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Member Mailing #281: Netflix & Dotdash, Imitated But Never Replicated by Condé Nast
The bold, contrarian & counterintuitive decisions made 5-10 years ago led to extraordinary success of Squid Game & Dotdash’s merger with Meredith Corporation
Condé Nast openly is imitating the local and global distribution models behind Netflix’s South Korean Squid Game success
Condé Nast also seems to be imitating Dotdash’s model of producing “Intent-Driven Premium Content”
Squid Game reaching 111MM fans & the Dotdash Meredith merger were extraordinary successes for both companies’ business models last week
Both companies’ models emerged from counterintuitive, contrarian, bold, and highly complex pivots five-to-ten years ago
Imitating these models now offers limited upside for Condé Nast and other legacy media companies solving for their digital pain points.
Last week Condé Nast CEO Roger Lynch spoke with Recode Media’s Peter Kafka about how Condé Nast has evolved under his leadership.
The timing of the interview is impeccably synchronous: it emerged in the same news cycle as the surprising, extraordinary success of Squid Game, and Dotdash’s merger with the Meredith Corporation.
Lynch offered this fascinating answer to a question about Condé Nast’s new global model:
“If you’re going to build Condé Nast from scratch today how would you think about building it? You probably wouldn’t say ‘Let me put separate editorial teams in every country to produce all their own content.’ You’d probably think of it more like maybe how Netflix produces content. Which is, they have content teams around the world producing content for local markets but guess what? Some of that content resonates outside of that market.”
In other words, Condé Nast is seeking to imitate the local and global distribution models that helped Netflix’s South Korean hit Squid Game reach 111MM viewers worldwide.
Lynch says Condé Nast’s rationale for the new model is that 30-45% of web traffic is “coming from outside of the geographic border of the website itself”. He gives the example of Architectural Digest (AD) in Mexico, and how people in Mexico are not interested in homes from Mexico but:
“…they’re interested in homes in the U.S., in France, or in Italy, all markets where we have AD presences that are producing content for those local markets.”
This sounds a lot like Dotdash’s focus on “intent-driven”, “need to know” premium content and broader business logic of “Brand-Driven Intent Audiences Are the Most Valuable” (from its Dotdash Meredith merger presentation).
So Lynch seems savvy in pointing to Netflix’s model while implicitly giving a wink-and-a-nod to Dotdash’s model.
It is not unusual for a media company like Condé Nast to borrow strategies and tactics from both Netflix and Dotdash. But these particular strategies and tactics emerged from counterintuitive, contrarian, bold, and highly complex pivots five to ten years ago:
The roots of Netflix’s bet on local and global distribution models emerged from Netflix’s initial forays into international expansion 10 years ago; and
The roots of Dotdash’s bet on “parasitically embracing Google’s dominance over search” and building out vertically-focused brands emerged from the failure of About.com six years ago.
Roger Lynch’s interview unintentionally reveals that in seeking to imitate these strategies, Condé Nast is avoiding the complicated series of decisions that both companies made over the past decade, and from which both are benefitting now.
After both the extraordinary success of Squid Game and the Dotdash Meredith merger that six years ago seemed impossible, more companies will try to replicate their respective models. But the lesson for those companies may be more in risk-taking, contrarian approaches to solving digital pain points.
Netflix’s & DotDash’s Counterintuitive, Contrarian, and Bold Bets
Netflix began its international expansion in 2011, and quickly saw that it was “a foreign interloper with little knowledge of the best voice studios or actors in a given market”.
To satisfy viewers everywhere from Seoul to Buenos Aires, it needs to create localized versions of hundreds of different shows annually.
Its solution has been “partnerships with more than 170 dubbing studios that produce programming in at least 34 languages.”
This solution is counterintuitive in the sense that is counterintuitive in concept, scale, and execution: “No Hollywood company has ever tried to dub at the scale of Netflix.”
In Fall 2015, Dotdash emerged from a proposal to “sunset the About.com portal, [and] redesign more than one million articles that would be redirected into vertically focused brands”.
About.com had a rough road to reinvention between 2012 and 2015:
Vogel’s team rebuilt the technology, redesigned content, hired, fired, and launched countless experiments to stanch About.com’s declining audience. Yet traffic continued to plummet and revenue tanked. The company missed its forecasts for nine straight quarters.
After the pivot to Dotdash, the focus became more user-centric, as CEO Neil Vogel told Fast Company in January 2020:
“Our job is to make great content that loads quickly with relevant non-intrusive advertising,” he insists. “If we execute, the search results will be fine.” His critics call this naive, but Vogel is trying to build a billion-dollar publishing business, not a search colossus. He’s betting that Google will drive traffic to the best content.
In Member Mailing #272: After Sun Valley, Co-opetition or Competition in Connected TV?, I described this bet as
parasitically embracing Google’s dominance over search and building a Co-opetition relationship. It was a contrarian move that conceded Google’s ownership of the last mile to the consumer, but also realized that there were opportunities for Dotdash’s content verticals to better serve the consumer than Google.
With the acquisition of Meredith, Vogel now has a billion-dollar-plus publishing business, and it began with a counterintuitive, contrarian bet on Google search.
Condé Nast Borrows From Netflix
Condé Nast unveiled a new global strategy and business structure last December.
Condé Nast Roger Lynch offered a Netflix-esque example in his description of Condé Nast’s new business structure:
“What it means is, if you’re part of the editorial team in Italy, you had a nice business producing content for the Italian market. but your content really didn’t make the pages of Vogue in the U.S. or other markets around the world. You’re now part of an editorial team where your content can actually have a global stage that it never had before”.
This mirrors Netflix operationally, as the global successes of Lupin (France), Money Heist (Spain) and now Squid Game (South Korea) all emerged from somewhat similar business logic. Meaning the Netflix app is the global stage for locally produced content.
But, there is also a different business logic from Netflix in two important ways: Netflix relies heavily on both producing original dubbing and subtitling services across 34 languages and subtitling in a few more.
I wrote about this in Member Mailing #260: Evaluating the Televisa-Univision Merger Announcement, and quoted a piece from The Economist:
First, The Economist piece — “How Netflix is creating a common European culture” — highlights how streaming services offering dubbing and subtitling services in their software are driving consumption of Spanish language content across European national and cultural borders:
Streaming services, however, treat Europe as one large market rather than 27 individual ones, with the same content available in each….
Umberto Eco, an Italian writer, was right when he said the language of Europe is translation. Netflix and other deep-pocketed global firms speak it well. Just as the EU employs a small army of translators and interpreters to turn intricate laws or impassioned speeches of Romanian MEPs into the EU’s 24 official languages, so do the likes of Netflix. It now offers dubbing in 34 languages and subtitling in a few more. The result is that “Capitani”, a cop drama written in Luxembourgish, a language so modest it is not even recognised by the EU, can be watched in any of English, French or Portuguese (or with Polish subtitles). Before, a top French show could be expected to be translated into English, and perhaps German, only if it was successful. Now it is the norm for any release.
I also shared reporting from Bloomberg’s Lucas Shaw that for Netflix:
building out dubbing studios has “become a priority for founder and Executive Chairman Reed Hastings”, and Netflix has now established partnerships with more than 170 dubbing studios that produce programming in at least 34 languages.
This is financially, technologically and operationally a fundamentally different business model than Condé Nast’s focus on globalizing its content.
Moreover, Netflix is inventing an entirely new model for content consumption, as Lucas Shaw wrote yesterday:
When all is said and done, Netflix’s greatest impact on pop culture will not be allowing us to “binge watch,” or stream TV on-demand. It will be globalizing the entertainment business, creating a platform for people from more than 190 countries to watch stories from all over the world.
Condé Nast is not inventing anything new. Rather it is iteratively adopting elements of Netflix’s model and seeking cost efficiencies (see below).
Condé Nast is betting on Netflix’s model to deliver content that will drive more relevant page views, monetized with ads, from audiences around the world. In terms of these objectives, its model seems to have more in common with Dotdash than Netflix.
And, Condé Nast Borrows From Dotdash (Implicitly)
Dotdash maximized user engagement by focusing on the best possible answers to users’ questions, with the fastest possible user experience, and loading the fewest possible ads against that.
Meaning, Dotdash did not only solve for serving more relevant content to audiences, it also solved for optimizing user experience and ad load. But, Condé Nast does not seem to be mirroring any of Dotdash’s model:
❌ taking big risks with the backing of a well-funded owner
❌ launching with a different look and feel than competitors with fewer ads for users
❌ being open to turning away advertisers to make less money and optimize the user experience in the short term,
❌ building out a sophisticated use of data-driven decision-making,
❌ focusing on surfacing evergreen library; and
❌ engaging and converting users via algorithmic targeting
Condé Nast may be doing much or all of the above, too, but CEO Roger Lynch did not discuss it as part of his talking points with either Recode or an earlier interview with The Information’s Tom Dotan.
If anything, Lynch makes it sound like Condé Nast is taking more conservative, iterative risks to create cost-savings and then reinvesting those savings into producing more content:
“So, what we’re seeing is how audiences engage with our content today, we’re crafting our business around that. And we’re still having local team. What we’re doing is, we’re eliminating things that don’t add value to audiences or advertisers, so that we can take those savings and reinvest them back. So we’re actually investing MORE in content not less. So, the next four or five years our content investment increases by 25%. But, we’re eliminating areas where it’s just duplication without value so we can invest in the areas that do add value.”
That is the Netflix-type business logic: investing in producing more content.
Funnily this mirrors how Dotdash CEO Neil Vogel described its approach to content-creation to Fast Company in January 2020:
“We are taking a Netflix approach to content creation,” says Vogel, sitting in his office situated midway between the great 20th-century magazine companies Conde Nast and Hearst. “We are spending more money on service-based articles than any other media company.”
There are echoes of Dotdash in Lynch’s description — “eliminating things that don’t add value to audiences or advertisers” — but otherwise it is a much more conservative vision: Condé Nast does not produce “service-based” articles, it produces content that audiences seeking Condé Nast brands and content want more of.
So, Condé Nast’s global strategy borrows from both Netflix and Dotdash, but conservatively.
Dotdash Meredith Maps to Condé Nast
The Dotdash Meredith merger is notable because it has the foundation of a “modern Condé Nast”, something Dotdash Meredith CEO Neil Vogel envisioned back in 2015:
In the fall of 2015, the Dotdash leadership sat across from [IAC CEO Joey] Levin, who by then had ascended to the role of CEO at IAC, and pitched their new plan: sunset the About.com portal, redesign more than one million articles that would be redirected into vertically focused brands. Vogel wanted Dotdash to reemerge as a modern Condé Nast.
Vogel’s description of Meredith in IAC’s press release about the acquisition sounds an awful lot like a description of Condé Nast (emphasis in bold added)
"Dotdash is a digital company, and we have a very different prism on how we view publishing. Our success is based on creating the best content and online experiences for each and every topic we cover, without compromise," said Neil Vogel, CEO of Dotdash. "When we look at Meredith, we see a business that is driven by digital. We see a collection of iconic and venerated brands rich with heritage, leaders in their categories, and similar focus on editorial excellence. We see unprecedented reach to women and a print business that provides longstanding value to readers and advertisers which we view as a strong platform to reach and engage consumers. The opportunities are limitless. Meredith can step into its digital future and together we can define our next chapter as Dotdash Meredith."
There is a key difference: Meredith is a domestic company that focuses more on print and digital and “Condé Nast is a global media company that produces some of the world’s leading print, digital, video and social brands.” Condé Nast also has an events business.
But otherwise, Dotdash Meredith is going to be a Condé Nast-like portfolio of some of the world’s leading print and digital brands. Because of its optimal integration into search behaviors and other intent-driven digital behaviors, it will be a better model for scaling monetizing digital media.
Mapping Dotdash Meredith Financials to Condé Nast
Condé Nast and Meredith are also very different businesses financially.
We know little about Condé Nast’s financials except for this paragraph from a recent article in The Information:
Condé Nast isn’t profitable right now, but executives hope it will break even by next year and will have double-digit margins, measured as earnings before interest, taxes, depreciation and amortization, by 2024. (Lynch declined to comment on how much revenue it generated last year, although a person familiar with the figure put it around $1.5 billion.)
Meredith is profitable and generates almost the same annual revenues from print, alone, as Condé Nast is currently generating annually (slides are from the Investor Presentation).
Moreover, the combined entity will generate 67% of Condé Nast’s rumored total annual revenues from digital in 2021, alone.
Lynch describes 2020 as “a very, very difficult year”. But, that was not the case for either Meredith or Dotdash.
So, Condé Nast pivoting towards Dotdash’s model has sound business logic, but Dotdash Meredith is positioned to be a better version of Condé Nast in 2021 and going forward.
The extraordinary successes of Squid Game (which built upon the previous extraordinary success of Money Heist/Casa de Papel) and the Dotdash Meredith merger over the past week suggests that both Netflix’s and Dotdash’s business models will be increasingly imitated.
But, I think the key takeaway from above is there are inherent limitations to borrowing from Netflix’s and Dotdash’s business models. Those models emerged five-to-ten years ago as solutions to operational pain points, and they were unusually difficult and risky to execute.
In the case of Dotdash, the road to a solution involved losing money for nine straight quarters.
So, these were counterintuitive and contrarian operational, cultural, and especially technological, if not technical, decisions.
The point here is not to celebrate the counterintuitive and contrarian, or to imply that there was an obvious, linear path from those decisions to these extraordinary outcomes.
Rather, it is to emphasize how two extraordinary successes we witnessed in the news cycle last week — Squid Game and Dotdash Meredith — emerged from narrowly-focused, counterintuitive and contrarian bets made years ago.
Imitating these strategies now offers limited upside Condé Nast and other legacy media companies seeking to solve for their digital media pain points.