This story was originally published in On Background with Mark Stenberg, a free, weekly newsletter that explores the key themes shaping the media industry. You can sign up for it here.
Over the past few years, I have spent a good portion of my life documenting how content-to-commerce models fall apart.
The concept is simple in theory: a media company combines its audience with a commerce operation, creating a flywheel that monetizes twice—first through advertising, then through sales of the products. But in practice, it rarely works.
Last December, I reported on how The Chernin Group’s bet on the model unraveled in spectacular fashion at Food52, Hodinkee, and The Pro’s Closet, costing hundreds of millions of dollars and hundreds of jobs in the process. Before that, I tracked Recurrent Ventures as it raised $300 million to build a content-to-commerce empire, only to later retreat from the affiliate business that once powered it.
So last week, when Recurrent sold one of its editorial brands, Outdoor Life, to a new fund promising to supercharge its commerce business with AI, my first instinct was skepticism.
After talking with two of the founders, I am still skeptical. But the pitch is more considered than I expected, and it warrants a closer look.
Commerce meets community
The newly formed fund, called eFormed Ventures, acquired Outdoor Life from Recurrent on Oct. 7 for an undisclosed sum.
The firm, which is based in beautiful Bend, Oregon, is backed financially by a handful of family offices, has about 25 employees, and plans to keep all of the roughly 10 staffers it inherits from Outdoor Life, according to managing partner Tom Beusse.
As is often the case with content-to-commerce plays, the thesis makes perfect sense on paper.
Enthusiast publishers like Outdoor Life inspire readers to buy gear, then send them away at the moment of purchase through affiliate links. Last year, Outdoor Life drove more than $20 million in purchases, according to Beusse. But affiliate commissions top out around 14% to 15%, and Amazon roughly halved its rates this spring, so Outdoor Life would likely only bring in a few million in revenue for generating those sales.
To capture a larger portion of that sale, the publisher wants to inspire those sales and facilitate them on-site, which it plans to do with a proprietary AI platform, called Resonance.
The technology will tailor product recommendations and pricing based on factors like seasonality, location, and shopping behavior, theoretically surfacing products and offers to consumers at more opportune times. The AI will not be used for editorial, according to Beusse.
“We are not buying a commerce business that is about to start,” Beusse said. “We are just directing it differently.”
The company has spent the last few years building Resonance and has been testing the technology on the Field & Stream storefront since January, which it has access to thanks to a licensing arrangement.
In that time period, the storefront has posted triple-digit growth, though it is still early, according to managing partner Mike Morford.
Learning from the past
When I mentioned to Morford and Beusse that I had covered content-to-commerce models critically in the past, they were aware of the challenges.
Still, according to Morford, the problem has always been execution, not the concept itself.
“Content to commerce works for the consumer,” Morford said. “Just not the businesses.”
When I reported on the Chernin Group and its application of the model, my reporting identified four specific fault lines.
The first was friction between editorial and retail, because the skills that produce credible media rarely match those needed to run a store. eFormed has effectively built a team designed for both: It has retail and outdoor-industry veterans such as Scott Blackwell, formerly of Beretta and Remington, alongside Outdoor Life’s existing bench of editorial staff.
The leadership history is more mixed. Beusse ran F+W Media until its board removed him in January 2018, after an aggressive e-commerce push. The company filed for bankruptcy the following year, according to GearJunkie. A shortened timeline and limited capital were partly to blame, according to Beusse.
The second fault line was the natural ceiling on niche categories. On this front, there is reason for optimism. The outdoor community is huge—roughly five times the size of the golf community, according to Beusse—and many of its related activities require consistent purchases. Ammunition, tackle, and apparel get used up and replaced, which looks more like Epic Gardening, the one clear Chernin success, than The Pro’s Closet and its $10,000 bikes.
The third was inventory risk, as managing product efficiently is a difficult blend of art and science for even the most veteran retail operations. The eFormed team brings with it a wealth of retail experience.
It plans to blend owned inventory with “virtual” inventory held by partner retailers, and track sell-through rates and gross margin to keep stock from becoming a cash sink, according to Morford.
The fourth was overextended capital. eFormed is a holding company backed by family offices, not a private equity firm, according to Beusse, and its lean team suggests modest overhead. How much capital it has, and how patient its backers will be, remain unknowns.
The challenged future
Two questions went largely unanswered.
The first is traffic. A marketplace makes each Outdoor Life visitor more valuable, but it does not bring in more of them. Traffic to the website was up 19% year over year through April, according to Recurrent, but the search ecosystem that feeds publishers is shrinking.
The second is trust. Once a publisher owns inventory, it has a financial reason to favor what it stocks over what its testers prefer. The Outdoor Life audience would punish that immediately, according to Beusse. Maybe so, but the safeguard depends on whether the editors who test the gear are ever pressured to favor the products with the highest affiliate rates.
Overall, the irony of the deal is hard to miss. Recurrent spent three years moving away from commerce, and it just sold one of its most commerce-friendly brands to a buyer making the opposite bet.
eFormed is hoping that with better tools, more focused ambitions, and no pandemic, it will succeed where others have failed.
Talking Heds
ABG Media (EXCLUSIVE): On Monday, the licensing company Authentic Brands Group hired Lark-Marie Anton as its chief communications officer, a newly created role. The firm, which acquires companies and licenses out the rights to operate them, owns an expanding library of brands, including media titles like Sports Illustrated. Its decision to hire Anton, who was previously the chief communications officer at USA Today Inc., signals its interest in growing its media business, which makes up around 20% of its revenue currently, according to CEO Matt Maddox. The company generates $1.8 billion in earnings on $2.2 billion in revenue—an astounding 81% margin, owing to its low-cost business model—and is preparing to join the public markets next year. Among other responsibilities, Anton will be tasked with presenting a cohesive corporate narrative to investors—no small feat given its grab-bag of brands, which include Reebok, Brooks Brothers, and the IP rights associated with Elvis Presley.
Breaking and Entering and Dating: The creator duo behind Breaking and Entering, a social franchise dedicated to covering the advertising industry, have launched an outlandish campaign to promote their upcoming live show. Working with the out-of-home provider Quan Media, Geno Schellenberger and Jack Westerkamp plastered images of themselves on billboards and taxi hoppers across the city. The tagline, which reads We Need Dates for an Event on Nov 4th, also includes Westerkamp’s real phone number (630-346-3494). The stunt is just the latest in a series of gimmicks the duo have concocted, including one memorable out-of-home ad that featured their faces grafted onto the bodies of weightlifters that I passed several times while walking through Nolita. The stunt is further evidence of my theory that out-of-home marketing is on the rise, as well as a testament to the lengths the B&E guys are willing to go to fill seats. Of course, I plan to attend.
Fabulous Person: My wonderful friend Mary Bryce, a musician and writer in Austin, writes one of my favorite newsletters, called Diary of Mary Bryce, and this week she featured me in it as part of her Fabulous Person series. You can read the small profile here, but I would encourage you instead to read her writing—here is her latest missive, memorable both for its upsetting detail and its unflattering portrayal of my favorite restaurant in Austin. For all the professionalization of the newsletter space, many of my favorite Substacks are diaristic, small vignettes from the lives of people I know mostly from afar. Aside from Mary, two of my other favorites are Angel Cake and Wishlist. Of course, Emily Sundberg has grown Feed Me to its current heights in part due to its memoirish qualities. I imagine this has some relation to the increasingly parasocial nature of social media, but who knows.
Influencer Agency M&A: In recent weeks, an uncanny number of social and influencer marketing agencies have been acquired, with the latest such tie-up coming on Wednesday, courtesy of Billion Dollar Boy purchasing Creator Authority in a “multimillion-dollar” deal, per Business Insider. This deal comes just days after Saylor merged with Mutiny and SAMY bought Get Engaged. According to James Creech, the founder of creator M&A advisory Quartermast, there have been 26 agency acquisitions year to date, nine of which are creator marketing agencies. The BDB deal marked the 109th creator economy M&A deal this year, compared to 91 all of last year. The deals reflect the continued maturation of the space, as well as incumbents’ realization that they need creator capabilities, but the brief takeaway is: start a creator agency.
Quote/Unquote
Chris Balfe is the founder and CEO of Red Seat Ventures, a podcast company acquired by Fox last year that monetizes some of the biggest podcasts on the planet, including Ashley Flowers’ Crime Junkie. Balfe cofounded the company alongside his brother, Kevin Balfe, in 2015, and named it after the single red seat in Fenway Park that marks the farthest home run ever hit in the stadium—502 feet, by Ted Wiliams.
I met Balfe at the Red Seat offices in Flatiron on Wednesday to discuss the company and the rapidly shifting state of the podcasting industry, which was a subject of several conversations I had last week during Advertising Week. We talked about competing with SiriusXM, Amazon, and Netflix for the biggest shows in the ecosystem, why no streamer has become a real home for video podcasts yet, and why he thinks short-form platforms pay creators far less than they should.
This interview has been edited.
Mark Stenberg: You sold to Fox early last year. How has being part of Fox changed what Red Seat is trying to build?
Chris Balfe: It happened fast. I got a Twitter DM from Paul Cheesbrough, we did a Zoom, he came to New York, and within about six weeks we had sold the company. It was a real shotgun marriage. What changes is your sense of how big and how fast you can go.
Mark: Who are you actually competing against for top-tier shows?
Chris: We love the long tail of podcasting, but that’s not where we play. When you ask who’s going after the Giggly Squads of the world, it’s Netflix, Amazon, SiriusXM, and us. Netflix’s pitch is exclusivity, Amazon will maybe do one deal a year—they want to be in the Kelce and Oprah business—and Sirius has a long legacy in audio. We’re much more video-focused.
Mark: What streamer, excluding YouTube, is winning the battle for podcast talent?
Chris: None of them yet. For most podcast creators, the money comes from three places: Apple, Spotify, and YouTube. I’d be excited about a streamer becoming the fourth leg of the stool, but they need to deliver audiences consistently.
Mark: You called short-form video a monetization gap for creators. What do you mean?
Chris: We get a lot of monetization value from Apple and YouTube, but comparatively little from Instagram, TikTok, or YouTube Shorts. The U.S. short-form video market was over $100 billion last year, and it was built off the backs of creators who are not paid anywhere near what they should be. I’m not naive enough to think I’ll change their pay rates. So we need to sell it better. Influencer budgets are a separate pool from podcast dollars, and we need to tap into that money for our creators.
Mark: You just signed Caleb Hammer to the network. Who’s next?
Chris: We’re ramping up how quickly we sign new deals, so expect more announcements from us in the next six months than in the last six. The goal is to be in every genre, starting at the top. We like to sign the biggest show in a space, like Kill Tony in comedy or Crime Junkie in true crime, and then build around it.
Pulled Quotes
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