Disintermediation – A story of legacy and social media

Social media is disintermediating legacy media, debundling individuals from organizations, and capturing the new value this provides more efficiently than legacy media was ever capable of doing.

The tectonic plates in the media industry have been shifting for some time now. For years I have noticed many media stories are essentially a rehashing of social media posts (usually tweets) from those who are directly experiencing what they are posting to social media. Usually these articles come out days after the news has already been broken on Twitter. Increasingly it seems people are following their favorite writers directly instead of reading the entire news subscription of the organization they belong to.

This brings us to the important concept of disintermediation.


 dis·​in·​ter·​me·​di·​a·​tion | \ ˌdis-ˌin-tər-ˌmē-dē-ˈā-shən  \

Definition of disintermediation

1: the elimination of an intermediary in a transaction between two parties

Source: Merriam Webster

Source: Wikipedia Commons

Social media is disintermediating traditional media, debundling individual creators from organizations, and capturing the new value this provides more efficiently than legacy media was ever capable of doing.

In the case of content creation there has been a continuous growth in supply of content from users of the social media platforms themselves. This content “crowds out” legacy media, and the creators accessible on social are also usually the primary sources in the legacy media. Increasingly the legacy media organizations are just another account competing for views against every other account on platforms they do not control. This combined with how most news sites have been monetized likely represents a permanent cap on the success of their businesses without fundamental change. Furthermore the accounts they are competing for attention with are often more authoritative original sources than themselves, and thus get frequently captioned in legacy media content.

A fresh example is during the COVID-19 crisis. I became aware in early January from individuals who were either subject matter experts or contrarians able to see trends in advance that COVID-19 was a significant issue. Individuals such as Trevor Bedford, Balaji S. Srinivasan, and Jon Stokes. Whilst all very different individuals they bravely sounded the alarm while the media consensus was still that fear of COVID-19 was worse than the disease. Despite the legacy media pressuring people not to wear masks and running articles suggesting fear was worse than the disease, the above individuals never wavered in their message. To illustrate how contrarian this really was at the time here are some headlines:

Washington Post: How our brains make coronavirus seem scarier than it is

Washington Post: Get a grippe, America. The flu is a much bigger threat than coronavirus, for now.

“Clearly, the flu poses the bigger and more pressing peril; a handful of cases of the new respiratory illness have been reported in the United States, none of them fatal or apparently even life-threatening.”

- Lenny Bernstein, Washington Post health and medicine reporter

New York Times: In Europe, Fear Spreads Faster Than the Coronavirus Itself

We’ve learned a lot since these articles were created but it is important to highlight how each of the people mentioned above went against popular opinion at a time when it was incredibly difficult to do so and sounded the alarm, again and again, for months. They also did so with little fanfare or even opposition from legacy media at first. While each of the individuals above could have their own article on sounding the alarm on COVID19 I will focus on Trevor.

Trevor along with his colleagues at The Seattle Flu Study sounded the alarm on community spread in the United States with proof via testing no doubt saving countless lives. To those following the right people it has been obvious since February that COVID-19 is a respiratory illness, an airborne virus capable of human to human transmission, and that masks for effective for greatly slowing or halting its spread depending on the type of mask and how it is worn.

One of the interesting things the above illustrates is the legacy media’s subject matter experts used for sources are the same people on social media posting in great detail all of this overlapping information for free. With this crisis you would have been much better served avoiding the traditional gate keepers of information and going directly to the source, specifically with Trevor a Harvard educated biology PhD.

Assuming you are able to identify good primary sources there is little value in having additional intermediaries. One potential value add is discovery of new content, however social media has also handled that exceedingly well with different platforms coming up with different often addicting ways to see more of what you engage with.

More broadly people seem to be using social media as their sole gateway to 1st party sources of information. In this world legacy media companies are one of many high follower count accounts people choose to consume content from. Even if people did not consciously choose to switch their information consumption gatekeeper it would appear two things are true:

  1. A sufficiently large enough group of people have adopted these platforms as their primary information sources that public opinion is shaped by them and ad dollars have moved to them.

  2. Individuals are increasingly following specific writers whom they trust, as opposed to following an entire media institution.

For years now social media companies have been capturing not only most of the value the legacy news corporations previously did, but also growing new markets for attention. Since there is overlap with content creators on social and legacy media most of the financial value of the readership will shift to where attention is spent.

It doesn’t hurt that ad spend also seems to be significantly more targeted and higher ROI on social media platforms vs alternatives due to the volume of information they’ve accumulated on their users.

The value capture and shift in attention can clearly be seen by looking at the fundamental revenue and net income growth (or lack thereof) of legacy media companies vs social media companies.

Revenue of legacy media companies:

Source: Macrotrends.net

Net income of legacy media companies:

Source: Macrotrends.net

Below is a breakdown of new media platforms: Facebook, Twitter, Snap Chat, and Google (YouTube) with their corresponding revenues:

Source: Macrotrends.net

Net Income of new / social media companies:

Source: Macrotrends.net

Here is the profit margins and recent sales growth of each company:

Data source: Finviz.com

Finally let us look at revenue and net income between the large social medias and large legacy medias over time with a shared axis:

Source: Macrotrends.net

Source: Macrotrends.net

While legacy media has declined or stagnated social technology has absolutely thrived. This is not a zero sum game for attention and trust but it does appear that these trends will continue.

The above is an interesting lens to what has already happened, but what is more interesting is what happens next. The implications of these shifts, if new media moats are defensible, and how best to profit in the new emerging direct to consumer order will be covered in a future article.

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