A post-mortem analysis on digital media companies and some recommendations on what's next

Winter is coming to the media industry, or rather, perhaps winter is already here. Just a few short years ago, venture capital was flowing into digital media companies like BuzzFeed, Mashable, Vox, and Vice in an effort to do in media what was done in tech: build massive audiences and generate big revenues. But that has all changed, with venture capital drying up as investors have come to the realization the media industry and tech industry are two very different beasts, fire sale acquisitions, massive industry-wide layoffs, restructuring, and mergers have become the norm.

Background

In 2008 BuzzFeed and Vox Media both raised their first venture rounds of funding. Both media companies raised a relatively modest amount at first—just a few million dollars each, but as each company’s profile grew around the web, so did each company’s ambitions along with their investors. In less than ten years’ time, BuzzFeed raised nearly $500 million with a nearly $2 billion-dollar valuation, while Vox Media raised just north of $300 million and was valued in 2015 at about $1 billion.

Early on BuzzFeed was praised for its “new media” approach and for understanding digital publishing better than anyone else. The company was one of the first to really popularize listicle type of content as well as being known for creating content about cute cats, internet memes, and quizzes. The initial success of BuzzFeed led the company to want to expand itself into hard news as well, but the company’s image and reputation of a place to read about cats, memes, and take quizzes was a really difficult thing for BuzzFeed to shake despite their best efforts. In fact, the BuzzFeed News team even was a finalist for a Pulitzer in 2018 for its reporting on Russia. Additionally, in an effort to further differentiate BuzzFeed from BuzzFeed News, in July 2018 the company launched BuzzFeed News on a separate domain.

Meanwhile, Vice Media, which was founded in 1994 by Shane Smith and Suroosh Alvi was a rather modest enterprise until 2011 when it raised its first venture round of funding. Vice specialized in publishing a magazine that covered information in various subjects, such as sex, drugs, music, fashion, photos, travel, sports, technology, food, not safe for work, and conflicts. However, from 2011 to 2017–just over six years, Vice Media raised more than $1 billion dollars in funding to expand its footprint and hire more people.

Similar to Vice Media, Mashable started as a rather modest business as well. The site was started by Pete Cashmore from his home in Scotland at the age of 19 in 2005. Mashable continued to show promise and grew into one of the must-read publications during the height of Web 2.0. Then in 2014, in an effort to keep up with the Jones’ Mashable raised its first round of venture funding—a $14 million Series A. The money raised was to be allocated to hiring more people and expanding Mashable’s footprint, including a foray into video.

Video, as it turns out, may be what caused a lot of this turmoil. Every single one of these publishers fell into the trap and are paying for it dearly. Video was supposed to be great because advertisers would pay premiums for video ads—especially alongside high-quality video content. Each and every one of these publishers wanted to eke out more money from their audience and would do anything to succeed in the video realm. Dumping millions into hiring video teams to produce such content would surely work out well—it had to. Instead what happened was that publishers realized how difficult and costly it is to create high quality video content. Some companies fared better than others when it came to video, for example, BuzzFeed’s Tasty content did really well on Facebook—but for a very long time, it was not able to be monetized which meant BuzzFeed created expensive content without making money from it. Others weren’t even that fortunate, Mashable, despite ultimately raising more than $45 million was unable to crack the code when it came to video which ultimately resulted in its fire sale.

Fire sales

In November 2017, Mashable sold to Ziff Davis at a fire sale price estimated to be somewhere around $50 million or approximately a quarter of the valuation that Mashable was given during its last round of funding just a year prior. The sale sent shockwaves through the media industry.

The sale resulted in the layoffs of 50 Mashable employees as Ziff Davis looked to trim the fat and focus Mashable back on the basics. One of the major issues for Mashable was in the race to keep up with all the other media companies raising money, they ended up having to as well. This meant Mashable needed to expand in an effort to justify the valuation and it became a vicious cycle. Mashable used to focus mostly on covering web, technology, startups, and social media—but that soon changed after raising venture capital. The shift to being more about entertainment was evident simply reading any article on the site. In addition to the loss in vision and mission, Mashable (as well as every other digital publisher) was fighting a fight for ad dollars with two behemoths: Google and Facebook. It was an untenable situation.

Then in late 2018 it happened again. Millennial news site, Mic, essentially sold for parts, to Bustle Digital Group for $5 million. Mic, which was founded in 2012, raised nearly $60 million in venture funding and had a valuation in the range of hundreds of millions of dollars. The reason behind the sale? A big video deal with Facebook fell through, which resulted in the company being unable to continue to operate.

Layoffs and restructuring

Early this year, three big digital media companies laid off more than 1,000 employees cumulatively within a couple weeks of each other. As of January 2019, BuzzFeed laid off 15 percent of its workforce, approximately 220 employees, Verizon Media Group, which includes sites like HuffPost, AOL, and Yahoo News cut 7 percent of its workforce or approximately 800 jobs, and in early February, Vice Media, laid off 10 percent of its workforce, around 250 people.

In a letter to employees, BuzzFeed CEO, Jonah Peretti, stated that “The restructuring we are undertaking will reduce our costs and improve our operating model so we can thrive and control our own destiny, without ever needing to raise funding again.”

It is starting to appear that many of these digital media companies have come to the same realization: the businesses they have built atop of venture capital aren’t sustainable and now, investors are bearish on the possibility that they will see big exits. This, of course, makes it even more difficult to raise another round of funding, and even if it were possible, these companies would likely see a significant drop in valuation. Ultimately, it seems these media companies raised too much venture capital, expanded way too fast, and spent too much time investing in other companies’ platforms (instead of their own).

Talk of mergers

Faced with the fact that it’s becoming increasingly clear that no one is coming to save them, at least one person at these big new media companies has an idea on how to forge ahead. Jonah Peretti, BuzzFeed CEO, in an interview with the NY Times in November 2018 suggested, “a series of mergers with five or six top internet publishers,” effectively creating a conglomerate. The way Peretti framed it was as a way to better compete with Facebook and Google for ad dollars (and more favorable terms). But while this sounds intriguing it certainly would result in more layoffs and additional cost-cutting measures to prop up the bottom line.

Realistically though, I’m not sure how much these mergers will really matter. Will they help? Maybe a little. Even looking at it optimistically, a merger between the top five or six internet publishers may result in a combined total of 600 million visits per month across all sites. That’s not individuals, that’s simply visits—let’s not forget that many of these sites are frequented by the same people so it’s unlikely it would result in meaningful growth. Whereas, Google and Facebook have billions of people using their products/services each month. It seems unlikely a merger of the top publishers will be able to take a significant amount of ad dollars away from both Google and Facebook. Let’s not forget that this strategy isn’t a new one—AOL (Oath, now Verizon Media Group) under CEO Tim Armstrong had the same vision and it never came to fruition.

The path forward

While this certainly sounds like bad news for the media industry—and it certainly is for all those employees who have been laid off—there’s still a path forward. The opportunity here, as in most cases, is to learn from the mistakes and the successes and build on that. New media companies have the chance to do something different from traditional media companies like The New York Times and The Washington Post and they need to take advantage of that. It appears that BuzzFeed and everyone else lost sight of that fact, the more money they raised the more they tried to emulate old media companies by building out full-fledged newsrooms, etc. That model will not work anymore.

It’s critical that new media companies embrace niche content and identify powerful and engaging personalities that they can hire. We are moving towards a time where journalists, pundits, etc. need to have a presence on social in order to fully capitalize on content. New media companies should be developing personalities (even if they’re just personas and not real people) as a way to build audiences and grow. Additionally, new media companies need to embrace opinions and different points of view—people are hungry for real thoughts and ideas, objective reporting is nice sometimes but leave that to The New York Times. Lastly, I think there needs to be a realization that new media companies may not be multi-billion-dollar corporations, but they can still be healthy businesses when executed well.