Vice and Buzzfeed: Media businesses faced with the economics of being media businesses
Redundancies across the digital publishing landscape have affected hundreds of staff over the past few weeks. Ben Shepherd argues Buzzfeed and Vice both raised too much for the businesses they are.
Last week was a bleak one for many journalists and non-content staff at some of the most prominent digital media businesses not named Google or Facebook.
Layoffs impacted staff at Vice, Buzzfeed, Verizon/Oath and Garnett and had many (including the New York Times) dramatically asking what went wrong, as these new upstarts made moves that so far had been the domain of the incumbents they were meant to displace.
NY Times headline – 1 February, 2019
And so it becomes clearer by the day that these “digital disrupters” were never any such thing ( despite being funded as if they were). Their business model – create content, wrap ads around to monetize – is no different to the traditional
Publishers whose model they were supposed to be disrupting. (Albeit with a few more tricks up their sleeve to pull in audiences). And they are coming up against all the same challenges traditional pubs have trying to make this model work . Sympathies to the people losing their jobs and to the masterminds running these businesses : welcome to reality
Spot on assessment .
This is a great article which highlights the fact that investors overvalue these unicorn (not just media) companies like Snapchat, Spotify, Uber, Vice and Buzzfeed which do not have a sustained business model, lack viable/profitable product extensions and do not have alternative revenue streams. Investors only hope, is as you pointed, is for these companies to bought out or to go public with an IPO. Even if they do go public, there is a risk of the share price going down ie Spotify/Snapchat. These companies have huge consumer bases and big data at hand, so why not use it to extend the business beyond its core offering.
Ben with more stellar, data-driven analysis. Love it!
Ben, I’d have a fifth underlying factor.
Back in the GFC years the Fed reduced interest rates to zero in December 2008. They then kept them there until 2015 even though the US recession ‘officially ended’ in June 2009.
That is, the cost of borrowed money was in the same postcode as Zero. So why not borrow truckloads?!
In December 2015 the rates were raised to 0.5%, and again in December 2016 to 0.75%. Definitely an inconvenience but still manageable.
In March 2017 they were raised again to 1.0% – the same as in October 2008. They moved again in June 2017 to 1.25%, then in December 2017 to 1.5%, then in March 2018 to 1.75%, to 2.0% in June 2018, to 2.25% in September 2018, then to 2.5% in December 2018.
Digital disruptors that built there business on massive borrowings and investors all of a sudden are seeing a line on the P&Ls – Interest Payments – as the fastest growing line, while on the Balance Sheet the Debt Liability is not moving anywhere (apart from maybe up as many had interest rate rollovers on the facility).
Now these digital disruptors are feeling the heat of the POTUS disruptor with no visible horizon f when relief may occur. So, jobs go.
What
Hi John – definitely businesses that borrowed money via debt would be feeling some sort of interest creep in terms of liabilities. These two mostly raised via equity funding so there’s no interest/principal pay back required in the sense of borrowings. However – there is clearly pressure from the equity holders to turn operating losses into black ink in order to either pump valuation or generate some sort of dividend.
Excellent analysis, Ben. I’m staggered that investors were somehow convinced to value them both like a saas given that the core product experience is obviously and entirely reliant on ongoing manual effort and traffic from FB. The 15%-40% difference in revenue growth expectations could be the extent by which they were impacted by FB’s algorithm change last year. Publishers like these, that rely on FB for 50%+ of their traffic are vulnerable to the smallest changes.
Anyone who says they know what’s going to happen with the media is an idiot or a liar.
I resent that Rutegar!!!
I just knew that someone was going to post a comment like that.
great article, thanks Ben. really enjoying the trend at mumbrella to do more journalism with more data, and fewer thinkpieces and outrage magnets. it’s a brave move and I really appreciate it.
Plus their product is shyte, and (particularly in the case of Buzzfeed) is identical to that which can be sourced for free from media companies like the ABC (which has the advantage of never-ending taxpayer funding).