Stuff Nation Sucks But Will Slow Fairfax Death Spiral

Stuff Nation sucks because it is simply depressing content to consume. The submissions to the assignments posted by Stuff Nation editors are a fascinating insight into how the median voter thinks. The comments are even worse. But I think that Stuff Nation will eventually make Fairfax a fortune, relative to the decline of the dinosaur print industry.

One of the differences between Stuff Nation and the blogosphere is that bloggers seem to post more interactive content. We link to data, journal articles, opinion pieces and even source material like interviews if we’re that advanced in our blogging. But we are content production and content consumption outliers – political nerds, news nerds, sports nerds, finance nerds. We are not the target market for advertisers paying the bills of sites like Stuff.

Fairfax have been very clever in getting social media accounts linked to Stuff Nation accounts. Why? Because every time someone gets a submission received, they’ll boost their traffic slightly. It is easier to get thousands of people sending an extra couple of dozen pageviews – we have to remember that not everyone consumes content at the level or frequency of the blogosphere bubble.

There is evidence that when people read a newspaper, they tend to look for something that confirms what they already believe. What executives at Fairfax probably realised is that even though their journalists and columnists were producing content that many people liked, they had nowhere near the level of engagement that 17 Hottest Puppy Outfits would get on BuzzFeed.

Giving ordinary Kiwis a platform to share their opinion is like a self-reinforcing traffic machine. There is also a higher likelihood that the whole process can be manipulated by trolls or astroturfing operations. Considering how lobbyists can get hundreds or thousands of select committee submissions that use the same phrases, it’s possible to get thousands of submissions to things like Stuff Nation past the editors who are unlikely to be paid enough to care.

Stuff Nation and the Stuff website itself are stuck in “post and forget” mode. Other news organisations like Reuters, Quartz and even USA Today have made the move towards “flow” content where there are constant updates throughout the day for different content streams.

Because Fairfax needs to make money from online advertising somehow, anything that increases the amount of content they produce is a good thing. Stuff Nation is a cheap way of getting enormous amounts of additional content available at almost $0 save the additional server and data expenses. It is easily to hide an advertorial when there are 100 posts a day as opposed to 10.

I am sure that Fairfax will eventually ditch the old school Stuff website and integrate everything with Stuff Nation. Sprinkled amongst the assignments and the editorial content from a very small number of Fairfax journalists will be “sponsored assignments”.

Because most people have adblock installed and the constant increase in banner ad supply driving prices down to really cheap levels per CPM, sponsored content – like advertorials – is the only way for them to monetise that content.

How does this fit in with trends in journalism? Well, algorithms can produce stories indistinguishable from what an entry level journalist would produce with the same inputs. There is no need to pay someone $30,000 a year when an upfront investment in IT enables you to get rid of most of your newsroom.

If you are a content producer – journalist, reporter, columnist, editor, whatever – being inside the matrix is likely to be a net negative for your lifetime earnings. Having your own domain name and your own self-publishing projects is likely to be more profitable than locking up all of your content with Fairfax or APN or whoever you want to work for.

Stuff Nation sucks, but it is sadly the way of the future. The economics of online advertising dictate pandering to the lowest common denominator if you are targeting the mass market. The low entry costs for competitors mean that there is no guarantee that Stuff will be one of the top news websites in 2 years time let alone 10 years time.

Fortunately, the economics of the internet permit the long tail – the niche content producers – to earn a decent living. The value of journalism has been determined for 99% of the world’s journalists – it’s worthless unless you are the winner in the market like the NBR, Financial Times, Bloomberg or the Wall Street Journal.

Fairfax Selling TradeMe Is No Surprise

The news that Fairfax are selling their stake in TradeMe is no surprise. This is because Fairfax has made a string of poor decisions over the past decade.

They failed to aggressively expand in online media, benefiting primarily through the acquisition of TradeMe. They loaded up on debt and TradeMe was a key contributor to maintaining Fairfax’s debt servicing ability over the past few years.

The reduction in Fairfax’s debt will give them a lot of breathing room. But it will basically take them back to the position they were in pre-TradeMe. That’s a poor online strategy.

It is a fascinating insight into how executives are not very good stewards of shareholder wealth, if you subscribe to that theory. It’s also an interesting insight into how supposedly smart people can make really dumb decisions.

If we look at Fairfax’s most recent investor presentation, we see Fairfax are trading away a business with a margin of 75% (TradeMe) and EBITDA growth of 11.2% for a core group of businesses with margins between 5% and 28%.

The Fairfax executives are basically betting that their transformation strategy will deliver more cost reductions and revenue growth than using TradeMe as a cash cow to pay down their other groups debt.

Their arrogance is amazing. From their own financials, only their internal whole of group restructuring (HR, IT, operations) is delivering higher returns than TradeMe!

One of the biggest contributors to their cash flow – enabling them to stay alive – was the proceeds from the TradeMe IPO!

But we have to remember that the major Fairfax loss is a non-cash impairment as a result of their ~$2.8 billion writedown in masthead value and goodwill.

They have to write down the value of their print assets, yet somehow think selling off TradeMe is a good strategy.

This action reminds me of something Bob Jones wrote in one of his books – whatever AMP is doing, do the opposite.

Corporate executives have a track record of poor decisions. Fairfax loaded up on debt during the boom and delayed aggressive cost reduction until it was too late.

Now they’re letting go of a franchise business with massive margins that can fend off any¬†competition for the foreseeable future.

This whole debacle is another reason why excessive executive compensation is so wrong.

You can make completely stupid decisions that put a company on a trajectory to insolvency but there is no likelihood of Fairfax executives having to repay their “make hay while the sun shines” compensation.

If I was a major institutional investor in Fairfax I’d be extremely annoyed to the point of spending the rest of my career aggressively shorting companies with executives responsible for this at the helm.

“Go short the idiots who think selling TradeMe is a good idea” could be a rewarding hedge fund strategy over the next decade or so!