Why Disney Doubled Down on Vice Media

The edgy digital publisher doesn’t look at first like a logical roommate for Mickey

Any publisher that depicts 9-year-olds smoking cigarettes would seem an odd buddy for Mickey Mouse and Princess Elsa, but that’s just who Disney is inviting into the fold.

Earlier this week, Disney doubled its investment in Vice Media LLC, the owner of a brand boasting a magazine, online news sites and premium cable documentaries, a source familiar with the company confirmed to TheWrap. With two $200 million investments in Vice in as many months, Disney has raised its stake in the digital media company to roughly 9-10 percent and has awarded Vice a valuation of more than $4 billion.

In the land of Avengers and Jedis, even $400 million amounts to little more than a rounding error to Disney’s total sales — BTIG analyst Rich Greenfield characterized it as “insignificant” to TheWrap — but the interest in Vice underscores deep-seated anxieties at the company and in entertainment generally. Digital alternatives are chipping away audiences on traditional formats like cable TV.

Disney is investing in new media players propelling that upheaval, regardless of whether Vice’s controversy-courting content makes it an unlikely bedfellow. The company purchased online video network Maker Studios last year and in September invested in cinematic virtual-reality start-up Jaunt.

It’s an easy risk for Disney to take. Thanks to the blockbuster franchises it built from its much larger acquisitions of Marvel and Luscasfilm, Wall Street analysts on average expect Disney to reel in more than $59 billion in revenue during the current fiscal year, which ends in October. At that scale, Disney’s funding of Vice amounts to less than 1 percent of revenue.

However, it comes as other jewels in Disney’s crown are showing signs of tarnish. Last month, Disney said it suffered major subscriber losses across all its U.S. cable networks, with top channel ESPN reporting 92 million customers in 2015, a decline of 3 million from the previous year. Meanwhile, members to streaming television services are soaring. Netflix has added nearly 6 million new subscribers in the last year.

Investments in digital media with Vice, in online video with Maker and in virtual reality with Jaunt begin girding Disney with new-age weapons to battle the decline of its own main businesses.

However, Disney’s track record with smaller investments doesn’t bode well.

“Disney has done extraordinary well with large acquisitions — not so well with small ones,” Wedbush analyst Michael Pachter told TheWrap. He pointed to takeovers in gaming, such as the $563 million purchase of social-game firm Playdom in 2010.

Even the Maker takeover had a wobbly first year: The $500 million acquisition included up to an additional $450 million in earn-outs by hitting performance targets, but the digital studio wasn’t on track to hit the full value, according to a report in August.

Still, Disney isn’t troubled by the couch-cushion change devoted to experiments like Vice and Maker, thanks to blockbusters from Marvel and an expected smash in a rebooted Star Wars from Lucasfilm. The changes they represent are what Disney is sweating.

This week’s investment show the company would rather invite the upstarts to its party rather than deal with them crashing it later.