Monetizing IP vs monetizing the carcass

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TheSkimm’s 13-year journey ended with what is widely assumed to be an uninspiring exit to Ziff Davis. 

This is one of several of what PvA recurring character Anonymous Banker called “monetizing the carcass.” You can add into the mix Tastemade selling for far less than it raised, and PE firm Regent picking up Techcrunch off Yahoo and IDG’s tech media assets. 

(Side note: It’s malpractice that a brand like TechCrunch was not a more successful business. It has a marquee brand in the middle of the explosion of the tech industry. It had editorial reach, event franchise (Disrupt), awards (Crunchies) and above all else, a valuable data asset in Crunchbase. Splitting off Crunchbase hurt; fumbling subscriptions didn’t help; and Yahoo’s aggregation model was ill-suited to maximize the value of a B2B brand.)

These clean-up deals are a coda to an era. Yet it’s worth noting that Dude Perfect started in 2009 and built its trick-shot empire with margins exceeding 50% – they got into the 70s, according to a pitch deck I saw – without VC backing. It’s a reminder that operating excellence reigns supreme. 1440 CEO Tim Huelskamp, who came to media from the financial world, makes the point that all revenue is not created equally.

But that’s only half of the media story. On The Rebooting Show, I spoke to Dude Perfect CEO Andrew Yaffe about the impressive business that five early YouTubers built around trick shots. They steadily built the business to $35 million in revenue and 50%+ EBITDA margins. 

I love bootstrapping success stories. Most media businesses shouldn’t raise institutional money; we don’t need to go over the canon of case studies. The opportunity for The Information founder Jessica Lessin’s Lessin Media is to give small boosts to niche businesses so they can get an early capital infusion without getting on the VC treadmill.

Dude Perfect’s $200 million investment from Highmount Capital is more like the exits we will increasingly see. The founders retain meaningful stakes in the business, but they took plenty off the table. The big question is if they’ll want to grind it out on a tour doing trick shots as rich middle-aged guys. That’s why the creator businesses that last need to become franchises.

Unfortunately for most VC-backed companies of the 2010s, the results will not be as cheery as Dude Perfect’s. AB expects several big names to trade for little cash but a cut of future returns after they are “rationalized” and unloaded to the professional business optimizers to have their remaining value wrung out. If you haven’t heard from a VC-backed publisher from the last decade, you might want to check in.

Inside Dude Perfect’s business model

An enduring challenge of the media business is finding leverage in models. This used to be fairly straightforward. Newspapers had leverage as quasi-local monopolies, Magazines had leverage that allowed Vanity Fair to pay a writer nearly $500k for three articles a year – and still be nicely profitable. And so on. It’s increasingly hard to find that kind of leverage beyond a few exceptions to the rule. 

The closest is likely in lean creator businesses that have created valuable intellectual property that can be monetized in various ways. Dude Perfect is a great example of this. The five dudes from Texas A&M went from viral trick-shot videos on YouTube to building a very profitable media franchise with diverse revenue streams Beyond YouTube ads, Dude Perfect developed business lines in merchandise, licensing and live events. 

It is a testament to the benefits of bootstrapping. According to an investor deck I saw, Dude Perfect grew to $35 million in revenue with over 50% EBITDA margins. That attracted a $200 million valuation in a funding led by Highmount Capital to expand the business.

Andrew Yaffe, the Dude Perfect CEO who joined in October 2024 from the NBA, spoke to me on The Rebooting Show about how to build enduring franchise value in this kind of creator-led media business. (One item on the to-do list: Introduce more characters beyond the original five dudes.) 

“We describe ourselves as a 21st century media company,” he said. “It starts with content, but is much broader than that.”

Dude Perfect wants to build a franchise media company around its IP that uses its family-friendly, kids-oriented brand to extend well beyond advertising. The company has a robust tour business – it sold 200,000 tickets in 2023 – and has built a massive headquarters in Frisco, Texas, that aims to be an experiential destination for fans.

The test of its franchise value (Andrew prefers “defensible IP”) is its licensing and products business. It linked up with Walmart for a toy line. 

“Advertising and partnerships can scale linearly,” he said.”But experiences and products can scale exponentially.”

Listen to the full conversation

Feedback: Not all revenue is created equally

Tim Huelskamp, CEO of newsletter publisher 1440, wrote in to make a good point about revenue per headcount as an important metric. The most important metric is profits, and high revenue doesn’t do much if you have equally high costs. From Tim: 

"Revenue per head – as you know, we're well over $1m+ RPH – is important, but is missing a critical part of the calculus. As we used to say in the VC/PE world: not all revenue is created equal. 

As an example, many of these platforms share a large majority of their revs with the writer/builder, so their "net" RPHs are much, much lower.     

At risk of sounding like Adam Neumann, this is why 1440's EBITDAG metric is so important.  It's often also called contribution margin, but essentially what percentage of my revenues are true "profit" (post gross margin and overhead) that can be used to reinvest in the business, pay dividends/pay off debt, invest in new projects, etc. 

Many of these media businesses can have high RPH, but then low take rates/terrible gross margins, and large overhead leading to highly negative contribution margin or EBITDAG. RPH is helping get us to the right place, but it's certainly not the whole story. 

I think the media industry will get there eventually, but most folks still don't see the whole story on the path to building durable/profitable/scalable enterprises, which media continues to struggle with...it's almost a self-fulfilling prophecy."

Send me your feedback to bmorrissey@therebooting.com

Monetizing the carcass

The digital media cycle has moved from collapse to cleanup.

In the cleanup phase, valuations and returns go out the windows as distressed media assets are traded for pennies on the dollar and with little expectation of brand revival. It is the M&A version of an unwanted pet being sent upstate.

Anonymous Banker joined the latest episode of People vs Algorithms to give a frank assessment of the market for digital media assets, which has less in common with traditional M&A and more in common with a garage sale.

“These are not traditional M&A deals,” he said. “These are clean-up transactions. These are ‘you take this off our hands, and we’ll call it even’ types of deals.”

This is what happened with TheSkimm, which was absorbed by Ziff Davis for an undisclosed price after having raised $28 million. The same goes for Tastemade, which Wonder acquired for $90 million after Tastemade raised $131 million. Meanwhile, Yahoo offloaded TechCrunch to private equity firm Regent for an undisclosed price. Regent also acquired the past-their-prime tech media assets of IDG last week in another undisclosed transaction. 

“You’re not rebuilding the brand,” Anonymous Banker said. “You’re monetizing the carcass.”

Ouch. Many of these deals are structured in a way that inflates perceived value. What might be reported as a $50 million acquisition may in fact involve just $5 million in cash, with the rest made up by writing off debt and other accounting maneuvers.”Financial theater,” in Anonymous Banker’s view.

In some ways this is the story of media evolution. Assets move through different life phases. “Creation, expansion, collapse, cleanup,” Troy said. “Welcome to cleanup.”

For better or worse, there are more of these deals to come, as AB says there are “a ton of media names people would recognize” that are being shopped or informally shopped. 

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