Anxiety within digital media is, in part, fueled by the domination of tech giants Facebook and Google in the digital advertising space
Digital media companies, once marked by rapid growth as legacy media faltered, are consolidating in hopes of riding out the perfect storm of dwindling digital advertising dollars, tighter bank lending and lukewarm interest from venture capitalists.
A recent spate of three mostly stock-based deals are indicative of the dark clouds that have been looming over the digital media landscape for some time. Questions about the viable future of digital media have swirled around the industry for years.
Last month, Vox Media acquired New York Magazine parent company New York Media in a $105 million all-stock deal, according to The Wall Street Journal. About a week later, Vice Media acquired Refinery29 for $400 million, followed a few days later by Group Nine Media snatching up PopSugar in a stock deal that valued the female-focused celebrity and lifestyle publisher at more than $300 million.
“These moves are emblematic of the challenges in digital media,” Matt Sheehan, a digital media veteran and faculty member at University of Florida, told TheWrap. “The value has never been in the content, but rather the platform, and platforms become more valuable the bigger they become. I think we’re going to see more of these mashups as companies try to grow, and those who aren’t making these moves now are probably deep in discovery to what moves they can make so they aren’t left behind.”
Building value through scale has been seen as the key to survival for digital media companies. In its acquisition of Refinery29, Vice said the hope is that the company will bolster its digital business, and that Vice is relying on Refinery 29’s original programming, experiential, e-commerce and burgeoning creative agency divisions to introduce additional streams of revenue into the company.
Vice has suffered significant financial struggles in recent years. The company lost more than $100 million in 2017 and was on track to lose more than $50 million in 2018, with revenue between $600 million and $650 million, the Wall Street Journal reported last year. And it kicked off the year laying off roughly 10% of its staff.
Refinery29 also missed revenue projections last year and went through two rounds of layoffs accounting for about 17% of the total staff.
The anxiety within digital media has been, in part, fueled by the domination of tech giants Facebook and Google in the digital advertising space.
“I’d attribute the mergers to what I see as a revenue rake-up,” Sheehan said. “More and more of these companies, attempting to compete with the social and search behemoths for dwindling advertising scraps, need to build the most robust psychographic-based audience networks they can. The moves I’ve seen in the last few weeks seem to signal just that. Investors love growth and combining these revenue streams supplement and strengthen the portfolios these firms can sell.”
As an example of how the consolidation can attract new investment, following Vice’s Refinery29 acquisition James Murdoch’s new holding company Lupa Systems bought a minority stake in the soon-to-be combined media company. Murdoch also sits on the Vice Media board of directors.
At the start of the year, BuzzFeed and Verizon’s AOL, Yahoo, Oath and HuffPost all announced severe staff cutbacks. And late last year Mic laid off the majority of its editorial staff before selling itself to Bustle for $5 million.
Before laying off 15% of the staff in January, BuzzFeed founder and CEO Jonah Peretti floated an idea to the New York Times that would see digital media platforms like BuzzFeed, Vice, Refinery29, Vox and others all merge together in order to turn around their financial fortunes. His argument was that would be the best way to begin to wrestle away ad dollars from the likes of Google and Facebook.
“Google and Facebook are both grabbing two-thirds of the incremental digital spend and with Twitter, Pinterest and Snap doing well in mobile, there is just less potential revenue to be had,” senior media research analyst Michael Nathanson wrote via email. “Would say that many of these deals involve financial sponsors who want to both find a more scaled solution for cost saves and shared tech investment and a potential exit path moving forward.”
It’s likely that the merger fever isn’t fading away anytime soon. There are still publishers, such as BuzzFeed, that have expressed interest in joining forces, and there’s a question as to whether the acquisitions that have been made can be enough to help keep those companies’ heads above water.
But digital media is in such a state that it’s almost a foregone conclusion that more consolidation is on the way.
“Who is next?” Nathanson wrote. “Whoever hasn’t done a deal yet.”