Normally, news about the pending sale of a digital media company is cause for celebration in the industry. Henry Blodget, the co-founder of Business Insider, is still getting congratulated on media panels for his role in the company’s 2015 sale to German publisher Axel Springer.
Instead, reports last Thursday that Mashable has either agreed to sell the company (The Wall Street Journal) or is close to selling the company (Bloomberg) to trade publisher Ziff Davis were met with industry-wide sadness.
Sources who know and have worked with Mashable founder Pete Cashmore bet that he’s disappointed by the sale of his once-innovative company, which was valued at $250 million last year. His employees, who had noticed a Ziff Davis presence in the office over the last few weeks, are still in the dark about the what and when of a potential transaction.
The Mashable sale, once completed, would actually mark a rarity in the sector: the sale of a medium-sized digital media company. Even though the industry is transfixed right now by mega-mergers — AT&T/Time Warner, Sinclair Broadcast Group/Tribune Media, Disney/21st Centry Fox (?) — these smaller and medium-sized deals have become a lot less common. Gawker Media sold to Univision last year, but only under legal duress.
“There hasn’t been one in a long time,” said Jon Steinberg, who served as president of BuzzFeed and was intimately involved with the Daily Mail’s purchase of Elite Daily in early 2015 for an estimated $40 million to $50 million.
But that doesn’t mean digital media companies aren’t for sale. In addition to Mashable, Quartz and Mic have both been floated as possible sale candidates, though both spokespeople for both companies said they’re not for sale.
Those publishers that do sell probably wish they could pull off what the generally-unprofitable Business Insider accomplished. The European publisher’s purchase price was, and is, considered to be extremely generous. “$443 million for a business that doesn’t turn a profit,” quipped industry executive Josh Rucci.
Blodget gets most of the credit for seeing through Business Insider and coming out on the other side. Asked by The Hollywood Reporter about this M&A dry spell, Blodget said there have been a bunch of “pseudo-acquisitions,” which are “major investments by traditional media companies that serve the same purpose” as traditional sales. “My guess is you’ll see these companies acquire control stakes at some point,” he said.
NBCUniversal’s $200 million investments in BuzzFeed — since doubled — and Vox Media in 2015 come to mind, though neither company seems to be on the verge of being bought outright. BuzzFeed reportedly missed its revenue target in 2015 and is on pace to do so once again this year, silencing some questions about a possible initial public offering.
Brandon Ross, a media industry analyst for BTIG, said the lack of M&A activity might be explained by the structural challenges that continue to dog digital publishers. The big platforms are still sucking up most of the digital advertising revenue. Most millennials aren’t interested in spending money to read news. There seems to be a sort cap on audience size and scale. And, true profitability remains elusive for many digital media companies.
Ross said that some digital businesses have been able to find engaged audiences and are thriving. But, he said, “there’s not a lot of must-have properties.”
Steinberg, who now runs the rapidly expanding Cheddar, is convinced that the lumbering legacy media and entertainment companies have no interest in buying small and medium-sized digital publishers. While tech giants rush to buy hot startups, the media giants just wait for the little guys to fail, he said.
“I’m not sitting on the sidelines hoping that a big media company is gonna buy my company,” Steinberg said. “That’s not going to happen, and that’s not a proactive way of building my business. Prayer is not a strategy.”
Rather than waiting to be bought, Steinberg thinks that digital media companies should be linking up and buying each other, all with an eye toward a potential IPO. Which is the strategy Bleacher Report co-founder Bryan Goldberg has been taking in building out the Bustle Digital Group.
Goldberg started Bustle in 2013, and has since added Elite Daily (a nicely discounted January 2017 acquisition) and two organically started digital properties, the Romper brand for millennial parents and the Instagram brand Please. And, he isn’t sitting still. “We are buying more publications — or planning to,” Goldberg said. “Scale matters.”
Condé Nast, which is transitioning from a print-first publisher to more of a print-digital hybrid, has made a few small purchases over the last few years, including indie music website Pitchfork in October 2015 and tech site Backchannel in June 2016.
Chief digital officer Fred Santarpia said the company is always on the hunt for digital businesses that have passionate audiences and stand out. “I think the question that everybody is asking, or should be asking, is: How differentiated is the content?” he said. “If I can get that same piece of content, or a version of that piece of content, from 20-50 outlets, it’s hard to say that’s unique and worth paying a premium for,” he said.
It’s difficult, from the outside, to assess how much urgency some digital media executives might be feeling right now to make a move. Many have received investments from venture capitalists itching for a long-awaited return. Time might be running out for some digital brands that are now teenagers, and could no longer be considered start-ups.
“Eventually, the music stops,” Ross said.
Nov. 21, 8:30 am Updated main image graphic to better reflect that Quartz and Mic have both been floated as possible sale candidates, though spokespeople for the companies say they’re not for sale.
A version of this story appeared in the Nov. 20 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.