“Why Content is King” Follow-ups

Your questions and critiques, answered!

Hello friends! Hope you had a restful holiday break. I’m writing to you from Palm Springs, where my wife and I have decamped for the month of January. It’s nice and warm here, and I’m working on something exciting that we’re launching soon :) The pace of Divinations will be slightly slower until then, but right back on track after that!

So! Today’s topic is my last essay, Why Content is King. I was thrilled to see how many questions, comments, and critiques of it y’all had. Fortunately, it’s all the sort of response that any writer dreams of getting: insightful, well-reasoned, and from people who care. Feedback like this is worthy of an equally thoughtful response. So instead of stray twitter threads and comment replies, I thought I’d aggregate it all into a follow-up essay.

Let’s dive in!

Starting with the first critique...

“Sure, content is great. But tech businesses are still better than media businesses.”

I got a lot of feedback from folks who read the essay under the mistaken impression that I was trying to argue that content businesses were more valuable than technology businesses. I can understand why, because I opened with the quote from Bill Gates saying most of the real money made on the internet will come from content, and the title was “Why Content is King”. My bad! That wasn’t actually the point of the essay. Instead, I had a much more modest goal: to help people understand how content can create power. 

Even if, in general, tech businesses are more powerful than content businesses, I still think content businesses are overlooked and underestimated by tech investors. And I think it’s interesting to examine the ways content actually creates power. So I just wanted to explore that, not make any categorical claims about what type of businesses are more powerful than others.

“But come on, you said content is king!”

Fine, you got me there! I should have followed Mayank’s advice 😆

Ok! Now that we’ve addressed critiques of the title, let’s move onto the first power:

“Content doesn’t have economies of scale. Those only happen when costs decrease per unit produced.”

Here I think we’re mostly quibbling over definitions of words, but I think it’s actually pretty interesting to unpack. 

In a traditional context where a company manufactures a physical good, the way economies of scale works is they are able to bulk purchase, buy sophisticated equipment, and find a variety of ways to make their unit cost go down. So while it might cost a lot of money to make the first widget, it costs much less to make the second, and even less to make the millionth, and so on.

With content if you count each piece of content as the “unit” then it’s true that you don’t actually get very strong economies of scale. You get some, because the studio can re-use certain equipment and labor, but it doesn’t cost significantly less to make an incremental new unit of content (whether that’s a book, movie, album, or article).

But this is the wrong way to view “units” in a media business. What we’re instead looking for is how much it costs to serve each customer. If you made a movie for $100m, then it would cost $100m to serve one customer. If you had 10 customers, it would cost $10m per customer. If you had 100m customers, it would cost $1 per customer. This is just about as extreme as economies of scale can get: a situation with all fixed costs and virtually zero variable costs.

So that was scale economies. Now, let’s move onto the critique of my claim that content can have network effects...

“The value I get from others consuming the same content as me is infinitesimal—not enough to support a network effect.”

This is an interesting objection. A few thoughts:

First, I should be clear and admit that I don’t think content’s network effects are as strong as social platforms. But I do think they’re significantly stronger than most products. Like, just taking a random example from my current field of view, I don’t think light bulbs have any network effects at all. They rely on an open standard for connecting to electricity, and other than that, the lightbulb you use has nearly zero impact on the lightbulb I use. Content is obviously a totally different thing. People rationally pay attention to what other people are paying attention to.

Second, I think behind this objection is an interesting phenomena: I don’t think we’re consciously aware of the full set of reasons we gravitate towards certain content and not others. There’s a great book called “The Elephant in the Brain” that explains quite convincingly how our motives are somewhat inaccessible to our consciousness. So just because someone claims they don’t feel like it matters what content other people consume, doesn’t mean we should take that assertion at face value.

Third, I think people who argue this point tend to think of network effects like a binary value — either you have them or you don’t — instead of what they are, which is more of a scalar value — every business has them to some extent. It’s like gravity. Everything has some gravitational attraction, but for most everyday objects it’s so tiny it doesn’t matter. The definition of a network effect is when a product gets more useful as more people use it. The lowest common denominator version of this is simply that if you run into trouble with the product and it's popular, it’s easier to get help fixing it than if it’s an obscure product. But of course that’s usually not a big factor when considering a purchase, and besides, if every product has network effects, doesn’t that water down the concept to the point where it’s meaningless?

What’s needed is some reliable way to quantify a network effect, the same way we can quantify gravitational force with a gravimeter. If we had a “network effectimeter”, we could have intelligent conversations about how most businesses have anywhere from 1–2nfx, and Disney has 100nfx, and Facebook has 300nfx. Unfortunately we do not have a good way to isolate and measure network effects, so our conversations are swamped in an unhelpful morass of fuzziness and abstraction.

So that was the second power, network effects. Now let’s tackle the next objection, which was about switching costs:

“It’s not actually hard to switch away from one genre of content to another if I want.”

Have you ever had a conversation with someone who believes in absolute free will? They always tend to say something like, “I can do whatever I want! Watch this” — and then they snap their fingers, clap their hands, or perform some other type of convenient physical gesture. (It’s funny how they almost always do this, as if it were fate.)

Anyway this objection to the switching costs inherent in content kind of reminds me of the people who assert their freedom to do whatever they want. I mean, technically I guess you can do whatever you want, but unless there’s some trigger in your environment and the perceived cost/benefit adds up, you probably won’t. So most people tend to stay invested in certain subcultures with a remarkable degree of stability throughout time. It doesn’t feel like you’re “locked in”, sure. It feels like you’re living your life. But that doesn’t mean that there aren’t forces outside your conscious awareness that broadly determine the patterns of your life.

Also, the point of switching costs is not that they have to be infinitely high for them to matter. It’s that they create some amount of friction to trying new things. Sometimes that’s enough to make the difference. If you get totally absorbed in a specific sub-genre of content, it’s possible for other type of content to attract your attention, but slightly less likely. Maybe this lasts for an hour, maybe a couple weeks, maybe years. In some cases, like religion, it could last a lifetime. 

That’s the last of the critiques. Now let’s explore some of the interesting observations people had!

“Don’t some of these powers contradict each other?” 

Yes! For example, one commenter noted that Barstool Sports used counter-positioning to gain power relative to ESPN on the back of charismatic individual talent, while ESPN used process power to establish formats that relied less on individual talent to retain more power at the brand level. So there was a trade-off where each company exploited one power to the exclusion of the other.

This is a smart comment and I totally agree! As in many aspects of business, there are all sorts of fascinating trade-offs that you encounter when the reality of your industry meets abstract principles of strategy.

Now, for one final question, which I loved:

“Can non-media companies leverage the power of content to succeed?” 

Definitely. One great example is Peloton. They really sell hardware, but it’s differentiated through software and content. The universe of instructors and classes becomes familiar, and keeps people using Peloton, even if some other equipment comes around that costs less or offers additional features.

Another example is Glossier. It started as content, which built trust and attention. Then they launched their own products. You might think the content isn’t that important and was just there in the beginning to help them get off the ground, but it’s still a vital part of Glossier’s business. People ultimately want to purchase from brands they know and love. (See also: the “branding” section of Why Content is King).

This reminds me — if there was one reaction to the piece I was most surprised by, it was the extent to which Marketing Twitter loved the idea of content having power.

I didn’t see it coming, but I should have. So many businesses take off because they are able to create narratives that gain momentum. Pure utility is almost never enough, not only in consumer but also in enterprise.

It makes me wonder: how many tech companies, public and private, achieve astronomical valuations on the back of their narratives, rather than their technology?

That’s as good a place to leave it as any :)

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Thanks for writing a followup to the original article. I actually really like metacomments on a situation. It helps give more perspective & content, instead of single-mindedly pushing a narrative. In this case - that content is paramount/ king. This followup acknowledges nuances across media/ tech and media-tech businesses

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