one founder, every media operator should study. I think the biggest thing that I tell people that are like learning is about capital allocation. if you said like what book there's this book called the outsiders that's all about william thorndyke it's such a good way of framing mna and like because like the problem is people get way too in the weeds in mna and talk about multiple and it's like understand the basics of capital allocation from buying back stock issuing dividends mna like that's where you need to like think about it from an operator perspective and a cfo like that's really applicable to your audience is like, from a CFO's perspective, capital allocation is what matters the most.

50:35It's always a blast to hang out with you. And congrats on all the momentum of what you've built at Core Advisors. Thanks for having me on. Run the Numbers is a mostly media production. Yelling an intro by Fat Joe. Artwork by Meg D 'Alessandro. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me, a guy who feeds his dog way too much ice cream and has a history of net operating losses. LOL. If you like this podcast, hit subscribe and give us five stars. It will take like two seconds and our algorithm overlords love it. Drink water, call your mom and have a great day.

51:07Peace.