BuzzFeed CEO Jonah Peretti stands outside the Nasdaq market site in Times Square as the company goes public through a merger with a special purpose acquisition company on December 06, 2021 in New York City.
Spencer Platt | Getty Images
When a wedding or engagement fails, it is common for participants to take time to work on themselves.
This is where the digital media industry stands today.
After years of focusing on consolidation to better compete Google et Facebook for digital ad dollars, many of the best known digital media companies have abandoned consolidation efforts to focus on differentiation.
“What you’re seeing is that companies are trying to find a non-substitutable core,” said Jonathan Miller, CEO of Integrated Media, which specializes in digital media investments. “The days of trying to bring these companies together are over, and I don’t think it’s coming back. »
A drop of 90% BuzzFeed shares since the company went public in 2021, a failed Vice sale process, the collapse of special purpose acquisition companies and a choppy advertising market have digital media executives rethinking the future of their businesses . For now, executives have decided that more concentrated investment is better than trying to scale up.
“Right now, everyone is trying to get through a tougher market by focusing on their strengths,” BuzzFeed CEO Jonah Peretti said in an interview with CNBC. “We are now in this period where we should just focus on innovating for the future and building more efficient, stronger and better businesses. »
What’s happening in the digital media space echoes trends from the biggest media companies, including Netflix, Disney et Discovery of Warner Bros.. After losing almost half or more of their market value in 2022, these companies have focused on what sets them apart, whether it’s distribution, brand or product quality. programming, after years of global expansion and mega-mergers. Bob Iger, CEO of Disney to say the word “brand” more than 25 times at a Morgan Stanley press conference this month.
“I think brands are important,” 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 pivotal for the industry, said Bryan Goldberg, CEO of Bustle Digital Group, which has acquired and grown a number of brands and sites for to women, including Nylon, Scary Mommy, Romper. and Daily Elite.
“Too many mergers have been driven by investor needs rather than consumer needs,” Goldberg said in an interview.
The rise and fall of the rollup dream
“If BuzzFeed and five of the other biggest companies were combined into one bigger digital media company, you’d probably be able to get paid more money,” Peretti said. The New York Times in November 2018kicking off a multi-year consolidation effort.
The rationale was twofold. First, digital media companies needed more scale to compete with Facebook and Google in digital advertising. Adding sites and brands under one corporate umbrella would increase overall advertiser attention. The reduction in costs resulting from mergers and acquisitions synergies has been an additional benefit for investors.
Second, long-time shareholders wanted out of their investments. Large legacy media companies such as Disney and ComcastNBCUniversal invested hundreds of millions in digital media in the early and mid-2010s. Disney invested more over $400 million in Vice. NBCUniversal put option a similar amount in BuzzFeed. At the end of the decade, after see the value of these investments falltraditional media companies have made it clear to digital media executives that they are not interested in becoming acquirers.
Vice Media offices display the Vice logo in Venice, California.
Mario Tama | Getty Images
With no strategic buyer available, merging with each other using publicly traded equities could give venture capital and private equity shareholders a chance to cash in on investments that are well overdue. seven-year standard holding period. Digital media companies have looked to special purpose acquisition companies – also known as SPACs or blank check companies – as a way to quickly go public. The popularity of SPACs has accelerated in 2020 and peak in 2021.
The flow of transactions has accelerated. Vox acquired New York Magazine in September 2019. About a week later, Vice announced it had acquired Refinery29, a digital media company focused on young women. BuzzFeed bought news aggregator and blog HuffPost in 2020, then acquired digital publisher Complex Networks in 2021 in a SPAC deal to go public. Vox and Group Nine agreed to a merger later that year.
BuzzFeed, generally considered by industry executives at the time to have the strongest balance sheet with the best growth story, successfully went public via SPAC in December 2021. Shares immediately fell, 24% shot in their first week of trading. The weeks and months to come were even worse. BuzzFeed opened at $10 per share. The stock is currently trading around $1, a 90% loss in value.
BuzzFeed’s disappointing performance coincided with the SPAC market implosion in early 2022 as interest rates rose. Other companies that planned to follow BuzzFeed have ended their efforts to go completely public. Vice tried and failed. Now he is trying for the second time in two years to find a buyer. BDG and Vox, meanwhile, dropped considerations to go public. Vox instead sold a 20% of the capital itself in February to Penske Media, owner of Rolling Stone and Variety.
The industry is turning in on itself
Consolidation has always been a flawed strategy because digital media could never get big enough to compete with Facebook and Google, Integrated Media’s Miller said.
“You have to have enough scale to matter, but that’s not a winning formula on its own,” Miller said.
Vice’s deal for Refinery29 is a prime example of a scale-driven deal that lacks consumer logic, BDG’s Goldberg said.
“Digital media deployment has only been successful when assets are thoughtfully combined with an eye on consumers,” Goldberg said. “In what world does Vice and Refinery29 make sense in combination?” »
Vice is engaged in sales talks with a number of buyers outside of the digital media landscape, CNBC Previously reported. He also plans to sell himself in pieces if there is more interest in certain parts of the business, such as his television production assets and advertising agency, Virtue.
Vice is a cautionary tale of what happens to a digital media company when its brand fades, Miller said. Valued at $5.7 billion in 2017, Vice is now planning to sell for around $500 million, according to people familiar with the matter, who asked not to be named because the sale discussions are private.
A spokesperson for Vice declined to comment.
“In the days of media, with TV stations, if you were down, you could come back with a hit,” Miller said. “In the age of the Internet, everything is so easily replaceable. If Vice goes down, the audience just moves on. »
Companies such as BuzzFeed, Vox and BDG are now trying to find lasting relevance among a myriad of information and entertainment options. BuzzFeed chose to rely on artificial intelligence, touting new AI-generated quizzes and other content that fuses the work of staff writers with AI databases.
BDG has chosen to primarily target a female audience across all lifestyle categories.
Vox has focused on journalism and news in a number of different verticals. It’s a strategy that hasn’t really changed even as the market has turned against digital media, allowing Vox CEO Jim Bankoff to continue chasing deals. Don’t expect the partners to be Vice, BDG or BuzzFeed.
“We want to be the leading modern media company with the strongest portfolio of brands that serve their audiences on modern platforms – websites, podcasts, streaming services – while building franchises through multiple revenue streams,” said said Bankoff. “There is no doubt that mergers and acquisitions are part of our playbook, and we anticipate it will continue to be in the future. »
Find an exit
While executives can make strategic decisions with a keener eye on the consumer, the problem of finding an exit for investors remains. Differentiation can open the pool of potential buyers beyond the media industry. BuzzFeed’s focus on artificial intelligence, for example, could spark the interest of tech platforms.
It is also possible that there will be a possible second wave of peer-to-peer mergers. While Integrated Media’s Miller doesn’t expect a future industry rollout, BuzzFeed’s Peretti hasn’t closed 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 are more attractive merger partners, he said.
“If everyone invests in what they do best, if you put them back together, you’ll have this large-scale, diverse digital media company,” Peretti said. “It helps drive commerce for all parts of a unified business. I think it’s always possible. »
Disclosure: Comcast’s NBCUniversal is CNBC’s parent company.
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