Why the Outlook for Digital Media Behemoths is Worse than You Think

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February 1, 2019 11:33 a.m.
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This morning we have news that VICE is the latest digital media powerhouse to announce major layoffs: 10% of the workforce, apparently around 250 people. They of course join Buzzfeed, Huffpost (as part of Verizon), Gannett and others in recent weeks. With the digital media companies the key thing to consider is why people own media companies in the first place. Does anyone want to own these companies for longterm and consistent, if modest, profitability (or ‘synergy’ within a larger media company)? None of these companies have ever lived in that world. And none of them have those kinds of owners.

There are reasons to own a media company that posts consistent if modest profits. There are reasons to own one that simply breaks even. There are even reasons to own media companies that lose predictable and relatively small amounts of money every year. The problem is that the people who currently own these companies aren’t in it for any of those reasons.

Let me be clear on saying that for everyone who has an interest in a vital news media – citizens, journalists, et al. – it’s critical that news organizations have business models that work, which is to say make at least modest profits. Non-profit/foundation based news rooms are a critical part of today’s news ecosystem. But I believe for media independence, access to capital and other reasons that the critical mass of news media needs to be able to operate as for profit businesses. We’re fooling ourselves to believe otherwise. But this is a slightly separate point. As I said above, news organization don’t need to be wildly profitable. But the people who own most digital media today are owning for wild profitability or more specifically wild profitability (or the credible hope of future wild profitability) that will make it possible to sell the media companies for big returns.

That’s a problem.

Because it means that achieving profitability or at least operating in the black is only one part of achieving soft landings for these digital media behemoths. Let’s say Buzzfeed can cut its way to modest profitability or at least breaking even. Great. Not losing money. But that’s not enough. If Buzzfeed operates in its current form and makes a 1% profit will anyone want to buy it for $1.7 billion or whatever its notional valuation is currently supposed to be? Unlikely. (Buzzfeed may be in a better position than other companies because a lot of it is already owned by NBCUniversal. So the best path will likely be to become an NBC subsidiary, which would have a real interest in not gutting it.)

Well, you can say, but lots of people would be happy to own a big media operation that threw off even modest profits. No doubt. But again, how does it get into those people’s hands? One of the VC’s that currently owns Buzzfeed (and this applies to all these companies) may be happy to hand it off to that kind of owner. But they really want a big return on their investment or at least they don’t want to lose money. And they’re the owners. So it’s hard for me to see how we’re not looking at a near to medium term outlook with accelerating efforts to drive the levels of profitability that can get the exits their investors want.

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