BuzzFeed CEO Jonah Peretti stands in front of the Nasdaq market site in Times Square as the corporate goes public through a merger with a special-purpose acquisition company on December 06, 2021 in Latest York City.
Spencer Platt | Getty Images
When a wedding or an engagement fails, it’s normal for the participants to take time to work on themselves.
That is where the digital media industry finds itself today.
After years of specializing in consolidating to higher compete with Google and Facebook for digital promoting dollars, lots of probably the most well-known digital media corporations have abandoned consolidation efforts to focus on differentiation.
“What you are finding is corporations are attempting to search out a non-substitutable core,” said Jonathan Miller, the CEO of Integrated Media, which makes a speciality of digital media investments. “The era of attempting to put these corporations together is over, and I do not think it’s coming back.”
A 90% decline in BuzzFeed shares for the reason that company went public in 2021, a failed sales process from Vice, the collapse of special purpose acquisition corporations, and a choppy promoting market have made digital media executives rethink their corporations’ futures. For the moment, executives have decided that more concentrated investment is healthier than attempts to realize scale.
“Without delay, everyone’s attempting to get through a tougher market by specializing in their strengths,” BuzzFeed CEO Jonah Peretti said in an interview with CNBC. “We’re in this era now where we must always just give attention to innovating for the longer term and constructing more efficient, stronger, higher corporations.”
What’s happening within the digital media space echoes trends from the most important media corporations, including Netflix, Disney and Warner Bros. Discovery. After losing nearly half their market values, or more, in 2022, those corporations have emphasized what makes them different, whether or not it’s distribution, brand or quality of programming, after years of worldwide expansion and mega-mergers. Disney CEO Bob Iger said the word “brand” greater than 25 times at a Morgan Stanley media conference this month.
“I feel brands matter,” Iger said. “The more alternative people have, the more vital brands turn out to be due to what they convey to consumers.”
Making strategic decisions based on consumer demand somewhat than investor pressure is a pivot for the industry, said Bryan Goldberg, CEO of Bustle Digital Group, which has acquired and developed plenty of brands and sites geared toward women, including Nylon, Scary Mommy, Romper and Elite Day by day.
“Too most of the mergers were driven by investor needs versus consumer needs,” Goldberg said in an interview.
The rollup dream’s rise and fall
“If BuzzFeed and five of the opposite biggest corporations were combined into an even bigger digital media company, you’d probably have the ability to receives a commission extra money,” Peretti told The Latest York Times in November 2018, kicking off a multiyear effort to consolidate.
The rationale was twofold. First, digital media corporations needed more scale to compete with Facebook and Google for digital promoting dollars. Adding sites and types under one corporate umbrella would boost overall eyeballs for advertisers. Cost-cutting from M&A synergies was an additional benefit for investors.
Second, longtime shareholders desired to exit their investments. Large legacy media corporations comparable to Disney and Comcast‘s NBCUniversal invested a whole lot of tens of millions in digital media within the early and mid-2010s. Disney invested more than $400 million in Vice. NBCUniversal put an analogous amount into BuzzFeed. By the top of the last decade, after seeing the worth of those investments fall, legacy media corporations made it clear to digital media executives that they weren’t excited about being acquirers.
Vice Media offices display the Vice logo in Venice, California.
Mario Tama | Getty Images
With no strategic buyer available, merging with one another using publicly traded stock could give VC and PE shareholders a probability to money out of investments that were well past the usual hold time of seven years. Digital media corporations eyed special purpose acquisition corporations — also generally known as SPACs or blank-check corporations — as a technique to go public quickly. The recognition of SPACs picked up steam in 2020 and peaked in 2021.
Deal flow accelerated. Vox acquired Latest York Magazine in September 2019. About per week later, Vice announced it had acquired Refinery29, a digital media company focused on younger ladies. BuzzFeed bought news aggregator and blog HuffPost in 2020 after which acquired digital publisher Complex Networks in 2021 as a part of a SPAC transaction to go public. Vox and Group Nine agreed to a merger later that yr.
BuzzFeed, generally thought by industry executives on the time to have the strongest balance sheet with the very best growth narrative, successfully went public via SPAC in December 2021. Shares immediately tanked, falling 24% of their first week of trading. The approaching weeks and months were even worse. BuzzFeed opened at $10 per share. The stock currently trades at about $1 — a 90% lack of value.
BuzzFeed’s underwhelming performance coincided with the implosion of the SPAC market in early 2022 as rates of interest rose. Other corporations that planned to follow BuzzFeed shut down their efforts to go public completely. Vice tried and failed. Now it’s trying for the second time in two years to search out a buyer. BDG and Vox, meanwhile, abandoned considerations to go public. Vox as an alternative sold a 20% stake in itself in February to Penske Media, which owns Rolling Stone and Variety.
The industry turns inward
Consolidation was all the time a flawed strategy because digital media could never turn out to be sufficiently big to compete with Facebook and Google, said Integrated Media’s Miller.
“You might have to have sufficient amount of scale to matter, but that is not a winning formula by itself,” Miller said.
Vice’s deal for Refinery29 is a major example of a deal motivated by scale that lacked consumer rationale, said BDG’s Goldberg.
“The digital media rollup has proven successful only when assets are thoughtfully combined with an eye fixed toward consumers,” Goldberg said. “In what world did Vice and Refinery29 make sense together?”
Vice is engaged in sale talks with plenty of buyers that fall outside the digital media landscape, CNBC previously reported. It is also considering selling itself in pieces if there’s more interest in parts of the corporate, comparable to its TV production assets and its ad agency, Virtue.
Vice is a cautionary tale of what happens to a digital media company when its brand loses luster, Miller said. Valued at $5.7 billion in 2017, Vice is now considering selling itself for around $500 million, in line with people aware of the matter, who asked to not be named since the sale discussions are private.
A Vice spokesperson declined to comment.
“Within the old days of media, with TV networks, when you were down, you may revive yourself with successful,” said Miller. “In the web age, the whole lot is so easily substitutable. If Vice goes down, the audience just moves on to something else.”
Firms comparable to BuzzFeed, Vox and BDG at the moment are trying to search out a permanent relevancy amid a myriad of knowledge and entertainment options. BuzzFeed has chosen to lean in to artificial intelligence, touting recent AI-generated quizzes and other content that fuses the work of staff writers with AI databases.
BDG has chosen to primarily goal female audiences across lifestyle categories.
Vox has focused on journalism and data across plenty of different verticals. That is a technique that hasn’t really modified at the same time as the market has turned against digital media, allowing Vox CEO Jim Bankoff the chance to proceed to hunt for deals. Just don’t expect the partners to be Vice, BDG or BuzzFeed.
“We wish to be the leading modern media company with the strongest portfolio of brands that serve their audiences on modern platforms — web sites, podcasts, streaming services — while constructing franchises through multiple revenue streams,” Bankoff said. “There is no doubt M&A is an element of our playbook, and we expect it would proceed to be in the longer term.”
Finding an exit
While executives could also be making strategy decisions with a sharper eye toward the patron, the issue of finding an exit for investors stays. Differentiation may open up the pool of potential buyers beyond the media industry. BuzzFeed’s emphasis on artificial intelligence could attract interest from technology platforms, for example.
It is also possible that there will probably be an eventual second wave of peer-to-peer mergers. While Integrated Media’s Miller doesn’t expect a future industry rollup, BuzzFeed’s Peretti hasn’t closed the door on the concept if market conditions improve. As executives put money into fewer ideas and verticals, the final result may very well be healthier corporations which can be more attractive merger partners, he said.
“If everyone invests in what they’re best at, when you put them back together, you’d have that diversified digital media company with real scale,” Peretti said. “That helps drive commerce for all parts of a unified company. I feel it’s still possible.”
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
WATCH: Axios’ Sara Fischer on BuzzFeed’s continuing struggles