Who are the 1% in Digital Media?

In 2009, Americans spent more time watching TV than any other form of media. Six years later, digital platforms have taken over. Digital accounts for 47% of media consumption, more than any other format.

As media companies seek to adapt to the changing environment, some have been far more successful than others.  L2’s Intelligence Report: Media Winners & Losers – released today – analyzes the “class system” prevalent in today’s media landscape. The upper classes (“One-Percenters,” “Mass Market” and “Luxury”) include household names such as Netflix, Apple and Facebook, well-defined brands with extensive reach and consistent revenue. At the bottom (“Below the Poverty Line”) are companies similar to Newsweek and TV Land, unable to compete in the digital universe.

Does a media brand offer premium, exclusive content that people will pay for? And does that content reach a wide audience? Those are the two stringent requirements to join the “One-Percenters” — an elite handful of companies that includes Amazon, Apple and ESPN.

Brands such as Netflix and Spotify, which feature the strong premium content of the “One-Percenters” but lack their enormous reach (so far), fall into the “Luxury” category. Although many Luxury brands come from the New Media world, others are Old Media players who have successfully adapted to digital.

For example, The New York Times remains in the Luxury category due to its strong brand loyalty and subscription-driven business model while most U.S. newspapers struggle. In the TV industry, cable providers such as AMC and The Disney Channel have thrived by offering content that people are willing to pay to watch. Through acquisitions such as Pixar and Star Wars, Disney has prioritized developing proprietary brands over selling advertising. Only 18% of Disney revenue comes from ad sales.

Other big names in the media world, like Facebook and BuzzFeed, fall into the “Mass Market” category. Like the One-Percenters, these brands have enormous reach and sophisticated targeting. However, their revenue comes primarily from advertising rather than content.

According to the L2 study, the digital media world’s middle classes face the most uncertain future. Companies like AOL, Yahoo! and Vox have struggled to achieve the scale of successful Mass Market brands or the premium content that would group them in Luxury. Even “Upper Middle Class” brands like Hulu, The New Yorker and The Washington Post must reach larger audiences to survive on ad sales alone.

This is not to say all Middle Class media outlets are about to become extinct. Many are finding new ways to supplement their revenue. Under the leadership of Amazon founder Jeff Bezos, The Washington Post has begun licensing its technology to smaller publishers. Vox and Business Insider are moving in a similar direction. The future of the Middle Class may depend on the success of these alternative revenue models.

Download a copy of L2's Intelligence Report: Media Winners & Losers here.