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April 29, 2017

Newsonomics: Univision's Big Bet on E-Commerce, Built on Gawker's Ashes

What was Gawker? A trailblazing, piercer of pretense? A snarky, vestigial leftover of the early bloggy web? A company that early on understood the relationship between reader enthusiasm and selling stuff?

Probably all three. It’s the last one though — Founder Nick Denton’s embrace of selling goods — that may be one of its greatest legacies.

Last August, Univision surprised the publishing community with its $135 million purchase of Gawker’s assets out of its legal woe-driven bankruptcy. In the eight months since, that purchase has led to a renewed Univision digital strategy, and much of that drive has been propelled by commerce, initiated by Denton and now set to widely multiply, as Univision’s main Spanish-language site plans to move more deeply into the commerce game itself.

 

First published at The Street, on April 18, 2017

Follow Newsonomics on Twitter @kdoctor

Univision has struggled mightily in its core TV business as the NBCUniversal-owned Telemundo catches up to it and younger Latinos trade TV watching for digital time spending. With its acquisitions overall, and its big emphasis on e-commerce, Univision aims to be in the vanguard of news companies re-embracing a business model rapidly enjoying a renaissance.

Though its Gizmodo site recently won a Digiday annual award for its e-commerce work, much of its strategy has been behind a curtain. Now, though, thanks to a series of interviews with Univision’s digital leaders, we can better gauge its new plan as well as the experience at its core. Further, we can see within it why a widening group of large publishers also is looking to commerce for badly needed new revenue.

Call it commerce, e-commerce, the affiliate business or just plain selling and buying, news publishers now newly see the near-term potential of making money in the marketplace.

As their digital advertising growth stalls, imperiled by that increasingly recognized ad duopoly of Alphabet’s Google (GOOGL) and Facebook (FB) , a wide range of publishers has turned to e-commerce, many within the past year. New York Times Co. (NYT) bought the Wirecutter review/commerce business in October, and it now plans to use it as a base for broader commerce plays. Both BuzzFeed and Vox also have announced forays, joined by Conde Nast and Hearst. Business Insider’s Insider Picks, meanwhile, is another business model proved out for the Axel Springer company and has become a significant profit contributor.

E-commerce isn’t ad revenue and it’s not circulation revenue, but rather a curious blend of the two: reader-related revenue. And it’s big. In the fourth quarter, digital commerce passed $100 billion for the first time ever, according to comScore. One in six discretionary retail dollars now goes to a combination of desktop and mobile spending, according to a recently released comScore survey. Unsurprisingly, mobile commerce now makes up 20% of all those e-commerce numbers.

Of course, Amazon (AMZN) dominates e-commerce. These publishers don’t compete with the behemoth; they act as a new middleman to it.

“This year, almost a third of my total revenue comes from e-commerce,” said Raju Narisetti, CEO of Univision’s Gizmodo Media Group. “And we are expecting revenue to be up in the 30% or so range.”

That’s a great rate of growth and one surpassing his other business lines, Narisetti said. He took on the job last September, right after Univision bought Gawker’s six enthusiast sites but not Gawker.com. Narisetti is one of the most known and networked people in digital journalism, connected within a few degrees to almost anyone who’s anyone in the trade. A veteran of News Corp. (NWSA) and The Washington Post, Narisetti has moved on the challenge of a nonlegacy startup, and the trade wants to see what he can make of it.

The Gizmodo Media Group provides the audience for this big experiment in the expandability of shopping. GMG now encompasses eight sites. Six of those — Gizmodo (tech/science/design), Lifehacker (software+), Jezebel (women), Deadspin (sports), Jalopnik (cars), Kotaku (Gaming) — it bought out of the Gawker option. The Root and the recently relaunched Fusion round out the group.

“I’d like to think of them as passion points; so each of these passion points around either technology or sports or transportation has accumulated a very passionate, engaged, curious but opinionated audience, an audience that has come to trust these brands and these sites for their journalism,” Narisetti said.

Univision can sum up its theory of the enthusiast audience to buying audience continuum in three words: “Truth. Trust. Transaction.” The spunkiness of the sites’ individual voices, in this view, is taken by readers as “truth,” who “trust” its authenticity — and thus are more likely to take the site’s recommendations for what to buy. It isn’t they say any allegiance to the Gizmodo Media Group or the old Gawker group but to each individual brand.

Look through the sites and you see plenty of “deals,” featured prominently on their home pages. “Sunday’s Best Deals” included “PowerBeats3, Zippo, Adjustable Dumbbells and More.”

Each of these sites features about four deals a day, as well as separate sponsored offers for e-commerce companies such as alt-mattress seller Casper, a major podcast advertiser as well.

The company’s KinjaDeals site aggregates all the deals from each site, for those who want their commerce without any editorial interruption.

Narisetti said once a shopper hits the actual “offer page,” a conversion rate of 16% isn’t unusual.

The company won’t comment on the revenue share splits it gets from its deal fulfillers; Amazon accounts for three-quarters of its revenue. In general, though, the affiliate business fetches commissions ranging widely from 2% to 20%, varying along with a good’s price, and the ability of the higher-volume sales to negotiate better deals. Most in the wider industry tell me they mostly fall between 5% to 8%. Just recently, Amazon began cutting back on some of its affiliate revenue splits, but Univision, and other major affiliates, tell me they so far are unaffected.

One often unseen reality of the affiliate business: it’s, in part, a lead generation business. A Kotaku reader may click through to buy a $13 mousepad but then buy more stuff — clothes, thumb drives or paper towels — from Amazon. Referring affiliate sites can get revenue share credit for purchases made within 24 hours of the first sale.

If those three Ts — trust, truth, transaction — set up the business here, two Cs cement it, Narisetti said. That’s the combination of commerce and community. Just as Amazon reviews enable shoppers to check the wisdom of the crowds, the active commenting of readers on offered deals often turns them viral.

“Our Co-Op series, where the readers nominate and vote on the best products in a category, has crazy engagement,’ he said. “Eight hundred comments and thousands of votes about men’s jeans,” he said.

Narisetti says that engagement — that same kind of engagement that digital subscription-selling news publishers now highly prize — is core to this commerce business.

“Seventy percent of our commerce audience is organic, direct or recirculation from within our GMG network,” Narisetti said. “We don’t buy commerce audience. Our Facebook numbers are in the lower double digits, slightly higher for some, slightly lower for some, so a significant proportion of our traffic comes directly.”

How profitable is this business?

“Well, it depends on how you measure margins, right?,” said Felipe Holguin, now president and COO of Univision’s Fusion Media Group, which includes the GMG sites and others. “This is incremental revenue. All you’re doing is supporting certain articles or certain identified promotions. The cost is minimal, but the margin on e-commerce is huge.

“We’ve got four or five people who are writing the deals stuff; they’re essentially content creators on the ad side. That’s your sunk cost, and then the more you can spin this, there’s essentially no additional cost. As the team gets bigger, the costs will increase, but hopefully it will be tied to increased revenues.”

It is a separate-from-the-newsroom commercial writing team that puts together what add up to dozens of deals on any given day.

The widening Univision commerce strategy

If we are to understand the emerging Univision digital strategy, we first have to understand the composition of this new Univision.

There’s the Spanish-language TV Univision itself, the country’s fifth-largest network, which continues to move through its own set of trials and tribulations and is often rumored for sale or a public debut. It’s a legacy business trying to find growth.

In less than two years, Isaac Lee, now Univision’s chief content officer and overseer of its digital businesses, has crafted a wide portfolio of digital properties, in part to provide that growth engine. This evolving collection of properties — which may still find new additions — tells us where the mothership — Univision itself, a company with about $3 billion in revenue — may be going.

You may not immediately recognize all of Univision’s new offspring or know how they are related.

It’s a cheaper by the dozen, hard-to-recognize family that Univision has become almost overnight, and almost all by adoption.

Today, its Gizmodo Media Group contains the six properties it got from the Gawker deal and two added in to the group, which was just christened in the fall. The Root, the impressive digital-only African-American news site Univision bought from Graham Holdings (GHC) two years ago, is now part of GMG. Then there’s its homegrown Fusion.net, which has seen an eventful short life. Disney’s (DIS) ABC and Univision created Fusion in October 2013 as a much-ballyhooed TV/digital, 50-50 partnership (that’s the fusion) site aimed at millennials, with an emphasis on English-speaking Hispanics.

Two and a half years later, the parents divorced, citing irreconcilable differences and tens of millions of dollars in losses, with Univision taking full custody. Now a slimmed down Fusion was reborn recently, repositioned as a “social justice” site.

We’re not done, though, with this new media family tree.

In early 2016, Univision bought a large stake in The Onion and its two related sites, The AV Club and Clickhole. The three sites operate semi-independently within Univision but under separate management, headed by Mike McAvoy from GMG.

Add it up and Univision’s Fusion Media Group — the umbrella for all its digital properties — counts an even dozen products, by encompassing the three in The Onion group and univision.com itself.

The company’s digital executives then talk about expanding their commerce strategies and business at each of the dozen, including the mothership.

Holguin explained how Univision Digital, at univision.com, reaching its massive audience, could newly move forward with commerce.

“Let me put it this way,” he said. “Univision, in its traditional business, had a brand extension in the linear world. They do branded phones and credit cards and things through the stores. So there was an internal culture towards commerce. But it always caught my attention that univision.com had nothing. We needed to get into commerce. We went into it with the hypothesis that trust is a proxy as a requirement for commerce. If I was able to find the expertise with iconic brands, I could translate that into Univision.com because univision.com is the most trusted brand in Spanish.”

Which tells us a lot about the next stage of Univision’s journey into e-commerce. “And that’s what we’re planning on,” he says.

How commerce glittered in the Gawker assets

If Univision is right that the market undervalued Gawker’s commerce assets, then it’s worth asking how others missed a buy that may have given Univision a head start in an emerging business line gaining wide adoption.

In the end, Univision had but one competitor, Ziff Davis, as it bid for Gawker’s assets in Chapter 11. Most companies looked at Gawker’s properties and thought it too toxic to consider. Yet Holguin had a different directive from top Univision management — and it turned out, more than he expected, that the Gawker enthusiast sites fit the bill.

“They gave us a mandate to basically go buy a position, which was somewhat different from what the company had been doing, trying to do everything under the Fusion umbrella,” Holguin said. Still, Univision wouldn’t “overpay.”

“We limited the universe to companies that were in special situations, either undercapitalized or they had a complex ownership structure or were in a special situation like Gawker.

“One of the things that had to go through our filter was diversified sources of revenue. So it wasn’t that e-commerce was a mandatory check, but it was clearly top of my list. On The Onion, there was also the same logic. We bought The Onion not only because it was humor and comedy and it was the election year and millennials relate to comedy and they consume their news that way, it was because these guys are experts in branded content. Something I didn’t have in univision.com. That was also a diversification of revenue play.”

Holguin’s dissection of the real value in Gawker’s assets is worthy of attention.

“When we bought the property assets from Gawker, what they were doing on e-commerce caught our attention. … We could see its e-commerce doubling. A couple of things actually caught our attention, which were all linked together. One is Kinja, the content management system.”

The company just completed the move to put Fusion.net on Kinja at the end of March, joining The Root, which had transitioned earlier. Now eight sites are up on the system. The plan: Kinja is becoming the digital platform for the whole company over time, first as its Onion properties move on to it and then univision.com itself.

That Kinja-commerce connection is pivotal. Univision’s digital businesses are all moving to the content management system invented by Gawker, given the belief that its flexibility and power will fuel the wider business. Within that system, the harnessing of user-generated content — mainly comments — is fundamental, as is its built-in connection between content and commerce, as Narisetti has pointed out. For commerce, Kinja helps power and contextualize comments.

Holguin added: “I had used Lifehacker, and I knew that for me, the comments were sometimes more interesting than the articles. The comments were the ones that led me to click and to buy.”

Did the threat of a Gawker taint give Holguin pause as he negotiated a deal? Not too much.

“A lot of people, users, don’t know that Gizmodo was part of Gawker,” Holguin said, a point that rings true for each of the acquired sites.

Univision’s next moves

The Gawker/Kinja acquisition has now set digital Univision on a new path. That strategy is built on technology.

“We’ve focused on an integration effort, a right-sizing effort, and mapping out what we needed to do in the next 18 months,” Holguin said. “The result is not only savings, which was almost $30 million, but also a plan, an engineering plan, a data analytics plan, and the start of that plan is a migration towards Kinja. With The Root newly transitioned to Kinja, Univision has set the rest of its road map.

“The next one is fusion.net,” Holguin said. “Then we start migrating The Onion by the end of Q3 or Q4. That last one, which is the most complex, is Univision, which we’re planning on doing in ’18.

“So, by the end of ’18 or the second semester of ’18, we’ll be migrated into Kinja, and all the systems that we put in place are there to service our current verticals and any future vertical we acquire.”

Will commerce be a consistent business driver across all its digital assets as Univision gets its infrastructure in order?

Holguin believes that established brands — if well-known and trusted — can sell stuff to their loyalists.

“If you are an emerging brand, and you’re trying to do e-commerce, good luck. Now if it’s a younger brand that we’ve acquired, does it make sense? I’m not sure. I’m not sure that it will have the gravitas to be able to convince people to go and click and buy.

“It’s really hard to establish a brand and furthermore to establish a level of trust in the brand. It has to do with the established brand. There are not many. These brands [those bought out of Gawker] were 10 years old. Should I expect to be able to transition e-commerce expertise to The Onion? Sure, it’s a very well-known brand. I think it’s doable. The obvious case is going to be univision.com. It’s a longer play, but we’re going to attempt it.”

That’s old-fashioned TV mated with born-again 2017 e-commerce. And then the almost-circular question of where that aging behemoth — television — may fit in. It’s the same digital/TV puzzle being worked at Comcast’s (CMCSA) NBCUniversal, with its BuzzFeed/Vox investments, and at Time Warner’s (TWX) Turner through its Mashable investment.

“We have a cable channel called Fusion, which before used to be the linear [TV] manifestation of fusion.net and what it’s going to be now is a linear manifestation of Fusion Media Group,”  Holguin said. “So The Onion is going get its block, and Gizmodo is going get its block. We’re going to get our brands in linear, because these brands are so powerful that they travel.”

Cable channel Fusion now offers a potential reach into 35 million homes.

So for Univision, commerce is just one of the many balls in the air. There’s commerce, a TV relaunch, a Fusion digital relaunch, and then there’s its position with the new president of the U.S. Recently, Univision CEO Randy Falco talked about “firing” President Trump, a useful positioning as his network’s audience has been bolstered by its aggressive coverage of the president. For now, though, Univision’s digital transformation is likely to consume the year.

To be sure, Univision, with $3 billion in revenue, and maybe an eighth of that in digital ad revenue, won’t see a great immediate financial impact from the big digital push of its new digital properties. After, all, they will likely produce less than a tenth of Univision’s overall revenue. Just as clearly, though, it is the company’s hothouse for ideas. And, as “linear TV” deals with the many issues of its own maturity, this higher-profile e-commerce expansion hopes to redefine Univision itself.

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