Digital Media's Crash: Will Hollywood Buy In or Cash Out?
As BuzzFeed and Vice cut hundreds of jobs, Comcast or Disney could look at takeover bids, but "why would they want to double down on failing businesses that aren't even strategic to them?"
The digital media industry is in disarray. Or is it? In the wake of new rounds of cost-cutting at three of the companies most identified with online publishing and experimentation, BuzzFeed, HuffPost and Vice, alarm bells are being sounded about the state of the business.
Major Hollywood conglomerates have bet hundreds of millions of dollars on the potential of companies like BuzzFeed and Vox Media, banking on veteran executives like Jonah Peretti and Jim Bankoff to turn digital laboratories into sound businesses.
With their investments now looking shakier, industry watchers are questioning whether companies like NBCUniversal, Disney, 21st Century Fox and Discovery could seek to cut their losses and get out from under their stakes. (Disney already wrote down the value of its $400 million investment in Vice by $157 million in November.)
"If you're an investor, this is not the time to take your money off the table," says Keith Hernandez, a digital media consultant who worked as an executive at Bleacher Report and BuzzFeed. "Taking money off right now would cause an undue panic."
Brandon Ross, an industry analyst for BTIG, doesn't think strategic investors are concerned about the recent round of cuts — certainly not as panicked as the journalists who grieved for the industry on social media. "I don't think it's keeping Brian Roberts up at night that his Vox and BuzzFeed investments haven't done as well," he says of the Comcast CEO.
The executives who run the country's most promising and well-funded digital media companies offered measured confidence in interviews about the fundamentals of their business. "I don't think that it is indicative of the beginning of the end at either of those places, in any way, shape or form," says Ben Lerer, who runs the Discovery-backed Group Nine Media portfolio of digital brands. "In fact, I think it's quite the opposite." Jim VandeHei, the chief executive of Axios, makes a similar point: "Layoffs alone don't mean that you have an unhealthy company. It might actually be a good step for a company."
The four CEOs who spoke to The Hollywood Reporter claim their investors are in it for the long haul, unmoved by the short-term indicators and bad headlines that seem to indicate peril peeking around the corner. Lerer points out that strategic investments are about more than making money: "They are making sure they have a seat at the table and the right positioning."
Axios has received a "small" amount of funding from NBCUniversal, among other backers. "None of these funds or none of these individuals are sitting there sweating out if we get a quick return," VandeHei says. "They're in it because they believe in us, they believe in media and ultimately think this can be a successful company. But there's no expectation of fast growth."
Vox Media, which cut around 50 staffers last February, has received a much larger investment — $200 million — from NBCU, which also put $400 million into BuzzFeed over two funding rounds. "They're a good partner and they want to make sure that we're strong," says Bankoff. "They do care about their investment. We also want to find ways to continue to work together. Nothing really has changed."
Maggie Suniewick, the president of NBCUniversal Digital Enterprises, backs the company's digital bets. "We made strategic investments in BuzzFeed, Snap and Vox because we wanted to learn from and partner with best-in-class brands that are successfully engaging younger audiences," she says in a statement. "We have a number of successful, ongoing initiatives with each company and look forward to future collaborations."
While the executives are all saying the right things, they know that profitability in digital media is hard-fought, with more tough times ahead and few big companies looking to bail them out. Going public, once rumored regularly for companies like BuzzFeed and Vice, is now rarely mentioned. Axios, which is considered a digital success story, came up $56,000 short of breaking even in 2018.
After years of boom, digital media fundraising has largely dried up, with big rounds and sizable acquisitions few and far between — save for minor sales of beleaguered publishers like Mic and Gawker.com, at rock-bottom prices. "The time to invest in digital media companies was five to 10 years ago, and now a few of us have emerged, and we've emerged as the leading brands," says Bankoff. "I don't think there's much room for new entrants."
In his Jan. 23 memo announcing layoffs (headline: "Difficult Changes"), Peretti said that a "restructuring" was necessary to "control our own destiny, without ever needing to raise funding again" — a line that surprised some onlookers but not those in the ring. "You need to get to the place where you're self-sustainable," says Bankoff.
Some even see softness in the industry as an opportunity for a legacy media company to purchase a digital native at a reduced price. "Now is a particularly good time to be a buyer," Lerer says. "If you look at a long-term horizon, this might be a great time to come in and purchase," Hernandez adds.
But, many of the would-be buyers — companies like AT&T, Time Warner, and 21st Century Fox and Disney — are occupied with their own mergers, onlookers say. "Until that clears out, I don't think they will think about small startup acquisitions," says Jon Steinberg, the former BuzzFeed president who runs OTT play Cheddar. BTIG analyst Ross doesn't see the logic in a big legacy media acquisition, noting, "Why would they want to double down on failing businesses that aren't even strategic to them?"
With few major buyers on the prowl, save Bustle Digital Group honcho Bryan Goldberg, Lerer sees consolidation as a path to success for publishers still struggling to fend off Google and Facebook for digital advertising dollars and build out a diversified revenue base. (Peretti has also floated the idea of a digital publisher super-merger).
"I'm a big believer in consolidation," says Lerer. "Bigger is better in most of these businesses. The idea that bigger would be better makes perfect sense in digital media."
"Is there going to be a lot of consolidation? Probably," VandeHei adds. "Are more companies going to go out of business? They sure are." But, he says, "The big companies that are smart about where they put their money are going to be really successful."
A verson of this story also appears in the Feb. 6 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.