Going DTC is a smart (and necessary) move

Going DTC is a smart (and necessary) move

In the Summer of 2013, a media company named BigBalls launched a Youtube channel titled COPA90, with the hopes of providing football-related content.

Thanks to their conversations about recent games, transfer news, documentaries about the football culture and interviews, it became one of the largest football channels in the world with over 1.5 million subscribers.

This week, Copa90 announced that they are expanding their media empire and going direct-to-consumer, starting with two Clubhouses in Paris and Lyon for the Women’s World Cup.

“When a moment like Alex Morgan’s “sipping tea” goal celebration against England in the World Cup semifinal happened, by the next day Copa90 fans could buy a special edition T-shirt to mark the occasion.” - Fast Company

This is not the first media company that turned into a DTC giant.

Glossier founder Emily Weiss started her blog Into the Gloss in 2010 while still an intern at Vogue. The idea was to talk to celebrities about their makeup rituals, trying to write about them in a more casual, authentic way.

The blog got popular, grew, and eventually hit 1.5M unique views every month. It was then that Weiss took the leap into product by launching Glossier — “A total evolution of the same mission, but with tactile content,” as she told Buzzfeed.

And it doesn’t stop with companies.

Personalities like Jordan Peterson, celebrities like Kylie Jenner and most notably, Esports teams like Fnatic and 100 Thieves are going into direct-to-consumer to monetize their fanbase (and making a killing).

There’s a pattern here: people and businesses are dropping ad-based models and monetizing attention by selling stuff directly to the consumer.

Why attention is being monetized differently

It’s getting increasingly harder to compete for attention.

New media outlets, newsletters and influencers are popping up every single day. Viral content is getting harder and harder to pull off. And most importantly, running ads on top of content isn’t as profitable as it was.

The are two main reasons for that: Facebook and Google.

Their ad products are, at least, order of magnitude better than anything else, so they provide a better return-on-investment for marketers and therefore, capture most of the advertising dollars.

I wrote about this a few months ago in the context of the Buzzfeed layoffs:

But advertisers weren’t spending less. They were redirecting it. Newspapers went digital with the hope of capturing back those dollars. And while that did happen to some extent, the numbers never came close because advertisers would rather spend their money where they get the best ROI. But let's not get gloomy. Media isn't dead. Their outdated, attention-grabbing, polarizing business model is.

Smart media companies (like Copa90) are turning to their fanbase for financial support. It makes a lot more sense to transact with people who already love you than pray to the Mad Men Gods.

Three reasons why loyal readership = revenue

First, readers are the perfect people to turn to for customer research. There's nothing better than building a product WITH your audience, then turning around and selling that same product to them.

From a CB Insights article:

“When first launching a product called the Milky Jelly Cleanser, for example, CTO Bryan Mahoney recounts extensive product research going on the Into the Gloss blog. Weiss posted in January 2015 asking her readers, “What’s your dream face wash?” As they got answers, they classified the responses that they got by ingredients and concepts. Over the course of analyzing those 400+ comments, they came to a formulation they believed would be a hit with their audience.”

Second, existing readers, by definition, already know you. Not only they are familiar with your brand, but many of them are also fans. And loyal fans are much more likely to convert than people who don’t know you.

From that same CB Insights article:

“The blog isn’t just a valuable vector of product research — it’s a source of more prepared and enthusiastic consumers in and of itself. Mahoney told Digiday that people who read Into the Gloss are about 40% more likely to buy products from Glossier than other customers.”

Third, remarketing is ridiculously powerful for a direct-to-consumer brand because a considerable amount of their revenue comes in from Facebook and Instagram advertising.

If you have your own fanbase (in the millions) which you can run ads against for cheap (because you don’t have competitors bidding for it), then your CAC (and payback period) will certainly be lower than your lifetime value.

That’s an oversimplified take on ecommerce, but this definitely holds true: the sooner you can get your money back profitably, the faster you can grow.

But it’s not all roses in the DTC world

We are in the middle of a direct-to-consumer war, particularly in Europe. I wrote about DNVBs a while ago, and highlighted two big challenges:

First, single-channel growth is dangerous. When you are a startup, you double down on what’s working. But DNVBs need to figure out how to expand from their grassroots communities and into new channels. Eventually, marketing channels will top out, become expensive or saturated. Even a change in Instagram's algorithm can kill a young DNVB.
Second, being in Europe means fragmentation when it comes to international expansion. The US is one single market that shares a common language, as opposed to Europe, where different country languages, culture and regulations make scaling more challenging, all the way from product development to marketing and shipping.

And this has been getting worse every day.

Paid marketing is getting harder, particularly for businesses like Glossier or Copa90 who appeal to the masses and take a “spaghetti to the wall” approach.

They need affordable, impulse-buy products to monetize their readership (apparel, beauty products) and as a consequence, have a low-ish lifetime value per customer. And a low lifetime value leaves almost no room to run paid acquisition profitably.

And organic traffic isn’t getting easier either. Most of the traffic that comes to Copa 90 doesn’t have purchase intent, they are there for the football articles. Copa90 will need a lot more than brand appeal and cool products to turn readership into dollars, and even then, it’s not easier.

The reality is that media companies aren’t exempt from these challenges just because they are media companies and not "DTC only" brands.

In fact, not only they need to be at the top of their retail game, they still need to maintain their dominant position as a media outlet. Losing focus = losing readership = losing customers. That is a dangerous thing if you rely on product sales to make payroll.

European media needs to move away from ads

Let me be clear: I don’t have a problem with ads. Without ads as an easy way to monetize a website, the Internet wouldn’t be where it is right now. The ads monetization model provided an incentive for millions of entrepreneurs to launch new businesses.

That said, and in spite of the challenges I described above, European media needs to move away from ads. Fast.

From a business stand-point, moving away from ad-based revenue as a support medium and towards a direct-to-consumer or subscription model is a no-brainer.

Ad revenue is fragile. Google and Facebook are getting better every single day. Their market share of the ad business is slowly approaching 100%. And media outlets are shrinking every day.

They got addicted to the clickbait = pageview = ad dollars formula, and now they can’t get off the drug. It’s like Trainspotting all over again. I reported on Buzzfeed a couple of months ago, but they are not the only ones.

From a society stand-point, moving to a subscription model is a no-brainer as well. I believe that Journalism is one of those things where capitalism and the free market don’t do a good job optimizing for the greater good.

Ad based monetization rewards pageviews. The more pageviews you generate, the more ad inventory you have, and the more money you can get for it.

What’s the easiest way to generate pageviews? To tap into the nastier parts of our human psychology with clickbait, outrage and polarizing headlines.

As a result of the ad model, people are more polarized than ever, particularly in the US. Media needs views, eyeballs, and clicks to survive.  This loss of advertising dollars to Google and Facebook is driving newspapers to take even more radical positions and use clickbait to keep your attention and drive revenue.

A couple of decades ago, liberals and conservatives shared some of their views, and where opposed on others. Now, if you are a Democrat I can assume that you are anti-gun, pro-choice, pro-immigration and want to raise the minimum wage to $20. And if you are a Republic, I'd bet you are pro-gun, pro-life and for closed borders.

Source: Pew Research Center

Republicans and Democrats are more divided along ideological lines than at any point in recent history. We don’t need that in Europe.

Credit when credit is due: this edition was inspired by @cechambers and this tweet.