Ed Johnson

The state of journalism is bad. Of course, Jonah Lehrer and Fareed Zakaria—high-profile writers at The New Yorker and Time, respectively—were recently exposed as frauds and plagiarists, but that’s not the worst of it. Not even close. The phone-tapping scandal that nearly imploded NewsCorp’s news division last year? Nope.

In fact, nothing illustrates the distressing state of affairs more clearly than the reaction to Judge William Alsup’s recent order that Google and Oracle turn over the names of the reporters and bloggers whom the two companies had paid for potentially positive coverage supporting their case in a high-stakes copyright lawsuit.

Wait, what reaction? Oh, you didn’t even hear about this?

Don’t worry, you didn’t somehow miss the stunned denunciations from the media elite. You didn’t miss the outraged editorials by the Poynter Institute and Columbia Journalism Review. Because they didn’t happen. Just as Sherlock Holmes gets his clue from the fact that the dog didn’t bark in “The Hound of the Baskervilles,” the lack of outcry is actually the sound of every insider in journalism tipping his or her hand. Reporters taking bribes from major tech companies in Silicon Valley? Old news!

The corruption is endemic. Take Michael Arrington, founder of TechCrunch.com, which sold to AOL for $25M in 2010; his bold editorial stand last year caused him to be ousted from the site he started. What was that stand? Simply that he was perfectly justified in simultaneously launching a side business called CrunchFund, which would invest venture capital in the very same startups his immensely powerful blog covered. It would be hard to imagine a clearer conflict of interest, but most of his peers eagerly took his side.

Some, like former TechCrunch editor and tech journalist Sarah Lacy, even followed his lead. This year, she founded PandoDaily, a new technology news blog. Investors include Marc Andreessen, Peter Thiel, Tony Hsieh and Chris Dixon. If those names sound familiar, it’s because they are the owners, founders or funders of the biggest companies in tech—outfits like Facebook, Zappos, PayPal, LinkedIn and Foursquare. Mr. Andreesen is also an investor in the news website Business Insider. (Full disclosure: The Observer Media Group is partially owned by Josh Kushner, a principal in the investment firm Thrive Capital, which funds a number of start-ups.)

What happens when the robber barons once again not only pull the strings of the industry, but also control the press that is supposed to cover it and hold them responsible?

At the end of the day, it’s these guys who are the real “customers” of the news outlets: not all of the readers out there, but the marketers, advertisers and investors to whom journalists are trying to a deliver product—that product being you and your attention.

So while the outcry over small ethical lapses like Mr. Lehrer supposedly “plagiarizing himself” or making up a few quotes sucks up all the oxygen, they are in some sense a distraction from the deeper systemic issues. The media focus on these token misdeeds is a way of convincing the public that the truth still matters—an effort to distract from the truly appalling economics of the news itself. It’s not enough that blogs and fledgling newspapers are putting themselves in an unethical position by taking money from the people they cover. In today’s world of page-view journalism—in which writers are compensated by how many times their posts are viewed—every article is in some sense a conflict of interest.

Think of BleacherReport, a consortium of sports blogs, that was just acquired by Turner Broadcasting for $180 million. BleacherReport, like many blog empires, pays its contributors in part based on page-views. (Meanwhile, some unpaid writers are compensated merely with “exposure.”) In other words, an incentive is created to write articles that get a lot of traffic, not articles that are necessarily “good” or, say, “true.” Intelligent readers are known to disdain the more craven methods sites use to drive traffic—particularly the breed of “entertaining slideshows” that Bleacher trumpets in its slogan—but publishers love the money it brings in from pay-per-impression advertisers. And the reason BleacherReport encourages its writers to chase this sort of page-view growth strategy is that its investors demand it.

This is what I mean when I say every article on these sites has a conflict of interest. The goal isn’t to do worthwhile journalism, it is to profit. BleacherReport, like nearly every site from Gawker to Business Insider to, yes, Observer.com, wants to show hockey-stick growth. Then, should they wish to, they can sell for a profit. Just business, of course. But it warps what they write about and how they write it.

But the media is happy to have readers focus on Mr. Leher and Mr. Zakaria, like they're the real problem.

I’ve been around the underworld of PR long enough to know that multibillion-dollar industries love to focus on isolated incidents as misdirection. It’s always about the rogue trader, the “unpreventable” disaster or the overzealous campaign flack.

The ensuing hand-wringing and self-flagellation generally prevents anyone from bothering to probe any deeper. To go back to the dog analogy, they’ll never bark at institutionalized backroom dealing or insidious incentives, because that’s what they’re comfortable with.

Recently, a writer for the Poynter Institute tried to dismiss some of my criticisms of the online-driven media cycle by asking his readers “Are you interested in hearing about the sausage [being made] from the guy who keeps dropping mouse feces into the grinder?”

Well ... I would hope so. Who better to tell you what's what?

Ryan Holiday is the bestselling author of Trust Me I’m Lying: Confessions of a Media Manipulator and a PR strategist for brands and writers.

Monster (Semantics) Squad: A freelance photographer sees a "monster" on the beach, photographs it. Gothamist writes a piece labeling it a "bloated rat monster," which, what? Bucky Turco at ANIMAL NEW YORK, which is the only news source worth trusting any more, about anything, talks to a Parks Department Representative, who tells him it's a pig left over from a weekend cookout. The photographer tells New York's Daily Intel blog that she doesn't think it's "pig-like" at all. Daily Intel does a photo investigation of it, and names it "Wilbur." Takeaway? Tuesdays. That's the takeaway.  [ANIMAL NY / Daily Intel / Gothamist]

Un-G.Q. Conduct? We missed this from the other day, but: Walter Kirn's widely-read and widely-acclaimed New Republic story about leaving the Mormon faith? It was a G.Q. story, but G.Q. pushed it back for space (because Kirn nor his editor Mark Lotto wanted to move on word count) into an issue yet-to-be-published. Kirn didn't want his piece to die in publishing limbo, so he took it to The New Republic. What'd G.Q. editor Jim Nelson make of all this? "Frankly, it didn’t seem right to me," he told WWD's Erik Maza. If that was what they call in the rap game a "subliminal" against TNR editor Franklin Foer, genius. Either which way, takeaway: Walter Kirn probably won't be writing for G.Q. anytime soon. [WWD]

Moments with Myler: New York Daily News editor Colin Myler had a "Town Hall" meeting today. The former News of the World spoke for about thirty minutes, speaking about the Daily News' national web presence and a third-party business initiative that will "consult and provide services for third-party digital products." More importantly: Myler said they would be hiring to ramp up the national presence, that they wouldn't be cutting back on their print product a la Times-Picayune, does not intend to raise the newsstand price, and won't let celebrity coverage and (external) gossip run the paper. [Capital New York]

Murdoch Mates Busted: Speaking of Colin Myler, two other former employees of Murdoch's British tabloid empire are now formally charged with accusations relating to the British tabloid hacking scandals: Rebekah Brooks and former British Prime Minister David Cameron's spin doctor, Andy Coulson. And now that Brad Pitt and Angelina Jolie are involved, this thing is serious. [Guardian UK /Guardian UK]

Bad GOOD Idea: Want to make a bad publicity move? Take a word like "curate," which people—especially people who work in media—hate. If you're a magazine that just canned much of a very beloved staff, like GOOD, go forth, and seek out "brand apostles" who are "content-curators and change makers." Done. [Poynter]

Dow-n In? Dow Jones is going to sell its newswires through WSJ.com, Dow Jones CEO Lex Fenwick explains. Skeptics are skeptical. [Reuters]

Buzzfeed Is The Best, Says Buzzfeed Investor: VC guy Chris Dixon published an internal Buzzfeed memo written by Jonah Peretti, with his permission, wherein Jonah Peretti extols the greatness of the venture he oversees. [Chris Dixon]

So, we forgot to let anyone know we were even doing this yesterday—a depressing, necessary component of this job, such as it is—so we'll just copy what we wrote on yesterday's Media Briefs and hope you read it. Here:

Finally: The lovely albatross of the Observer‘s media desk for the last year and a half has been liberated from abdicated the position, and this writer will be filling in the interim. Please send your tips, gossip, rhetoric, legal threats, inspirational quotes, and freshman year poetry—along with, while we’re at it, your nominations for Media Power Couples, Bachelors, and Bachelorettes (which, due to unpopular demand, we’ll be doling out again soon)—right this way.

Happy Tuesday.

fkamer@observer.com | @weareyourfek

“There is a pretty small group of us, really young guys, who are in the fortunate position to be making investments in tech,” Mr. Wohlstadter said, grabbing a seat in an oversize armchair. Ivy League handsome in a white Oxford shirt unbuttoned a few notches below the neck, he bounced his smart phone from palm to palm, flagged down the waitress and ordered a Brooklyn Lager.

“What do you think of Hashable?” Mr. Wohlstadter wondered, name-checking one of his investments. The Observer related our score on the application, which gives users a way to track meetings and awards points for each connection. “Oh, man,” Mr. Wohlstadter laughed. “You need to get out more.”

Mr. Wohlstadter, 23, began funding entrepreneurs a year and half ago—just a few weeks after graduating from Harvard. A friend, Eliot Durbin, also in his 20s, was the driving force behind the creation of Penny Black, and brought Justin on to help source deals and manage investments for a wealthy Wall Street pro. The project grew from there. “A bunch of his friends saw what we were doing and asked to get in,” Mr. Wohlstadter recalled. “Bankers, attorneys—it became sort of an investment club.” In the wake of his early success Wohlstadter joined up with a formal fund, BOLDstart, and a young venture capitalist was born.

“There are a lot of people that want to get involved in all the cool innovation that is going on right now but don’t have the time or energy to do so directly,” Mr. Wohlstadter explained. “That’s where I come in.”

Mr. Wohlstadter isn’t the only young gun pumping money into the Silicon Alley scene these days. David Tisch, Ben Lerer and Josh Kushner (kid brother of Observer owner Jared Kushner), all under 30, have emerged as some of the most prolific investors in town. Each can claim, to varying degrees, experience as a Web entrepreneur, a bond they share with the young founders they fund.

Despite their high profiles, though, it’s still too early to say which, if any, of their bets will pay off. “We’re all just two years in doing this, so for us to have ‘exits’ is rare,” Mr. Tisch, 29, acknowledged. “You can’t be judged on that, so your status comes from the perceived quality of the deals you have done.”

“Young guys are close to the deal flow, the technorati, the hackers,” noted Roger Ehrenberg, an investment banker–turned–angel–turned–venture fund manager.

These investors are working principally at the seed stage, the wobbly early moments of a company’s lifespan when it’s often little more than an idea. Few of these investments, which range from $25,000 to $250,000, will pan out, but they can mean a tremendous windfall in the rare event that the fledgling company turns out to be the next Facebook or Twitter.

Often such investors are referred to as “angels,” a term originally applied to wealthy New Yorkers who risked their money backing Broadway plays. “An angel, in the original sense, was the kind of person who would bet on a dream,” explained David Rose, who began funding tech companies during the heady dot-com days and helped found the early-stage investment group NY Angels. “It’s much more professional now, but there is still an element of that.”

Mr. Tisch, who spends his days running Techstars NY, an incubator of select start-ups from around the nation, prides himself on his swift reflexes. Unlike Messrs. Lerer and Kushner, who invest through formal funds, and thus have to answer to their limited partners, Mr. Tisch is free to jump on any fresh project he finds promising. “In a lot of the deals I do, maybe I didn’t lead the round, but I was the single first person to say, ‘Yes, I’m in,’” he told The Observer. “I can use my gut. I don’t need to answer to anybody. That’s my freedom as an angel.”

The flood of early-stage money has made for a certain giddiness among young entrepreneurs. “I felt like a kid in a candy store,” said Vin Vacanti, recalling how he raised money for his company, Yipit, using Angel List, a online network that matches investors and start-ups. “I was browsing through all these names I had heard of, investors whose blogs I read every day.” Before he knew it, Yipit was being offered more money than he knew how to spend.

For the creators of Greplin, a California-based start-up, the enthusiasm of the local angel scene was almost dizzying. “I flew here to meet Chris Dixon, and he liked the company, and he cut me a check,” founder Daniel Gross recalled. “The next day I get a call from Jordon Cooper at Lerer Ventures saying he heard about me, and then they cut me a check. Less than a day later I get a call from Josh Kushner, saying he’s heard about me from Dixon and Cooper, and then he’s cutting me a check. It was incredible.”

“There’s a lot more interest in seed-stage investing now, from people who really know the sector, and that’s great for local start-ups,” Mr. Dixon, an investor and entrepreneur, told The Observer. “There is a class of older angels here who have built tech companies, and can really add a lot of value to young startups. What screws up New York is all the random rich people from Wall Street and real estate who know nothing about tech but still want to invest. It’s the same network that keeps new restaurants opening.”

For the more experienced angels—those with battle scars acquired by launching their own tech companies—the flood of seed money can be grating. “These founders are talented, and there’s no doubt they have the ability to create a great business,” said Josh Reznick, who built and sold an online marketing company before becoming an angel investor. “But 20 minutes into the conversation, when they should be asking for $50K, they’re talking about $1.5 million, and I’m just flabbergasted, ’cause we’re talking about an idea on a cocktail napkin. There is frankly way too much money that wants to be invested.”

It’s a complaint that offends some of the younger dealmakers. “It pisses me off that people are complaining about the number of angel investors that have entered the market,” Lerer Ventures’ Mr. Cooper, who founded the start-up Hyperpublic, wrote on his blog. “Personally, I welcome anyone who wants to cut a $50K check to support a new product and pull a smart mind out of Wall Street or advertising or any other industry that is not pushing the limits of what can be,” he continued. “I’m not saying all these companies that are getting funded deserve funding or the valuations they are raising at, and many of them will die, but I’d rather see a slew of dead carcasses on the side of the road with a single world-changing product leaping over them on the way to victory.”

Back at the Ace, Mr. Wohlstadter scanned a text message from his girlfriend and fired back a response. “She hates it when I say I’m working and then it turns out I’ve been writing on my blog,” he said.

“There are certain advantages,” he went on, “not having a family yet, just being able to pound it out all hours of the day or night. I am at every single party, every event, and I’ll take a call from a founder at 3 in the morning to talk about a bug in the software.”

He’s also heading down to Austin for SXSW to promote his companies. “I am an evangelizer; I mean, I will talk about this stuff nonstop.”

The lobby was filling up. The Black Keys were on the sound system. A row of figures was pecking away at laptops along a wooden table, faces washed in the white light of their screens. “The angel craze means a lot more funding for new ideas,” Mr. Wohlstadter said. “But often that becomes a sort of tragedy of the commons, you know. All that money, and no one to guide the entrepreneur.”

bpopper [at] observer.com | @benpopper

In an interview with Fred Wilson for TechCrunch TV, Chris Dixon asks Fred Wilson what stage he thinks the early-stage technology investment market is in.

Mr. Dixon asserts that "the fundamentals are strong." He brings up the word "bubble" in his opening question for Mr. Wilson, who quickly batted down the notion that investment furor had reached that level. Mr. Wilson did express concern, however, about high valuations for "first-time founders who've never done it before" and investors trying to jump on the hottest new thing. He mentioned Quora specifically as a site that boasted a very high early valuation. "Maybe it's me being annoyed that I can't get the deal I used to get a year or two ago," said Mr. Wilson.

High valuations notwithstanding, Mr. Wilson also said that Google is worth $200 billion, and he sees Facebook as equal in value to the search giant. By that logic, Facebook at $50 billion is still a worthwhile investment. Reuters' Felix Salmon did a similar back-of-the-envelope calculation for Twitter yesterday:

If Twitter is 20% the size of Facebook, and Facebook is worth $50 billion, then Twitter can be worth $10 billion, no? And the proportion of the market capitalization of all the telcos around the world which can be attributed to text messaging is so mind-bogglingly enormous as to make $10 billion seem like a rounding error.

Not to be outdone by a web video, Roger Ehrenberg weighed in with his own bullish take:

Great franchises cannot always be valued purely on the basis of revenue or current cash flow. This isn't sophistry, it's simply reality. When Google paid $1.65 billion for YouTube, many thought this was merely a symbol of having way too much cash to spend on something irrational which it coveted. Fast forward, Google has had to pump hundreds of millions into integrating and scaling the YouTube platform, but will this acquisition pay off on an ROI basis? Google has created a unique property in one of the fastest growing segments of the online market, and they have the resources to take the long view. I bet it will turn out to have been a prescient deal for the company.

Even though, as Salmon acknowledges, it's pretty much a fundamental truth that venture investing is extraordinarily risky and in the absence of proven business models other metrics need to be applied, it is still undertandably disconcerting to hear people actually say things like "cannot always be valued purely on the basis of revenue or current cash flow" as valuations reach for the skies. Careful out there!

mtaylor [at] observer.com | @mbrookstaylor

An impressive list of high-profile investors see bubbles inflating in New York: Chris Dixon, angel investor and co-founder of Hunch.com, angel investor and Wine Library TV host Gary Vaynerchuck, TechStars director David Tisch, Fred Wilson of Union Square Ventures and Lawrence Lenihan, managing director of New York-based FirstMark Capital.

Most seem to hope the imbalance will start to correct itself.

"My prediction of what will happen is that there could be a meltdown in the New York tech scene," Lenihan told CNN."But it's like a forest fire: It's good, it clears out the dead wood."

The risk of a bubble is limited to angel and venture capital investors, in contrast to the dot-com burst where startups were going public and spreading risk throughout the system.

The current bubble is dangerous for two reasons, investors said.

They "disrupt market Darwinism," CNN says, which happens in a few ways. A bubble could mean entrepreneuers who don't deserve funding are getting it, for example, or that companies that would have succeeded with less money might be encouraged to grow too fast and flame out.

A spectacular bubble burst could also put the freeze on tech investing for years.

That's why investors would prefer to see some little bubbles pop--a company here or there--rather than a system-wide explosion.

Apartm.net: The Ultimate Nerd Palace

ajeffries [at] observer.com | @adrjeffries

"I personally don't think that targeted ads are scary or threatening," he said. "It's probably more effective for the advertiser and the user. I'd rather get ads that are relevant to me than ones that aren't, and I don't see the harm in that."

He went on to address people who report feeling queasy whenever they open their email and see ads whose delivery has clearly been triggered by something in their inbox: "Some of the same people complaining about the death of the newspaper are the same people complaining about these advertisements," Mr. Dixon said. "To the extent that [internet advertising] can be improved, you can also potentially make a lot of these media companies viable. The economics of the press depends a lot on the success of these advertising technologies, so if you want to kill off the advertising, you're probably also going to kill off a lot of potentially positive things, like a vibrant free press."

In a separate conversation, we asked novelist Jennifer Egan, whose latest book A Visit From the Goon Squad ends on a chapter set in a techno-dystopian future, what she thinks of that view -- specifically, how she evaluates people (like Mr. Dixon) who say they'd prefer ads to be specifically tailored to their interests than not.

"It's an attempt to sort of own and be comfortable with a kind of manipulation of one's self-- to decide it's not manipulation," Ms. Egan said. "It's to decide you're in control and that this is all serving you. That's a very good way of not looking at the fact that quite the opposite is happening."