Sometimes it’s important to look beyond the headlines, seek the wider picture and consider the nuances. And this is especially true in the world of media finance, writes Ashley Norris, who spoke to mergers and acquisitions (M&A) guru Reed Phillips, CEO of Oaklins DeSilva+Phillips investment bank, at the recent Mx3 media event in Barcelona.
Many stories have been written about the downfall of millennial darlings Vice Media and BuzzFeed, detailing how these media companies took huge chunks of investment money, created monster valuations, and then saw their businesses crash as revenues fell well short of expectations.
Former editor-in-chief of BuzzFeed News, Ben Smith, chronicles in his excellent book Traffic how the company became an investment-hungry beast, creating huge audiences but never quite managing to monetise them effectively.
But the experience did not put Smith off taking on finance for another media project. Together with former Bloomberg Media CEO Justin B. Smith he started the digital news brand Semafor. In 2023, they raised $19 million from investors including Yahoo co-founder Jerry Yang to replace money they had received from the disgraced Sam Bankman-Fried.
So, was the problem with Vice and Buzzfeed the business models or the investment? And what impact have those disaster stories had on deals and valuations of digital media companies?
The great unravelling
Media M&A authority Reed Phillips of Oaklins DeSilva+Phillips, a key speaker at the MX3 Barcelona event in March, suggests some media firms will never turn a profit no matter what level of investment they receive and scale they attain.
“I think that the times have changed. And those companies had much more competition than they had before. It’s been very challenging for them. And as a result, those investments have not worked out.
“There was a time when Vice was riding high and had a $6 billion valuation, and was expanding into all kinds of other areas. It looked at the time like a brilliant business model.
“Unfortunately, things really unravelled. And they, like other companies I could name, took in money and spent the money. And they looked like they were growing nicely, but they still needed more money. They never really got to the point where they had developed a profitable business model. And that may have been the case for some of those companies. They just simply weren’t going to be sustainable and become fully profitable.”
The downfall of these businesses had a knock-on effect on valuations, Reed says, with valuations for digital media now substantially lower than in 2021-2022.
Economics and technology
A key factor in media companies’ success is the economic climate.
“Up until just recently the biggest issue for media companies in terms of growth and sustainability has been the algorithm changes at Google,” Reed explains.
“It is also important though to understand that they don’t operate in a vacuum. The economy that they’re working in has a massive impact too. If the economy is performing well, the companies tend to perform well.”
Technology is another factor that can scupper business or provide a growth path, Reed says.
“When any kind of technological change occurs, it can disrupt media businesses. So publishers have to be cognisant of technology and prepared to defend their position.”
The creator economy
While Reed admits the optics for media investment and M&A have not been great, he is confident there are still many opportunities.
“Looking at traditional media, I see a lot of opportunity in the niche B2B space, especially when the company has a thriving subscriptions system in place, and also when they host events.”
According to Reed, companies looking to invest in the B2B media space include Endeavor Business Media, GovExec, and Informa.
But he sees the most growth potential in the creator economy. Goldman Sachs, who valued the industry at $250 billion, expects the industry to double in the next four years. Not surprisingly, the deals are already happening.
Recently, Reed wrote for Mx3 that the industry is ripe for consolidation through mergers and buyers. Advertisers prefer to make larger buys from fewer companies, but must currently deal with an almost infinite number of influencers and midsized agencies. He expects to see a lot of smaller deals in this space.
While many newly formed companies are eager to roll-up smaller players, large companies like Warner Bros. Discovery, Walt Disney, Vivendi, Sony, Sanoma, Comcast and Live Nation may also decide to play here.
“We sold a creator economy company recently” says Reed, referring to Jellysmack, the UK-based social media conglomerate acquiring Network Media. “And we’re talking to a lot of companies in that space. A lot of them are small. We think there’s going to be a lot of consolidation in the space eventually. We don’t know when it’s going to occur, but we’re trying to be there for that to happen. And that’s something that we’re excited about.”
Watch highlights of our interview with Reed here:
