Leonard Brody In­ter­view

An in­ter­view with Leonard Brody

The Insider - - CONTENT -


Do you re­al­ize that for the first time in the his­tory of our species, we own our own com­mu­ni­ca­tion at mass scale, at a global level? In the past, with recorded me­dia, trans­mit­ted wire, the tele­phone and TV, we had one-to-one or one-to-many chan­nels that were ex­tremely ex­pen­sive to build and were reg­u­lated by gov­ern­ments. To­day, hu­man be­ings pos­sess a many-to-many, un­reg­u­lated com­mu­ni­ca­tion ca­pa­bil­ity that costs us next to noth­ing.

So what’s so im­por­tant about that? Well, ac­cord­ing to se­rial en­tre­pre­neur and ven­ture cap­i­tal­ist, Leonard Brody, it is this phe­nom­e­non that is fu­el­ing the mass changes we are ex­pe­ri­enc­ing in busi­ness and in so­ci­ety to­day – dis­rup­tions that are rewrit­ing the planet from the ground up.

I re­cently caught up with Leonard to chat with him about his new book, The Great Re­write, and how it per­tains to our pub­lish­ing and busi­ness part­ners.

Let’s start with what ev­ery pub­lisher wants to know – how to gen­er­ate rev­enue in this dig­i­tal world.

There are two rea­sons why tra­di­tional me­dia rev­enue hasn’t dropped even more sub­stan­tially than it al­ready has. One is be­cause rev­enue on the web and mo­bile is so ef­fi­cient and the cost ef­fi­cien­cies keep get­ting bet­ter and bet­ter; there is no cost ef­fi­ciency in tra­di­tional me­dia.

The vol­ume num­bers in tra­di­tional me­dia look big­ger be­cause there are no ef­fi­cien­cies. Mean­while, we’ve been the mas­ters of our own ef­fi­cien­cies. That brings the cost per unit down so the gross num­bers go down. But when you look at num­bers, it’s hi­lar­i­ous.

I was hav­ing a meet­ing with some TV peo­ple from Los Angeles in a Toronto broad­caster’s studio the other day, and there was this huge pro­duc­tion for a na­tional show be­ing filmed – big studio, live au­di­ence, high costs. So I said, “How many peo­ple do you think watch this show ev­ery day?” The guy from LA said, “I don’t know a mil­lion, a mil­lion five.” I said, “200 to 250 thou­sand.”

It’s crazy. There are thou­sands of videos on YouTube of cats play­ing the pi­ano with ten times more view­er­ship than that TV show; and yet the rev­enue scales haven’t fully tipped.

I hon­estly think the best mod­els for in­ves­tiga­tive jour­nal­ism are paid mem­ber­ship and non­prof­its. If you can cre­ate a model where there’s trans­parency around where the money comes from and where the boards come from, and then fol­low the same rules as any else­where, I think for in­ves­tiga­tive jour­nal­ism, that’s go­ing to be im­por­tant.

In terms of break­ing news. I don’t re­ally know. The only way I can see or­ga­ni­za­tions sur­viv­ing is by mi­grat­ing away from think­ing of those as profit cen­ters and us­ing me­dia as loss leader to bring in trans­ac­tional rev­enue.

If I was to run a me­dia busi­ness to­day, I’d be try­ing to get as trans­ac­tion­ally-fo­cused as I could. I’d be look­ing at con­sol­i­da­tion. I’d be look­ing at ac­quir­ing to cre­ate ef­fi­cien­cies of scale and economies of scale. I’d be mov­ing re­ally, re­ally quickly to di­ver­sify my rev­enue and to sell my own prod­uct and use me­dia as a loss leader to sell other forms of prod­uct and rev­enue.

In terms of trans­ac­tional rev­enues, where do you see those com­ing from?

Old me­dia sold prod­ucts for other peo­ple; new me­dia should be sell­ing its own prod­ucts. They should be able to have their own trans­ac­tion busi­nesses with­out be­ing con­flict­ual with their ad­ver­tis­ing base.

As long as pub­lish­ers are not treat­ing them­selves bet­ter than they would their other advertisers, I don’t think the advertisers will care. They still have the au­di­ence and jour­nal­is­tic in­de­pen­dence. To me that’s the only model that’s go­ing to work, in a mean­ing­ful way. That and di­ver­si­fy­ing into more omni-chan­nel con­tent - get­ting a lot more video-fo­cused and a lot more episodic like tele­vi­sion. But even that is not go­ing to re­place a bil­lion dol­lars in print rev­enue.

If pub­lish­ers had de­vel­oped, part­nered, or bought the rights to Groupon or Price­line when they were small, they prob­a­bly could re­place those losses. But pub­lish­ers tread very slowly and so now me­dia needs to be­come a loss leader when it comes to news and daily con­tent.

Do you see this lead­ing to a con­sol­i­da­tion of brands?

Yes, I think you’ll see more of it and you’ll see it hap­pen­ing here in Canada. Within news there are so many sub-lay­ers. There are na­tional dailies, large city

dailies, com­mu­nity week­lies and then there are the al­ter­na­tive press. There is a time when the al­ter­na­tive week­lies were re­ally pro­tected – a holy grail that every­body kept go­ing to.

I re­mem­ber the al­ter­na­tive week­lies be­ing pretty ar­ro­gant about that five or six years ago when large me­dia com­pa­nies tried to buy them. Their valu­a­tions were too high and it was a li­cense to print money. Every­body needed to ad­ver­tise their lo­cal restau­rant and movie listings in them be­cause it was much cheaper than ad­ver­tis­ing in the dailies.

Now they’re strug­gling; to­day most of the web and mo­bile pres­ence for the al­ter­na­tive week­lies is ter­ri­ble. They just missed the boat. It shows you that the bell rings for ev­ery­one; at some point your num­ber’s up and so you need to start pre­par­ing for it now.

Con­tin­u­ing with con­sol­i­da­tion and look­ing at a cou­ple of Cana­dian ti­tles… If the Na­tional Post was ab­sorbed into The Globe and Mail

through con­sol­i­da­tion, do you think Post read­ers would switch over to The Globe?

That’s a good ques­tion be­cause the Na­tional Post caters to the more right-of-cen­ter de­mo­graphic in my view. The ques­tion would be, does the cov­er­age in

The Globe have enough to cater to that de­mo­graphic? My guess would be, prob­a­bly not. If the

Post went away, you might have some of that au­di­ence pick up

The Globe, just for the busi­ness sec­tion, but they would have lost that neo­con­ser­va­tive, right-of­cen­ter au­di­ence. It’s in­ter­est­ing.

What will also hap­pen is as these old lag­gards fal­ter there will be new op­por­tu­ni­ties for younger com­pa­nies to fill the void. Fol­low­ing the neo­con­ser­va­tive ex­am­ple, you can look at Ezra Le­vant. When Sun TV died, Ezra started his own me­dia busi­ness. He doesn’t have the over­head; he doesn’t have the prob­lems. He can just do what he does, make a liv­ing do­ing it and cre­ate an au­di­ence.

In the wake of an ex­plo­sion, there will be lots of lit­tle par­ti­cles left­over. I think you may very well see a rise in a whole new kind of me­dia or­ga­ni­za­tion. Buz­zFeed is try­ing to get into news which is an in­ter­est­ing ex­am­ple; although most news or­ga­ni­za­tions would not con­sider Buz­zFeed a news or­ga­ni­za­tion.

If you look at all of the ma­jor in­dus­tries, that’s ac­tu­ally a re­ally good thing. Take a look at Face­book as a me­dia com­pany; cer­tainly it’s the largest in the world by au­di­ence and soon will be the largest by rev­enue. Face­book is run by some­one who has no me­dia ex­pe­ri­ence. Airbnb is run by some­one who has no hos­pi­tal­ity ex­pe­ri­ence. The same goes with Google. That’s why the model looks so dif­fer­ent.

Most pub­lish­ers be­lieve they own their au­di­ence be­cause their read­ers trust their brand and their jour­nal­ism - trust that has been gen­er­a­tionally de­vel­oped…

I think that’s a fal­lacy. I think pub­lish­ers be­lieve that; I don’t think it’s true.

It is in­ter­est­ing be­cause jour­nal­ism is kind of weird in terms of trust. Jour­nal­ists walk this fine line be­tween art, sci­ence, and be­ing a pro­fes­sional, as do lawyers. But in the prac­tice of law, I have some­one that I’m ac­count­able to. If I work on your file, and I mis­ap­pro­pri­ate funds I don’t just lose my job, I lose my li­cense to prac­tice law any­where.

But if you’re a jour­nal­ist, and you mis­ap­pro­pri­ate facts or you pla­gia­rize, who do you an­swer to? You may get fired, but no one can stop you from ap­ply­ing your craft some­where else. There’s no­body re­vok­ing your li­cense to write.

I think that, along with me­dia com­pa­nies’ be­lief that they have this deep trust, are fal­la­cies that are dy­ing away. With the

ex­cep­tion of a few brands like

The Econ­o­mist, Forbes and The New York Times which do have that trust, I’m not sure there are many more in the North Amer­i­can con­text.

You’ve spo­ken about the in­creased trust of al­go­rithms over peo­ple by mil­len­ni­als. Where do you see jour­nal­ism fit­ting in that?

When I spoke about al­go­rithms, it was specif­i­cally around fi­nan­cial plan­ning and wealth man­age­ment. I think mil­len­ni­als that grew up in the 2008 re­ces­sion tend to trust an al­go­rithm over a hu­man be­ing to man­age their money. By the way, they’re prob­a­bly right be­cause the al­go­rithms would out­per­form hu­man be­ings. Not al­ways, but more of­ten than not.

There’s go­ing to be a lot of Ar­ti­fi­cial In­tel­li­gence (AI) in jour­nal­is­tic ac­tiv­ity. How­ever, I think you’re also go­ing to see a re­nais­sance of tra­di­tional jour­nal­ism be­cause it’s in­cred­i­bly im­por­tant. I think that what it looks like and where it’s be­ing de­liv­ered will change, but the craft of sto­ry­telling, fact find­ing, cu­rat­ing and paint­ing is­sues for peo­ple to talk about is go­ing to be­come more im­por­tant in a world that’s be­ing rewrit­ten, be­cause the dia­log be­comes im­por­tant.

As AI be­comes more preva­lent with more eth­i­cal con­cerns I think you’ll see a lot more jour­nal­ism - part of it will be writ­ten by hu­mans and part of it will be AI-writ­ten.

Will jour­nal­ists then be­come brands of their own, or do they need the legacy brand to carry them for­ward?

I think it’s go­ing to be much more about the jour­nal­ist and their brand than the brand they be­long to. There will be ex­cep­tions to that, of course.

If the Na­tional Post went away to­mor­row, you might have six of the ma­jor jour­nal­ists start a new brand; or six of them start in­di­vid­ual brands, like Ezra Le­vant did, where they do in­ves­tiga­tive jour­nal­ism on their own.

Given the reach and abil­ity to get to au­di­ences quickly, if they were mak­ing, say $200,000 a year as one of the key jour­nal­ists, they’re go­ing to make dou­ble or triple that run­ning their own or­ga­ni­za­tion, writ­ing ar­ti­cles and col­lect­ing ad­ver­tis­ing on their own. That’s com­pelling for a lot of peo­ple. It’s a lot of free­dom and they don’t need the in­fra­struc­ture, over­head, headaches and stress. They can just do what they love to do, which is write.

If you can gen­er­ate enough in­come, just do­ing it on your own with less fric­tion and less interference, you ar­guably get bet­ter jour­nal­ism from the peo­ple who are more com­mit­ted to the craft.

So I think jour­nal­ists will look for other forms of rev­enue, but ad rev­enue should be able to sus­tain smaller, more nim­ble or­ga­ni­za­tions. I think where it’s prob­lem­atic is when pub­lish­ers try to use it to sus­tain large, bloated or­ga­ni­za­tions where the rev­enue won’t be there. For an in­di­vid­ual that wants to gen­er­ate $300K-$400K to cover their costs of host­ing, mort­gage and all that, I think it’s doable, very doable.

The rewrit­ing of busi­ness What in­dus­tries are at the fore­front in terms of cap­i­tal­iz­ing on the great re­write?

I think the fi­nan­cial sec­tor is at the fore­front. I think they’ve made in­cred­i­ble ef­forts to work with the start-up com­mu­nity. The R3 Con­sor­tium’s Blockchain ini­tia­tive has 45 banks al­ready on board to start work­ing on the blockchain as the mech­a­nism to dis­trib­ute money and other things, such as le­gal doc­u­ments.

I think the fi­nan­cial in­dus­try is one of those sec­tors that saw all the other in­dus­tries fight it, and they de­cided in­stead to join it and be­come big in­vestors in the space. This year (my num­bers may be off a lit­tle bit), in the Fin­tech space, the num­ber of deals over $50 mil­lion in in­vest­ment size has quadru­pled. And of those large deals, at least 30-40% of them have a cor­po­rate backer, like a bank or in­surance com­pany.

What about hos­pi­tal­ity, travel and trans­porta­tion. We’re see­ing a lot of dis­rupters in that space.

I think the hos­pi­tal­ity in­dus­try is slowly com­ing to the party. At first, Airbnb was the en­emy and now ho­tels are try­ing to fig­ure out how to work with Airbnb. To me the only in­no­va­tion that has gone on in the ho­tel busi­ness has been in the cre­ation of new sub-seg­ments of the mar­ket – new brands like Moxy for mil­len­ni­als or brands that are more fe­male-skewed.

The bou­tique ho­tel move­ment that Ian Schrager started 30 years ago was kind of a unique move­ment in the sense that it took over older build­ings, re­designed them, cre­ated a vibe/flow in the lobby and turn­ing it into a bar and com­mu­nity. I guess that was a slight in­no­va­tion. We’re see­ing a lit­tle bit of that with the cap­sule ho­tels now like Ci­ti­zenM. But they’re not rewrit­ing them­selves; they’re not look­ing at mod­els.

When you’re rewrit­ing an in­dus­try, the dif­fer­ence be­tween rewrit­ing, dis­rup­tion, and in­no­va­tion is that with rewrit­ing you’re look­ing at your busi­ness and think­ing, “What are the ma­jor and ob­vi­ous con­straints that make this busi­ness de­fense­less?”

In the ho­tel in­dus­try they are con­strained by hav­ing to con­struct a build­ing and zone it for one use. So if they have 300 rooms they have to fig­ure out how to make the math work con­sis­tently to get 300 peo­ple in there ev­ery night at the max­i­mum yield all year round. They can’t take 100 rooms and use them for some­thing else be­cause of the zon­ing con­straints.

Res­i­den­tial real es­tate own­ers are be­com­ing re­ally in­ter­est­ing com­peti­tors to ho­tels. Airbnb is one ex­am­ple, but Real Es­tate In­vest­ment Trusts (REITs) and real es­tate own­ers can also take per­cent­ages of their build­ings and cre­ate a dis­trib­uted ho­tel across a bunch of prop­er­ties. So in the off sea­son, when it’s not very busy, they can use rooms for ex­tended stay, long-term rentals. When high sea­son re­turns they can quickly con­vert the units back so they look and feel like ho­tels again.

What other tech­nolo­gies do you see im­pact­ing hos­pi­tal­ity?

There’s a com­pany in the US called Proxce which is likely go­ing to be­come the de­fault stan­dard for how ho­tels open and shut their doors. Ba­si­cally, it’s a fed­er­ated iden­tity sys­tem that works with Blue­tooth through the door. It’s a piece of mid­dle­ware that al­lows you to con­trol any­thing in the room, the el­e­va­tor, the ther­mo­stat, etc.

As more and more things get con­nected into the room, peo­ple won’t need to have 15 dif­fer­ent apps or carry fobs around.

There seems to be a bal­anc­ing act be­tween pri­vacy and the con­ve­nience you get with this new tech­nol­ogy. How do you deal with that?

Hon­estly, the an­swer is that you don’t give them a choice. If you want to stay at this ho­tel, then this is your key. If the ho­tel is the place they want to stay for what­ever rea­son, it’s amaz­ing how many peo­ple get over that pretty quickly or don’t even think about it.

When it comes to pro­mot­ing new and unique ser­vices like PressReader for guests in ho­tels, it’s go­ing to be a much more in­ter­est­ing uni­verse be­cause now the mar­ket­ing prob­lem goes away. Your key will be the por­tal into the whole ho­tel or any real es­tate rental.

You’ve said be­fore that it’s im­pos­si­ble to pre­dict what will hap­pen more than two years out. You also said that boards of di­rec­tors need to change to en­sure they can project up to five years out. How do you see these co­ex­ist?

The anal­ogy is driv­ing. When I’m driv­ing a car, I can only see about 200 feet ahead of me, but that 200 feet is con­stantly mov­ing

be­cause I’m mov­ing. I know as a driver I can only see a cou­ple hun­dred feet, but I know there’s a bunch of other stuff com­ing and I have to con­sis­tently be aware and pre­pared for it (putting aside au­ton­o­mous ve­hi­cles as we drive to­day). I don’t think it’s any dif­fer­ent for boards.

For real in­sti­tu­tional change to hap­pen in a com­pany, it has to come at the board level. Or­ga­ni­za­tions to­day are not struc­tured to in­no­vate in a world where the rules are chang­ing so quickly and that’s per­fectly fine. These com­pa­nies weren’t built to be struc­tured like that. That doesn’t mean you can’t do any­thing about it.

CEOs are com­pen­sated on the cur­rent and present, and maybe a bit for one or two years out. There’s re­ally no­body in the or­ga­ni­za­tion that is forced to unify. Some would ar­gue that’s the CEO; I would ar­gue that it is true no­tion­ally, but not eas­ily done in ex­e­cu­tion.

The board has to have an en­tity who has a com­mit­tee (mostly of out­siders) that is con­stantly fo­cused on hold­ing the man­age­ment and the board ac­count­able for the fu­ture of the busi­ness.

Man­age­ment and the board will work with what they can see on the road and the com­mit­tee’s job is help them fig­ure out what’s com­ing and how to pre­pare for that, rec­og­niz­ing that they’re go­ing to be wrong 90% of the time. Go­ing to a board of di­rec­tors at a pub­lic com­pany in the United States and say­ing, “By the way, we were wrong on 90% of our pro­jec­tions”, isn’t go­ing to go over very well.

The en­tire in­fra­struc­ture is built from the bot­tom up not to not re­ward that. You have to cre­ate an al­ter­na­tive in­fra­struc­ture that re­wards that in or­der to help the moth­er­ship do what it needs to do. That model, I think, is get­ting more and more trac­tion, but I think it has to be de­liv­ered at a board level. How can you be pre­pared for what’s com­ing if you can’t see what past two years? The an­swer is to be pre­pared for mass fail­ure and ex­pect you’re go­ing to be

wrong 90% of the time, but the 10% which pays back will do so in spades.

That cul­ture is not easy to do with reg­u­lar board of di­rec­tors. Sam­sung has some­thing equiv­a­lent to the fu­tures com­mit­tee. Their board of di­rec­tors an­swers to every­body so they all have to scrub their plans against the or­ga­ni­za­tion to make sure they’re think­ing about three to five years out and re­ally build­ing for that. Sam­sung does a great job. Oth­ers are start­ing to, smart ones any­way.

At the INMA World Congress this year you said pub­lish­ers need to cre­ate a par­al­lel com­pany whose job is to kill the old one…

It ac­tu­ally hap­pens a lot. It’s ex­actly what Google did with Al­pha­bet when Google broke the com­pany up into mul­ti­ple parts. Google in­sti­tu­tion­al­ized it by cre­at­ing “De­vel­oper Fri­day”. One day a week, de­vel­op­ers work on what­ever they want; it’s an in­sti­tu­tion­al­ized form of par­al­lel­ism right down to a mi­cro level. In­di­vid­ual de­vel­op­ers are par­al­lel or­ga­ni­za­tions who’ve been told to “Go build stuff. Bring it for­ward. Test it and we’ll put it through the labs and we’ll see what works and what doesn’t.” Much of Google was built that way. Ar­guably Gmail, Hang­outs, all those other in­no­va­tions came from de­vel­ops work­ing on an­cil­lary prod­ucts they thought would be in­ter­est­ing.

Ac­tu­ally, you know who’s do­ing a very good job of it now? Mi­crosoft. This could be a real rebound for Mi­crosoft. They’re pump­ing out new prod­ucts al­most weekly. They just re­leased Plan­ner, the Trello com­peti­tor app; they re­leased Sprightly; they re­did Out­look in mo­bile and bought Sun­rise and a bunch of car­ri­ers they em­bed­ded into Out­look. They’ve just launched five or six new apps and all this hap­pened through their labs.

The ques­tion is what should they buy next. They bought Yam­mer and if they want to own that mar­ket, Slack would be the best pur­chase. The ques­tion is whether they can af­ford it. Slack may be out of the reach now for com­pa­nies like Mi­crosoft be­cause they are go­ing to want valu­a­tions now north of three bil­lion. They have to jus­tify that based on rev­enue. It may be more ef­fi­cient for Slack to stay pri­vate and go pub­lic in the next three to four years on its own.

I would ar­gue that Slack is po­ten­tially build­ing the new Mi­crosoft. If they were smart, Mi­crosoft would buy it; I just don’t know if they can af­ford it.

Tell me more about your new book – The Great Re­write.

The Great Re­write was a the­ory, a school of thought on how to look at in­no­va­tion in a new way. To me, in­no­va­tion as a con­cept is out­dated; we’ve out­grown it. It’s not just about the in­ter­net and it’s not just about dis­rup­tion. It’s about mass in­sti­tu­tional changes on the

planet, mass so­ci­etal changes and changes in peo­ple’s be­hav­iors. I think it’s very sim­ply ex­plained as a re­turn to com­mon sense.

Al­most ev­ery­thing we do is based on a power pyra­mid where ev­ery­thing is con­trolled by other peo­ple, whether it’s in govern­ment, re­li­gion or ed­u­ca­tion. As tech­nol­ogy in­verts that pyra­mid the other way around, you can re­turn to com­mon sense. You can of­fer peo­ple prod­ucts and ser­vices in a way they ac­tu­ally want, where there’s noth­ing dic­tated.

It’s a huge in­sti­tu­tional change on the planet. It’s not just af­fect­ing me­dia com­pa­nies. It’s go­ing to af­fect ev­ery­thing, es­pe­cially as more and more things get con­nected to the net­work. I think that’s where a lot of in­dus­tries are fail­ing to grasp the grav­i­tas of what’s go­ing on, of the change that’s hap­pen­ing in the world.

The Great Re­write was writ­ten in a se­ri­al­ized way through

Forbes. Although it is a book, it’s also a fran­chise. The con­tent ap­pears in text on Forbes.com and in Forbes mag­a­zine. And there are 21 short videos filmed by Emmy-award win­ner, Shawn Efran of 60 Min­utes -- videos that fea­ture com­pa­nies from six ver­ti­cals (e.g. man­u­fac­tur­ing, en­ergy, health­care, fi­nan­cial, etc.) and look at how these tra­di­tional in­dus­tries are be­ing rewrit­ten. The video, text and case stud­ies/ pro­files are amal­ga­mated into two things:

• A book (which will cover much more than what we’ll pub­lish in the mag­a­zine)

• An hour-long doc­u­men­tary which will be mar­keted and sold

Thank you Leonard for shar­ing such com­pelling in­sights into our fu­ture. You’ve given us a lot to think about, but more im­por­tantly, to act on.

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