‘Unhealthy dependency’: Why are digital media companies faltering?
Vice Media, BuzzFeed, Insider, and even Reach have seen revenues and valuations plummet amid a “confluence” of problems hitting the digital media market.
The past month has seen once high-flying digital media companies come crashing back to Earth.
Vice Media, the most recent casualty, is reportedly heading toward bankruptcy just a week after it cancelled its flagship TV programme, Vice News Tonight. Other major digital publishers like BuzzFeed and Insider have similarly culled staff, including the former’s closure of BuzzFeed News, a Pulitzer Prize-winning outlet.
The mood is certainly a far cry from 2015, when Enders Analysis CEO Doug McCabe commented that newsbrands were unlikely to win the fight against then-nascent publishers.
“Media brands have been shocked by how BuzzFeed and Vice and others have brought news to kids and invested heavily in it,” McCabe told The Media Leader (then Mediatel News). “They are fighting back hard, but they are not producing appealing content in the right kind of way so they are not going to win.”
But even more established publishers are feeling the pain. Reach, the UK’s largest news publisher, has seen its revenues continue to slide, leading to layoffs and budget cuts even as the company seeks expansion into the US market.
Commenting on the news, Adam Foley, CEO of independent media agency Bountiful Cow and former director of advertising at The Guardian, says the difficulties faced by these companies “should serve as a warning to the media industry that’s it’s not just the long-tail of small niche publishers who are seriously threatened.”
‘The digital adspend model has fallen out of bed’
What’s behind the sharp downturn?
“It’s an unfortunate confluence of three or four bad things” in both macro and microeconomic environments, says TMT analyst and investor Alex DeGroote.
As governments have had to raise interest rates to stem inflation, the investment climate has worsened across the board. Whereas during the pandemic, money was cheap and speculative investments were popular, in the current environment, investors are less interested in financing young, growth-oriented media companies whose value is typically locked up in 10 years’ time.
“The digital-native publishers have vulnerable and often unprofitable business models, where the recent momentum has been very negative,” says DeGroote. He explains that a pullback in digital advertising this year has contributed to waning confidence among investors in the belief that ad-supported news is a sustainable model for growth.
“If you want to build a digital media business, you want to avoid digital advertising. […] The digital adspend model [has] fallen out of bed.”
This is particularly true for newsbrands that don’t offer regular coverage in light, entertainment-centric news. Those advertiser-friendly environments offer more appeal than straight news, which often reports on difficult or controversial subjects that brands don’t want to be directly associated with.
As a media buyer, Foley tells The Media Leader “there can only be very, very few people in media agencies who don’t want newsbrands to thrive”, but that the “uncomfortable truth” is that digital advertising formats themselves aren’t appealing to advertisers.
“Static display advertising is too small, too peripheral and too ignorable. No-one has ever had a favourite banner advert. Video doesn’t always suit a medium where eyes are moving quickly down the page.
“If they want advertisers to be part of their future, they are going to have to move beyond digital formats that are basically still iterations of something invented in 1994, and create something that does justice to the enormous potential they hold for brands and which unlocks the unrivalled influence, scale and depth they offer.”
‘An unhealthy dependency’
Another factor behind digital publishers’ struggles has been their reliance on social media platforms for audience outreach. Analysts speaking to The Media Leader described how, for companies with exclusively free, ad-supported business models like BuzzFeed, a dependence on social networks contributed to their financial challenges.
As DeGroote explains, many investors are “put off” by businesses that are reliant on other platforms (e.g., Facebook and Twitter) for their revenue, especially as such platforms “have decided news is poison”. A report released earlier this month and commissioned by Meta, which owns social platforms Facebook and Instagram, said that “Meta derives little economic value from the sharing of news content on Facebook”. The company has signalled it is no longer interested in playing host to news.
“It’s an unhealthy dependency,” says DeGroote.
The same concerns plague any publisher that relies on readership from social platforms. Reach, for instance, attributed its continued decline in page views to “recent changes to the way Facebook presents news content, causing a reduction in referred traffic across the sector.” Other Search and social-first publishers have had to create highly adaptable teams to reach and re-reach online audiences as platforms change their policies, with varying degrees of success.
‘The pie will be sliced too thinly’
Apart from advertising, digital media business models revolve around offering subscriptions and locking content behind paywalls. In fact, in recent years many major news organisations have hit subscriber milestones, showing consumer demand still exists for quality news. The New York Times hit 10 million subs three years ahead of schedule; the Financial Times and The Guardian passed 1 million digital subscribers each, while The Telegraph reached 750,000 combined print and digital subscribers at an average spend per subscriber of £172.
But digital-native publishers do not have comparable reader revenue, according to DeGroote. And unlike more established and highly trusted brands like The Times and the Financial Times, newer newsbrands like BuzzFeed News, despite its accolades, are less likely to be able to pull large enough subscription numbers to drive sufficient revenue, even if it were to have scaled down or moved to a subscription-based model rather than close.
Unfortunately, newsbrands are prone to falter without some form of subscription revenue, especially amid macroeconomic downturns and if social media companies adapt their policies on platforming news.
As Foley adds: “In the face of declining adspend, more and more digital publishers will be forced to switch away from advertising to a subscription model or a hybrid of both. While Ozone works as a ‘stronger together’ aggregator of publishers, the pie will still be sliced too thinly for some to survive.”
‘Live within your means’
Media companies aren’t tech companies. While in low interest rate environments, valuations can soar, their paths to growth are difficult. Production costs associated with creating a quality product, namely hiring top journalists and editors, can weigh on profits.
“The real problem here is that these businesses have been living beyond their means,” says DeGroote.
Though not necessarily their fault—investors had encouraged media publishers to scale aggressively in order to create large monetisable audiences—if and when a return on investment does not come through, media companies are left with a huge cost base, with little room to manoeuvre toward profitability.
The moral, according to DeGroote: “Live within your means.”