paidContent’s Rafat Ali Describes Grim View of Online News’ Prospects

In 2002, after unsuccessfully trying to get a reporting job, Rafat Ali launched paidContent.org, a blog about the business of media. The site gained a following, then sponsorships, and became a leading voice in the industry.

With paidContent as the flagship, Ali built ContentNext, which included a network of four blogs, industry conferences and research and ContentNext Dex, a financial index of the largest companies paidContent followed. He sold the company to Guardian Media Group in 2008 for millions of dollars and spent the next two years traveling around the world.

This July, Ali went out on his own again, launching a Tumblr blog called Guidism.com, an exploration of the travel guide industry. (Details of that new venture are posted separately.)

In a Skype call, Ali told me why he doesn’t want to be in the news business and why he believes it to be such a tough industry right now. He also shared tips on what it takes to succeed as an entrepreneur in any Web-based business, but especially in news.

Below is an edited transcript of my conversation with Ali, a friend for whom I have also done some work.

Dorian Benkoil: Earlier you told me that you don’t want to be in the news business anymore. Why not?

Rafat Ali: I don’t want to do news covering news media. So, media covering media, I think that almost surely is over for me. While the story of transformation of media is a great story, I think there’s just too much talk about it, and to some extent it is just an echo chamber, people talking to each other. There’s more talk about the talk than actual action.

Plus, back when I started almost nine years ago now there weren’t any sources talking about the digital media content industry. Of course, we were the first ones to do it. And as the site grew and others came into being, there were a lot of other sources talking about it.

So, it’s not as if there’s any dearth. There’s plenty of news, analysis, and surely opinion about the industry. In fact, there’s an information overload about the industry.

Surely I will be speaking going ahead about the industry at business conferences. I may be writing columns here and there about the industry as I go on, but it’s not something I’ll be doing from a news perspective.

What about general interest news?

Ali: As for the larger news industry, I think the economic challenge is too high for both startups or even established companies. … I think the macro-economic conditions in the news sector, all of which are obvious to us, are too difficult, in general.

Not to say that people should not try. But I’ve burned the candle at both ends and the middle for the last nine years. For me the burn, being in the news industry, is too high to be there for the rest of my life. And that’s really my reasoning.

I’ve worked hard enough, given a lifetime’s work in the last 12 years to the news industry — which I think will not miss anything if I am not part of it.

Yes, there are technology innovations… I am obsessed by new things like Flipboard that are trying to present not just news but also things which [are] a large part of news such as Twitter and Facebook. It’s a layer on top of the news.

But I can say that while the innovation there is great, the monetary potential isn’t clear yet. It could be big or it could be nothing. While I enjoyed the risks, I certainly do not want to be beating my head against the wall when clearly the wall, is if not collapsing, is contracting.

You talked about the macro conditions, the wall “if not collapsing, is contracting.” Can you say more about what you mean?

Ali: For any vertical, B2B or consumer, we have learned [that] for most of the sites, whether it is in tech or any other sector, that beyond a certain point they don’t scale. But the Web is still all about scale. Ad models are based on scale. Audience models are based on scale, despite what everybody else says.

Yet, the growth in terms of revenues for any of these are incremental. If anybody is saying otherwise, they just are kidding themselves. As somebody who wants to do something on a larger scale, that for me is disappointing to say the least.

And on the part which is non-vertical, whether newspapers or online sites and stuff, [you could] go mass, as Huffington Post has done. But clearly Huffington Post is not the trend. It’s an exception. It’s a beast that is on its own. It’s very difficult for anybody else to break through.

Also, the consumer is clearly in control here. In the news sector, for the consumer, media is whatever he or she wants it to be. They can assemble all kinds of sources into any form or shape they want. Flipboard is a pure example.

Does that scale in any predictable sense as a news provider for you to make a business model out of it? I would say long-term, probably not.

What about hyperlocal news? AOL has reportedly kicked in $50 million for Patch. Main Street Connect, which I was involved in, has raised more than $4 million.

Ali: Yeah, but look at any of these. Patch, if anything, has been a patchy start to begin with and they will admit that themselves. They’re putting a lot of money into it.

Content is hard. All of these players, they’re trying to do local, but on a national scale. Companies like Patch will have hyperlocal stuff, but at the end of the day they will have a larger presence and economies of scale, and the back end will be similar for all of those. Sales teams will be optimized across all of those networks.

But it hasn’t worked, really. None of those have at this point shown any long-term sustainability, not even Yahoo Local, honestly. Particularly being part of Yahoo News, it should be a huge operation. Yahoo News should be the biggest site on the Web. Yahoo itself is making enough money — but compare that to the audience that they have.

An interesting one I’m watching these days is TBD, which is run by Jim Brady. It’s interesting and seems to be making a decent amount of noise, and to have decent enough resources behind it, but only because it is part of a big media company that has deep pockets, Allbritton [Communications], which owns Politico as well.

Another technique that companies are trying is to grab hold sector by sector, niche by niche. Business Insider and Mediabistro.com (where I was editorial director until 2007) are examples.

Ali: True. But speak to Henry [Blodget, the founder of Business Insider]. He will be the first to tell you — he will shout out loud — that scale matters. For him it’s all about page views, and whether you agree with him or not, that’s what he is all about, transparently. This is the reason he has not focused on just one vertical. He’s launching 10 verticals and within those verticals, his techniques are well-known by now. That’s not to say that what he’s doing is wrong, that’s just the reality of the business.

Mediabistro is also in a similar situation where its owner is trying to figure out, “OK we’ve done this in one vertical, but that’s only a mid-level success — or at least scale — how do we go from there?” So [Mediabistro owner] Alan Meckler will be the first one to tell you they’re buying stuff, moving into other fields as well. Most will not work. Not because of the company, but just because that’s the nature of the business we’re in.

In any kind of networked model, there are one or two stars and the rest of them are just subsidized because of the stars. I mean, look at what happened with Weblogs Inc., which is now part of AOL. There, there were a couple of big stars that essentially were carrying the rest of the sites.

If you look at the Gawker model, wait till you speak to [founder] Nick Denton. What he’s done, to his credit, is trim his unsuccessful sites very quickly, quicker than even some of his readers would want him to do.

And, again, he’s an exception, not the trend. Just because Gawker’s done it, Huffington Post has done it, doesn’t mean everybody else can do it. [They] have a special sauce that, in large part, is driven by the brilliance of the founders, and that doesn’t mean the model can be replicated by everybody and anybody.

It’s not that I’m bitter about the sector. It’s just that I’m bearish on the sector, on just the larger news sector going ahead, as a business proposition. That’s not to say there isn’t a societal need to cover all the stuff that the whole industry is covering. It’s just that I, looking at it as a business opportunity, am bearish on it and I’m not the only one thinking about it in that way.

It seems like you’re saying platforms and code and applications are the thing, and the content that runs through those platforms and applications is not where the true opportunity is.

Ali: Yes, as a purely business proposition. And even some of the applications at the end of the day that are based on the news industry. I mean, look at a prime, prime example like Digg. Perhaps you saw the chart [recently] about the decline of Digg. I can now sort of rub my hands in glee and say I saw this coming three, four years ago. I saw it coming the day BusinessWeek did the cover story saying that this is the $60 million kid. …

But if a brand like Digg, which at one time was one of biggest drivers to news sites, is in decline, whatever the biggest driver of traffic is now to news sites (outside of Google) — which today is Facebook — that’s not to say that that referrer of traffic will not go down.

You’re saying that Facebook will go down or won’t?

Ali: I don’t know. The only constant in the news industry is change. And how do you build a lasting brand, a business in that kind of sector? There’s too much undercutting. The fact of life in the news industry is everybody undercuts everybody. Everything undercuts everything. Every new technology undercuts every technology, which will then get undercut by a new technology that will come along.

As a rational human being that wants some stability in life, how do you create lasting in businesses in that sector? It’s pretty hard. …

Do you have advice for people in news business?

Ali: This is true for all startups: A startup is not a part-time business. But it’s clearly, even doubly, true for news.

Firstly, doing an Internet startup is a very time-consuming thing. On top of that, you’re trying to do a 24-hour news-based startup, which is a double whammy in terms of just the sheer amount of energy you need, and the sheer amount of resources, and the sheer amount of time that you need to put in there. So it clearly is going to be all-consuming in all ways you can possibly … think, for however long you’re doing it.

So be ready. It’s a difficult, difficult slog. As I said, the sentence that I use a lot is that “I’ve burned the candle at both ends and the middle for the last eight years.” It’s taken a physical toll, a personal toll, a mental toll on me. I’ve come out on the other end fine.

You have to be cognizant going in — it’s going to take a heavy toll on you whether you like it or not. If you’re in it, you will enjoy the process, but there’s a huge life outside of what you’re doing that you’re completely missing for however many years you’re in this. So you have to be ready for that.

Some would say it’s probably a young person’s game because of the sheer amount of physical and mental energy that’s required. It’s probably true to some extent, but not to say that people above a certain age can’t do it. Some of the bigger sites, companies, and some of the successful stuff happening out there is not just run by young people. Also the business part of it has to be run by adults, metaphorically speaking, not just age-wise.

I don’t know if that’s advice, but that’s just perspective on what the reality is in the business right now.

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