Happy Friday, I'm Dylan Byers.

Welcome back to In the Room, my biweekly private email on the intrigue and inside story behind what’s going on in the media industry. Today, I'm opening my notebook to share some thoughts and leads on ongoing stories of interest in the worlds of streaming and digital media. If you ever have any questions that you'd like for me to address in the column, don't hesitate to reach out by replying to this note. And if this email was forwarded to you, you can sign up here.

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Is Netflix Eating ESPN’s Lunch?

Some thoughts on whether Netflix is trying to steal ESPN’s playbook, and Axios’ turning point. Plus some other dish.

Reed Hastings and Ted Sarandos have no interest in making a play for live sports. The Netflix co-C.E.O.s have stated publicly, and Sarandos has told me privately, that the increasingly exorbitant and often hard-to-justify costs for live rights is money better spent on original shows and films. But that doesn't mean that Netflix can't cash in on the massive audience demand for sports. In Formula 1: Drive to Survive, the documentary series about the world's premier auto racing competition, Netflix has demonstrated that they can drive subscriptions—and even expand the fan base—through supplementary content that, for many viewers, ends up serving as the main attraction. 

Netflix announced this week that they will replicate that model for the PGA Tour and professional tennis. Both series will be produced by Box to Box Films, the producers of the F1 series. And in a lucky bounce for Netflix, their tennis series will kick off with the drama surrounding Australia's decision to cancel Novak Djokovic's visa ahead of the Australian Open.

Netflix is hardly the first media company to cash in on sports documentaries; it was preceded by ESPN (“30 for 30,” etc.) and HBO (“Hard Knocks,” etc.), among others. It's also not the only new entrant in the field: Amazon, for instance, has the “All or Nothing” series, which has followed several NFL franchises and European soccer teams. And yet, no one seems to be succeeding in this arena and capturing the zeitgeist nearly as much as Netflix. And Netflix's success here may be due, in part, to the fact that it's focusing on globally popular sports that remain niche in the United States when compared to football, basketball, and baseball. In the case of F1, the docuseries is so popular in the U.S. that it has dramatically increased demand for the sport itself. As The Guardian recently reported, overall ratings for the most recent F1 season were up more than 40 percent in the U.S., and the competition added an estimated 73 million fans globally last year. F1 has responded to this demand by adding a second U.S. race, in Miami, starting this year, and there are rumblings about a plan to start a third one in Las Vegas.

So when I saw the press release about the PGA series, then learned about the tennis series, via a scoop in The Daily Mail, I had two thoughts: 1. How far can this go? Will Netflix soon make a similar play for the world's most popular sport, soccer? And what about more popular U.S. sports that have increasingly global appeal, like the NFL and NBA? (Brandon Riegg, Netflix's head of unscripted and documentary series, and the man largely responsible for this effort, declined to comment.) 

My second question: How did ESPN cede this ground to Netflix? My understanding is that they passed on the PGA option and were never in discussion for the tennis series. If you're the self-described “world leader in sports,” and you're trying to build an audience for a still-nascent ESPN+ streaming service—a service that can't even feature ESPN's best live sports offerings, because they're exclusive to linear—wouldn't you look at the success of Drive to Survive and do everything in your power and use every coin in your purse to pursue a similar strategy? ESPN will of course have future documentary projects, but Netflix is doing a good job of signaling to sports fans that they’re the new home for that kind of content.

There's an important counter-argument here, which is that all Netflix/Box-to-Box series function as free marketing and promotion for ESPN and the other companies that actually hold the rights to auto racing, golf, tennis, and so on. That's certainly true, but I stand by my assessment that ESPN would be better served by having this content on its own streaming platform, and can still afford to, despite the exorbitant fees required for NBA, NFL, and college football rights. Meanwhile, I admire Netflix's strategy. The answer to most questions about Netflix's success usually comes down to money, of which they have a lot and spend quite liberally. And yet in this case Netflix is succeeding precisely because it is spending smart and spending less—eschewing the live rights bidding wars, which can be a sucker's game, for docuseries that become sensations in their own right.

Axios Goes Local

Axios has been touting its more recent business units, such as its local news business, its high-end B2B subscription business, and its SaaS business. So, what's the logic here, and what does it tell us about Axios' ambitions? First, it's important to take stock of where Axios is at, four years after launch. It has built a strong business nearing nine figures in annual revenue, established awareness and trust nationally, and demonstrated that it can replicate the “smart brevity” model across all manner of subject areas. But it's also hitting a ceiling as a national publication and it's in need of new revenue streams, and wisely wants to avoid the mistakes of BuzzFeed, among others, which overextended their newsrooms.

Axios HQ, the SaaS business, is a smart play. The vast majority of organizations and institutions in this country have terrible internal communication tools, and Axios is perhaps as famous for its “smart brevity” format as it is for the news it publishes. Axios Pro, the B2B business, also strikes me as a smart play, because there are a lot of companies and investors out there who are willing to expense subscriptions based on the promise of getting an edge.

Axios Local is the biggest gamble. But, done right, it could yield the biggest reward. Local news, which has suffered more than any other sector amid the decline of newspapers, is a major opportunity for whoever can crack it. The mistake most companies make is that they invest a ton of money in building up staff and newsroom operations and then run out of money before they can see a return on their investment. Axios has demonstrated that you can turn a significant business with just one or two journalists in a market by selling newsletter advertising. And they already have the tech stack fully developed. So conceivably they can keep the overhead low while they build up audiences, then scale up in each market based on demand. If you're wondering whether there's a Mike Allen in every mid-tier city, the answer is probably no—but Axios does have the leadership and the internal training in place to teach these people how to replicate the Mike Allen model. So all things considered, I'm actually bullish on this.

What interests me most about all these plays, and I think what interests C.E.O. Jim VandeHei and the rest of the Axios leadership, is the opportunity to create a flywheel. That is, you go into a market like Seattle, Detroit, or Raleigh and you get a ton of attention from local business leaders, governmental organizations, nonprofits, etc.—folks who, to date, may have had no interest in Axios' national product. Next thing you know, maybe you have City Hall asking for a $10,000 a year Axios HQ subscription. Then the school system sees what the mayor's office is using, and wants a subscription too. Ditto a handful of the local businesses. Before you know it, you're making $100,000 off of ten Axios Local readers. Meanwhile, they're growing interested in some of the national offerings, and boosting ad revenue all the while. That's the dream anyway. I'm sort of into it.

The Puck Promise, Re: Jack Shafer

While we're on the topic of digital media and “influence,” Politico's Jack Shafer has a characteristically cantankerous new column about the cliché-ridden mission statements and manifestos of new media startups. He notes, not incorrectly, that many a new media venture launches with the promise to “fix” news, directly or indirectly accusing established players of somehow being broken. He takes particular delight in knocking the promise of Justin Smith and Ben Smith's new venture to serve the “200 million people who are college educated, who read in English, but who no one is really treating like an audience.” The statement was certainly grandiose, but I would also caution that statements like these are usually targeted as much toward potential investors as readers. In the case of the Smiths project, they're effectively saying: “We can't tell you exactly what this is yet, but our ambitions are extremely big, and we'll fundraise accordingly.” What's wrong with setting the bar high?

Shafer also mentions Puck, and our co-founder and editor-in-chief Jon Kelly's promise “to create a brand focused on the inside conversation—the story behind the story, the details and plot that only the true insiders knew.” Shafer's retort: “Isn’t getting the inside story not the goal of every ambitious writer and editor? If it’s a given, why should an editor hoot and holler about it being your destination?”

At Puck, we’ve made the very deliberate decision to stand up our company in full view of our audience and industry. We think that will make us better, and allow us to share lessons with our peers. (We’re all the ones, after all, trying to reshape the industry.) As a result, we recognize that we can become a part of the story sometimes, and we are okay with that too.

As one of Puck's founding partners, I am of course biased. But as a veteran of two massive national news organizations—CNN and NBC News—I can confidently say that getting the inside story is actually not the goal of every media outfit, at least not always. Very often the goal of media organizations is to simplify complex information for a mass audience, which too often results in credible news outlets buying into conventional wisdom and perpetuating easy and sometimes false narratives—something I wrote about in my opening salvo for Puck back in September. News outlets with a broad focus and broad subscriber base often ignore the “inside” story precisely because they don't think enough of their readers care about all the behind the scenes machinations. And yet that is precisely our obsession, and the reason—I think—that we've been successful so far in attracting the insider audience. That said, we like Jack and welcome his criticism. We’re always open to getting better around here. 

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FOUR STORIES WE'RE TALKING ABOUT