Companies like Vice Media and BuzzFeed not long ago were media-industry darlings, attracting young online audiences, popularizing edgy advertising tactics and drawing billions of investment dollars.
Now, a reckoning has begun.
Vice Media told employees Friday it is cutting 10% of its workforce, or 250 jobs, the latest in a string of significant cutbacks in the sector. Last week, BuzzFeed said it, too, was cutting around 250 jobs, or 15% of its workforce, as it tries to get on a path to profitability. Verizon Media Group’s HuffPost and Yahoo News units also suffered deep cuts, as did lifestyle-focused Refinery29.
Each company has its own distinct factors contributing to its problems, but the common threads are the increasingly difficult online-advertising market and pressures from investors whose influx of money came with expectations of red-hot returns.
Facebook Inc., Alphabet Inc.’s Google and a rising player, Amazon.com Inc., attracted an estimated 62% of online-ad spending in 2018, according to research firm eMarketer. That leaves several dozen significant players—including all online publishers and traditional media companies—competing for the remaining pot of money.
“The overall available market share has shrunk dramatically for everyone that is not Facebook, Google or Amazon, and by and large the market players were continuing to aggressively invest into what proved to be a shrinking market,” said William Drewry, founding partner at Pursuit Advisory, a boutique investment firm specializing in media. “It became a Catch-22.”
A wave of consolidation in the industry might be the only way forward, many executives in the industry say. BuzzFeed, whose biggest investor is Comcast Corp.’s NBCUniversal, has had some preliminary discussions with Group Nine Media, a Discovery Inc. -backed outfit whose outlets include video-news specialist NowThis and animal-themed The Dodo, according to people familiar with the situation, though the discussions haven’t advanced very far.
Bustle, a lifestyle site aimed at young women, scooped up the struggling website Mic Network for less than $5 million late last year and has been hunting for other potential deals, according to people familiar with the situation. Gizmodo Media Group, a collection of sites owned by Univision, is being sold by the Spanish-language media giant as a result of a shift away from English-language digital media.
A Problem of ScarcityDozens of digital publishers compete for theonline ad dollars not gobbled up by big techgiantsU.S. digital ad revenueSource: eMarketerNote: 2018-2020 are estimates
“The companies that have a strong brand, that have developed real scale and are able to manage their money and be fiscally disciplined will be the ones to succeed,” said Kenneth Lerer, BuzzFeed’s chairman and a managing partner of Lerer Hippeau Ventures, an investor in several digital-media outlets.
Digital-media companies that were valued at more than six times their revenue a few years ago would now likely be valued in a transaction on far less favorable terms, industry deal makers say. That could create tensions between early-stage investors, who can exit with healthy returns even if the sale price for a digital-media outfit is on the low side, and later entrants who invested based on a higher valuation.In November, the Walt Disney Co. , which had invested $400 million in Vice three years ago, wrote down its investment by $157 million.
Compared with traditional media companies, many digital-media outfits are still growing quickly, often well into the double-digit percentage range, and don’t have to worry about protecting legacy businesses like print newspapers or TV channels.
And some companies have performed better than others. Vox Media, also backed by NBCUniversal, has missed its revenue-growth targets at times, but is credited with being disciplined about costs and running at or near an operating profit for several years, according to a person familiar with the company’s financials. Focusing on a niche has proved a successful strategy for some, including Bill Simmons’s podcast-heavy sports and pop-culture outlet The Ringer.
More-traditional media outlets haven’t been spared from cuts. On Friday, McClatchy Co, publisher of the Miami Herald, Kansas City Star and the Sacramento Bee, announced that it would offer buyouts to 450 employees, or about 10% of its workforce. Last week, USA Today’s publisher, Gannett Co., laid off dozens of reporters at its more than 100 newspapers.
Many new-media companies are shying away from raising money, if they can, to avoid the pressures they have faced from investors. BuzzFeed Chief Executive Jonah Peretti said Buzzfeed’s layoffs would reduce costs “so that we can thrive and control our own destiny, without ever needing to raise funding again.”
BuzzFeed, which raised nearly $500 million in venture-capital funding and was most recently valued at $1.7 billion, put plans for an initial public offering on hold last year. Its revenue growth has fallen from a pace of 50% in 2016 to about 11% last year, when it brought in around $300 million, people familiar with the situation said.
Group Nine, its possible merger partner, has been valued at $585 million, people familiar with the matter say. Both companies count Lerer Hippeau Ventures as a key investor; BuzzFeed Chairman Kenneth Lerer’s son, Ben Lerer, is Group Nine’s chief executive.
Vice, founded in 1994 as a Montreal punk ‘zine, vaulted to the front of the pack of digitally-driven media companies in recent years and became a top destination for “native” advertising, content created for brands that is meant to mimic the look and feel of editorial content. It diversified into films, TV and most recently launched a cable-TV channel, Viceland.
Vice’s most recent round of fundraising, in the summer of 2017, gave it a valuation of $5.7 billion, making it the most valuable new-media company. But that valuation has become a pressure point as the business fails to live up to the lofty expectations underpinning it. Vice lost money in 2018, although less than it had the previous year, according to people familiar with its financials.
Revenue growth stalled in 2018, according to people familiar with the matter. Vice is targeting 15% revenue growth this year, one of the people said.
- BuzzFeed to Cut 15% of Its Workforce (Jan. 23)
- Verizon To Lay Off 7% of Media Group Staff (Jan. 23)
- Mic Network Sold to Bustle for About $5 Million (Nov. 29, 2018)
- Vice Media to Shrink Workforce by as Much as 15% as Growth Stalls (Nov. 7, 2018)
- Digital Publisher Refinery29 to Lay Off About 10% of Workforce (Oct. 23, 2018)
Since October, viewership of Viceland has averaged 79,000 prime-time viewers, a decline from the previous year, according to Nielsen. Traffic to Vice’s network of websites declined 15% to 66 million unique visitors in December, compared with a year earlier, though its owned-and-operated traffic grew, according to Comscore. The company also struggled to adjust its macho brand to the new cultural winds blowing from the #MeToo movement.
Vice’s layoffs are part of a broader restructuring. The company will organize its international divisions by region, instead of individual countries, and according to five lines of business including studios, news, digital TV and its in-house advertising agency.
The company’s weekly show on HBO—long its most high-profile brand flagship—will also be ending, though the daily news show will continue.
“All departments at every level will see some impact,” Chief Executive Nancy Dubuc wrote in the memo to Vice staff Friday. “It is difficult for all of us to go through and we do not make these decisions lightly.”
Ms. Dubuc, a veteran of A+E Networks who joined the company in 2018, is seeking to distance Vice from the digital-media pack. A Vice spokeswoman said that digital accounts for only 20% of the company’s revenue.
—Benjamin Mullin contributed to this article.