The digital media rollup plan is useless
BuzzFeed CEO Jonah Peretti stands outside the Nasdaq marketplace in Times Square as the company goes public through a merger with a special purpose entity on December 6, 2021 in New York City.
Spencer Platt | Getty Images
In the case of marriage or engagement fails, it is common for participants to take time to work on themselves.
This is where the digital media industry can be found today.
After years of focusing on consolidation to better compete Google And Facebook for digital advertising dollars, many of the most well-known digital media companies have abandoned consolidation efforts to focus on differentiation.
“What you find is that companies are trying to find an irreplaceable core,” said Jonathan Miller, CEO of Integrated Media, which specializes in digital media investments. “The era of trying to bring these companies together is over and I don’t think it’s coming back.”
A 90% drop BuzzFeed Stocks since the company’s 2021 IPO, a failed Vice sale process, the collapse of special purpose vehicles and a choppy advertising market have prompted digital media executives to reassess the future of their companies. For now, executives have decided that more focused investments are better than attempts at scale.
“Right now, everyone is trying to get through a tougher market by focusing on their strengths,” BuzzFeed CEO Jonah Peretti said in an interview with CNBC. “We are now at a stage where we should only focus on innovating for the future and building more efficient, stronger and better companies.”
What’s happening in the digital media space reflects trends from the biggest media companies, including Netflix, Disney And Warner Bros. Discovery. Having lost nearly half or more of their market value in 2022, these companies, after years of global expansion and mega-mergers, have emphasized what sets them apart, be it distribution, brand, or programming quality. Disney CEO Bob Iger said the word “brand” more than 25 times at a Morgan Stanley media conference this month.
“I think brands are important,” Iger said. “The more choices people have, the more important brands become because of what they convey to consumers.”
Making strategic decisions based on consumer demand, not investor pressure, is a linchpin for the industry, said Bryan Goldberg, CEO of Bustle Digital Group, which has acquired and developed a number of women’s brands and websites, including Nylon , Scary Mommy and Romper and Elite Daily.
“Too many of the mergers were driven by investor needs and not consumer needs,” Goldberg said in an interview.
The Rise and Fall of the Rollup Dream
From late 2018 to early 2022, the digital media industry shared a common goal. Fueled by venture capitalists and private equity investors who made significant investments in the industry in the 2010s, companies like BuzzFeed, Vice, Vox Media, Group Nine and Bustle Digital Group or BDG, in various combinations, were talking to each other, about bringing together, to gain in size.
“If BuzzFeed and five of the other biggest companies were combined into one bigger digital media company, you could probably make more money,” Peretti told the New York Times in November 2018, kicking off a multi-year consolidation effort.
The justification was twofold. First, digital media companies needed scale to compete with Facebook and Google for digital advertising dollars. Adding websites and brands under one corporate umbrella would increase overall advertiser attention. Cost reductions through M&A synergies were an additional benefit for investors.
Second, longtime shareholders wanted out of their investments. Big legacy media companies like Disney and Komcast‘s NBCUniversal invested hundreds of millions in digital media in the early and mid-2010s. Disney invested more than $400 million in Vice. NBCUniversal put a similar amount into BuzzFeed. By the end of the decade, after the value of those investments had fallen, legacy media companies were making it clear to digital media executives that they were not interested in becoming buyers.
Vice Media offices display the Vice logo in Venice, California.
Mario Tama | Getty Images
With no strategic buyer available, the merger using publicly traded shares could allow VC and PE shareholders to withdraw money from investments well past the typical seven-year holding period. Digital media companies are eyeing special acquisition companies — also known as SPACs, or blank check companies — to quickly go public. The popularity of SPACs increased in 2020 and peaked in 2021.
Accelerated deal flow. Vox acquired New York Magazine in September 2019. About a week later, Vice announced that it had acquired Refinery29, a digital media company focused on younger women. BuzzFeed bought news aggregator and blog HuffPost in 2020, then acquired digital publisher Complex Networks in a SPAC transaction in 2021 to go public. Vox and Group Nine agreed to merge later that year.
BuzzFeed, then widely regarded by industry executives as having the strongest balance sheet and best growth narrative, successfully went public through SPAC in December 2021. Shares plummeted immediately, falling 24% in the first week of trading. The coming weeks and months were even worse. BuzzFeed opened at $10 a share. The stock is currently trading at around $1 — a 90% loss in value.
BuzzFeed’s stunning performance coincided with the implosion of the SPAC market in early 2022 as interest rates rose. Other companies that wanted to follow BuzzFeed abandoned their efforts to go public altogether. Vice tried and failed. Now it’s trying to find a buyer for the second time in two years. BDG and Vox, meanwhile, gave up the idea of an IPO. Vox instead sold a 20 percent stake in itself to Penske Media, which owns Rolling Stone and Variety, in February.
The industry is turning inward
Consolidation has always been a flawed strategy because digital media could never grow big enough to compete with Facebook and Google, Integrated Media’s Miller said.
“You have to be of sufficient size to play a role, but that alone isn’t a winning formula,” Miller said.
Vice’s deal for Refinery29 is an excellent example of a deal motivated by scale that lacked consumer rationality, said BDG’s Goldberg.
“Digital media rollup has only proven successful when assets are carefully combined with consumers in mind,” Goldberg said. “In what world did the combination of Vice and Refinery29 make sense?”
Vice is in sales discussions with a number of buyers outside of the digital media landscape, CNBC previously reported. It’s also considering selling itself in chunks if there’s more interest in parts of the business, such as: B. its TV production facilities and its advertising agency Virtue.
Vice is a cautionary tale about what happens to a digital media company when its brand loses its shine, Miller said. Vice, which was valued at $5.7 billion in 2017, is now considering selling for around $500 million, according to people familiar with the matter, who asked not to be named as the sales talks are private are.
A Vice spokesman declined to comment.
“In the old days of media, with TV stations, if you were down, you could revive yourself with a hit,” Miller said. “In the internet age, everything is so easily interchangeable. If Vice is out, the audience just switches to something else.”
Companies like BuzzFeed, Vox and BDG are now trying to find enduring relevance amid a multitude of information and entertainment opportunities. BuzzFeed has decided to lean on artificial intelligence and is promoting new AI-generated quizzes and other content that fuses the work of staff writers with AI databases.
BDG has chosen to primarily target female audiences across all lifestyle categories.
Vox has focused on journalism and information across multiple industries. That’s a strategy that hasn’t really changed, though the market has turned against digital media, giving Vox CEO Jim Bankoff an opportunity to continue looking for deals. Just don’t expect the partners to be Vice, BDG, or BuzzFeed.
“We aim to be the leading modern media company with the strongest portfolio of brands, serving audiences on modern platforms – websites, podcasts, streaming services – while building franchises through multiple revenue streams,” said Bankoff. “There is no doubt that M&A is part of our playbook and we expect it will continue to be so in the future.”
As executives make strategic decisions with a sharper consumer eye, the problem of finding an exit for investors remains. Differentiation can open up the pool of potential buyers beyond the media industry. BuzzFeed’s focus on artificial intelligence, for example, could attract the interest of technology platforms.
It’s also possible that there will eventually be a second wave of peer-to-peer mergers. While Integrated Media’s Miller doesn’t anticipate a future rollup in the industry, BuzzFeed’s Peretti hasn’t shut down the concept if market conditions improve. As executives invest in fewer ideas and fewer industries, the end result could be healthier companies that are more attractive merger partners, he said.
“If everyone invested in what they do best and put them back together, you would have this diversified digital media company with real scale,” Peretti said. “That helps drive trade for all parts of a unified company. I think it’s still possible.”
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
WATCH: Axios’ Sara Fischer on BuzzFeed’s ongoing problems