Digital media convergence plan is dead

BuzzFeed CEO John Peretti stands in front of Nasdaq’s Times Square marketplace as the company goes public through a merger with a special acquisition company on Dec. 6, 2021 in New York City.

Spencer Platt | Getty Images

When is the wedding or engagement fails, participants often spend time working on themselves.

This is where the digital media industry has found itself today.

After years of concentrating on consolidation to better compete with Google And facebook for digital advertising, many of the most famous digital media companies have abandoned consolidation efforts to focus on differentiation.

“You see companies trying to find an irreplaceable core,” said Jonathan Miller, CEO of Integrated Media, a digital media investment firm. “The era of trying to bring these companies together is over and I don’t think it will come back.”

90% reduction buzzfeed shares since the company went public in 2021, the failed Vice sale process, the collapse of specialty acquisition companies, and a volatile advertising market have forced digital media executives to rethink the future of their companies. For now, executives have decided that more concentrated investment is better than trying to achieve scale.

“Now everyone is trying to get through a tougher market by focusing on their strengths,” BuzzFeed CEO Jonah Peretti told CNBC. “We are now in a period where we should just focus on innovating for the future and building more efficient, stronger and better companies.”

What is happening in the digital media space echoes the trends of the largest media companies, including Netflix, Disney And Warner Bros. Discovery. Having lost almost half or more of their market value in 2022, these companies have focused on what makes them different from others, be it distribution, brand or programming quality, after years of global expansion and mega-mergers. Disney CEO Bob Iger said the word “brand” over 25 times at Morgan Stanley’s press conference this month.

“I think brands matter,” 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 rather than investor pressure is at the core of the industry, said Brian Goldberg, CEO of Bustle Digital Group, which has acquired and developed a number of women-focused brands and websites including Nylon, Scary Mommy, Romper. . and Elite Daly.

“Too many mergers were driven by the needs of investors rather than the needs of consumers,” Goldberg said in an interview.

The rise and fall of the dream of winding down

From late 2018 to early 2022, the digital media industry had a common goal. Under pressure from venture capitalists and private investors who invested heavily in the industry in the 2010s, companies such as BuzzFeed, Vice, Vox Media, Group Nine, and Bustle Digital Group, or BDG, began negotiations with each other in various combinations. , about merging to scale up.

“If BuzzFeed and the other five big companies were to merge into a bigger digital media company, you could probably make more money,” Peretti said. New York Times in November 2018starting years of consolidation efforts.

The rationale was twofold. First, digital media companies needed more scale to compete with Facebook and Google for ad dollars. Bringing websites and brands together under one corporate umbrella will increase overall appeal to advertisers. An additional benefit for investors was cost reduction due to M&A synergy.

Second, longtime shareholders wanted to get out of their investments. Large traditional media companies such as Disney and ComcastNBCUniversal invested hundreds of millions of dollars in digital media in the early to mid 2010s. Disney invested more over $400 million in Vice. NBCUniversal Package similar amount on buzzfeed. By the end of the decade, after see the value of those investments droptraditional media companies have made it clear to digital media executives that they are not interested in being buyers.

The Vice Media offices display the Vice logo in Venice, California.

Mario Tama | Getty Images

In the absence of a strategic buyer, a merger with each other using publicly traded shares could give VC and PE shareholders a chance to cash in on investments that have significantly exceeded the standard seven-year holding period. Digital media companies looked to specialized acquisition companies — also known as SPACs or blanche companies — as a way to quickly go public. SPAC’s popularity has gained momentum in 2020 and peak in 2021.

The flow of transactions accelerated. Vox acquired New York Magazine in September 2019. About a week later, Vice announced the acquisition of Refinery29, a digital media company focused on young women. BuzzFeed bought news aggregator and blog HuffPost in 2020 and then acquired digital publisher Complex Networks in 2021 in a SPAC deal to go public. Later that year, Vox and Group Nine agreed to merge.

In December 2021, BuzzFeed, considered by industry leaders at the time to be the strongest balance sheet with the best growth story, successfully went public via SPAC. drop 24% in the first week of trading. The next weeks and months were even worse. BuzzFeed opened at $10 per share. The stock is currently trading at around $1, a 90% loss in value.

The disappointing results from BuzzFeed coincided with the collapse of the SPAC market in early 2022, with interest rates rising. Other companies that planned to follow BuzzFeed’s lead have scaled back their efforts to go public entirely. Vice tried and unsuccessful. Now for the second time in two years he is trying to find a buyer. In the meantime, BDG and Vox have dropped their intentions to go public. Instead Vox sold 20% shares in itself in February at Penske Media, which owns Rolling Stone and Variety.

The industry is turning inward

According to Integrated Media’s Miller, consolidation has always been a misguided strategy because digital media has never been big enough to compete with Facebook and Google.

“You have to have enough scale to make a difference, but that’s not a formula for success in and of itself,” Miller said.

According to BDG’s Goldberg, Vice’s deal with Refinery29 is a prime example of a deal motivated by scale and lacking consumer rationale.

“Digital media convergence has only been successful when assets are thoughtfully combined with a focus on consumers,” Goldberg said. “In what world did the combination of Vice and Refinery29 make sense?”

Vice is in talks to sell with a number of non-digital buyers, according to CNBC. previously reported. He is also considering selling himself piecemeal if there is more interest in parts of the company, such as its TV production assets and its advertising agency Virtue.

According to Miller, Vice is a cautionary tale about what happens to a digital media company when its brand loses its shine. Valued at $5.7 billion in 2017, Vice is currently considering selling itself for about $500 million, according to people familiar with the matter, who asked not to be named because the sale is in private negotiations.

A spokesman for the vice president declined to comment.

“In the old days of media, with TV networks, if you were in the doldrums, you could resurrect yourself with a hit,” Miller said. “In the age of the Internet, everything is so easy to replace. If Vice goes down, the audience will just switch to something else.”

Companies like BuzzFeed, Vox, and BDG are now trying to find consistent relevance among the plethora of information and entertainment options. BuzzFeed decided to rely on artificial intelligence, advertising new quizzes created by artificial intelligence and other content that combines the work of staff writers with AI databases.

BDG decided to primarily target a female audience across lifestyle categories.

Vox has focused on journalism and information in various fields. That strategy hasn’t really changed, even as the market turned against digital media, allowing Vox CEO Jim Bankoff to keep looking for deals. Just don’t expect Vice, BDG or BuzzFeed to be partners.

“We want to be the leading modern media company with the strongest portfolio of brands that serve their audience across modern platforms — websites, podcasts, streaming services — while building a franchise through multiple revenue streams,” said Bankoff. “There is no doubt that mergers and acquisitions are part of our strategy and we expect this to continue in the future.”

Finding an exit

While executives can make strategic decisions with a greater focus on the consumer, the problem of finding an exit for investors remains. Differentiation can open up a pool of potential buyers outside of the media industry. For example, BuzzFeed’s focus on artificial intelligence could attract interest from technology platforms.

It is also possible that a second wave of peer-to-peer mergers will eventually occur. While Integrated Media’s Miller doesn’t anticipate future industry consolidation, BuzzFeed’s Peretti hasn’t shut the door on the concept if market conditions improve. As executives invest in fewer ideas and verticals, the end result could be healthier companies that make more attractive merger partners, he says.

“If everyone invests in what they do best, when put together, you have a diversified digital media company with real scale,” Peretti said. “It helps stimulate commerce for all parts of the combined company. I think it’s still possible.”

Disclosure: NBCUniversal Comcast is the parent company of CNBC.

WATCH: Axios’ Sarah Fisher on BuzzFeed’s ongoing struggle

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