Mebane Faber and Josh Brown’s posts about how best to fix TheStreet.com ($TST), got me thinking about the different types of financial content and the relative value of each. I currently see three major types of content generators – Reporters, Observers and Parrots.
Reporters are the easiest to define and the ones we’re most familiar with. They are the people or organizations that actually do the work of a reporter. They have contacts, they do research, they break stories. AP, Reuters, The Wall Street Journal and Bloomberg fall into this category. Their value is simple to define, they are a definitive news source (i.e. their name is often referenced in subsequent summary articles by other organizations) and they are often the first to break or release a specific story. There is tremendous value generated by this type of content and their sites are updated constantly throughout the day and they have been successful in licensing or charging for their news feeds and content. Its virtually unfathomable to imagine the financial news industry without the above mentioned companies.
Observers are where most bloggers and columnists fall. They do not break the news, they instead interpret or react to it. Paul Krugman, Barry Ritholtz, Josh Brown and the majority of the daily links at Abnormal Returns are observers. The value of their content varies widely based on its actionability and timeframe. At the top of the list is content that is either actionable in a very short timeframe (e.g. a specific trade idea) or that is non-actionable and not time sensitive (Barry’s Apprenticed Investor series). The least valuable is non-actionable short term information (e.g. $AAPL is acting strange here) or actionable and not time sensitive (e.g. buy and hold $AAPL for 10 years). The biggest advantage observers have is they do not have to publish constantly. If there is nothing interesting happening, there is no need to push out ten new stories. The downside is that this type of content has proven very challenging to monetize on its own.
Parrots are sites that feel to push out new stories constantly throughout the day, yet do not have the infrastructure or access to “new” stories that the reporters do. This leads them to generate a ton of content that is either a summarization or articles from one of the big reporting sites or vague non-actionable “advice” without a real timeframe. All content is generated with a single goal, drive page views. As Josh mentioned this leads to articles that should have been one page becoming three, ads everywhere and Business Insider style headlines. This model combines the worst of both Reporters and Observers as it has a relatively high cost structure (many writers pushing out tons of “content”) yet has a monetization value similar to blogs. It also lacks the “authority” that the traditional news generators enjoy. Would a hedge fund or quant firm building a system that requires machine readable news would license TheStreet.com or BusinessInsider over Reuters/AP/Bloomberg/WSJ?
The questions about TheStreet.com’s business model raises a much larger issue. The vast majority of the actual financial news is generated from very few companies that generate substantial profits. There is a tremendous amount of high quality reaction and interpretation of this news (bloggers, StockTwits, columnists, etc) that is almost all available for free and generates minimal revenue. Is it even possible to build a sizable business around a group of “Observers” when there is so much quality free competition?