Leonard Brody Interview
An interview with Leonard Brody
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.