Note: I’ve opened this Member Brief for the week. This analysis is supported by the Executive Membership. You can be a part of it under 20 seconds by starting here.
The viable companies of tomorrow are the niche brands of today.
In 1985, a high tech “surf phone” debuted in Southern California. In Surfing Magazine’s “Currents Section” that spring, the editorial team asked a question: “What if you could call a number any time of day and get an up to the minute report on surf conditions?” There was demand, inquiring surfers called, and a phone service called “Surfline” became an immediate hit within its niche audience. Surfline used the technology of its day, the 1-800 number, to help novice and advanced surfers score their biggest waves.
Ten years later, Surfline entered the internet age. Surfline.com was launched in 1995 with the first live surf cam at the famed Huntington Beach. The network of surf cameras would grow to global proportions. The niche that was once Southern California became a niche that was global, in pockets all across the world.
Another 25 years would pass before the Southern California niche steadied its platform for another expansion. With a reported audience of just over 3 million, Surfline became the most recent investment by the venture arm of The Chernin Group (TCG). The recent coverage of the $30 million dollar investment into the 35-year old privately held company concluded with the following excerpt on the plan by CEO Kyle Laughlin:
Laughlin tells Axios that his goal is to do what many other TCG-backed media companies have done, which is eventually set up several lines of revenue tied to the loyalty of a hyper-niche audience. 
There is a sharpening contrast between two main paths to growth and monetization. Like gladiators in a digital arena, the two strategies are sharply divided: one optimizes for reach and the other optimizes for depth, one optimizes for volume and the other focuses on brand equity and cohort utility. In a recent chat with TCG Co-Founder Mike Kerns, he explained:
What’s so special about Surfline is the combination of content, community, and utility. Not many others [media brands] have that.
He went on to list Strava, Peloton, The Action Network, AllTrails, and TradingView as others within this category.
In the same year that Verizon Media Group sold its HuffPost property in an all-stock agreement to BuzzFeed, The Chernin Group acquired Food52, sold a majority of its stake in Barstool Sports to the publicly-traded Penn National Gaming, led a major investment into Surfline, and positioned themselves as a lead investor in Hodinkee’s Series B. Surfline represents a subset of TCG’s frequent investment target: niche brands. This type of media serves as a loyal, impassioned vehicle for commerce. When speaking to Axios, Laughlin was focused on a particular path to monetization at Surfline, often the most difficult of the monetization strategies for media:
He hopes to one day venture into commerce.
Contrast this with the language from the recent coverage of BuzzFeed’s new agreement with HuffPost:
The deal also includes an agreement to syndicate content between the two companies while collaborating on advertising and creating a joint innovation group to explore other monetization opportunities. 
In just under 28 words, syndication, collaboration, advertising, joint innovation, and monetization were cited as features of the new alliance between Verizon Media and BuzzFeed. These are vague theories built atop the promise of scale.
Often, the intended strategy falls flat. The expansive land grab of media consolidation hasn’t proven its staying power in a market that is fragmenting by the week regionally, politically, economically, demographically and socially, to name a few. And this is the type of market for which BuzzFeed and Verizon feel that they can build an all-encompassing marketplace of ideas.
Revenue opportunities in consolidation-minded media conglomerates are available after a certain level of reach. The revenue opportunities for niche-minded media companies are available after firms earn a certain level of loyalty. The value of reach varies with market dynamics; loyalty tends to stand on its own merits, independently of market forces. The Niche Mind is the model for the viable media companies of the future, and TCG seems to have its finger on the pulse.
Linear Commerce and The Niche Mind
There are two brands that exist today. A broad brand benefits from wide recognition. Companies like Walmart, Google, Target, Kraft, Ford, Yahoo, BuzzFeed, and Dell Computers are highly recognized but may or may not be particularly beloved.
A niche brand is beloved but lesser known. These brands serve the needs of a small group, meeting a problem with a solution that inspires loyalty, passion, and motivation. Companies like Tesla, Barstool Sports, Rimowa, Daily Harvest, Lululemon, and Rapha are niche brands. The business models could not be more different.
A broad brand increases profits by attracting more casual customers at a marginally higher cost of acquisition or by improving the margins of their existing customer base. A niche brand has a highly engaged audience that is typically more enthusiastic about products and services.
The viable companies of tomorrow are the niche brands of today.
In a 2019 article by Digiday’s Max Willens, he wrote about the appeal of the niche media business model. Niche brands are lesser-known but well-loved because they acknowledge a small group and solve a niche problem (just like niche brands). Niche media has more motivated customers, more effective advertising, and the ability to charge a premium. Niche media grows not by volume but by depth. Willens on the subject:
Publishers trying to figure out how they are going to diversify revenue would do well to look at the smaller, niche publishers that had to diversify years ago. These examples, who serve a mixture of business and consumer-facing audiences, attack the problem from different angles, but they have all figured out how to thrive in a digital media ecosystem that pessimists say is inhospitable for everybody. 
Willens mentions two of TCG’s properties in his list of eight: Food52 and Hodinkee. Rafat Ali’s Skift is another that meets the threshold of this niche brand model. While Willens was slow to critique publishers, former Digiday Editor and President Brian Morrissey has long been critical of a poorly-executed broad brand approach to media. In criticism of Daily Mail’s approach of serving above-fold advertising to the reader, he wrote:
The biggest flaw of ad-funded media is the separation of the customer (the advertiser) and the audience. […] Behold this disaster of a page from the Daily Mail, a publisher with a successful ad business, mind you. 
He goes on to illustrate The Athletic’s land grab strategy. Originally pitched as a post-modern mix of ESPN and your local sports page, a membership that was once a premium-priced business-to-consumer product ($64) can be bought for $8.
The Athletic is in land-grab mode. It wants to amass a huge number of subscribers — its last self-reported figure in September was 1 million — in order to own the premium sports information and analysis market.
In an effort to transition from niche brand to broad brand, The Athletic has encountered enough resistance to reduce its price by nearly 90%. There is an argument to be made that there is no “ownership” of a market as fragmented as today’s.
media as fashion–Big Box Media: ‘Prêt-à-Porter (mass market). cheaper but less personal. value per individual is low. discounts value (strategy)Boutique Media: Haute Couture (niche market). expensive but more personal. value per individual is high. maintains value (strategy)
The Chernin Group’s venture has outsmarted the market. By acquiring majority stakes in niche brands, it has built the media ownership model that accounts for changes in the market. TCG is the most viable media conglomerate: it’s what Verizon Media strived to become and what BuzzFeed cannot. The shift in how consumers interact with brands – digital or otherwise – is representative of a larger behavioral change of media companies being viewed as retail brands. As Surfline CEO Kyle Laughlin suggested in his strategy for Surfline’s revenue growth, linear commerce is the final stage of media brand viability.
Law of Linear Commerce: the lines of demarcation between media and commerce are fading. For the brands that are most suited to the modern retail economy: media and commerce operations work to optimize for audience and sales conversion. This is the efficient path for sustained growth, retention, and profitability. [2PM, 5]
But with very few exceptions, such as the New York Times, media publishers cannot operate within the confines of the old adage “monetizing eyeballs.” Like products on a retailer’s shelf, media is a brand now. The TCG timeline is more than a portfolio of acquisitions, it’s a digital map of what it takes for brands to succeed in a fragmenting market. But it’s more than that. Most conventional media ownership groups still believe that reach matters more than depth. TCG has proven a model that reach can be achieved by accumulated depth. This is the new media model for the age of the niche mind.
By Web Smith | Editor: Hilary Milnes | Art: Alex Remy | About 2PM