Not so long ago, when newspapers and magazines were going out of business all across the country, BuzzFeed and a few other fast-growing web publications seemed like the future of the news business.
Investors poured billions into Vox Media, Vice Media, Group Nine and other upstart companies that employed writers fully at ease with the new digital culture and the increased velocity of online journalism. Valuations shot skyward, and the companies’ founders did victory laps with each round of funding.
The exuberance was based on what seemed like a surefire business model: Give readers web-native content free of charge and watch the money roll in from advertisers eager to connect with a young audience.
Now things have turned upside down.
The Washington Post, The New York Times and The Wall Street Journal have flourished, thanks to an emphasis on digital journalism and a strategy of charging readers for online access. A number of leading web journalists have decamped for these century-old institutions, while investors are demanding returns on the money they plowed into the digital companies when they were all the rage.
In an effort to regain their stature and compete against the much larger Facebook and Google, which take huge chunks of online ad revenue, BuzzFeed, Vox Media, Vice Media and Group Nine have gotten bigger in recent years through mergers and acquisitions.
Vox Media bought New York Media, the parent company of New York magazine and its clutch of websites. Vice Media bought Refinery29. Group Nine added PopSugar to a stable that included The Dodo and Thrillist and created a special purpose acquisition company (or SPAC) with the aim of going public. BuzzFeed bought HuffPost and said it would acquire another publisher, Complex, as part of its plan to go public through a SPAC transaction of its own.
Those deals were just the start.
Vice Media, previously on the hook for big payments to one of its investors, the private equity giant TPG, is circling a plan to go public, according to three people with knowledge of Vice Media. Vox Media is considering several offers that would take it public through a SPAC, two people familiar with the business said. And Axios, a news site based in Washington that started in 2017, has had talks with the German publishing giant Axel Springer about a possible merger, according to three people with knowledge of the negotiations.
All eight people spoke on the condition of anonymity to describe internal matters.
The wheeling and dealing has come as media investors have lost some of their enthusiasm for ad-supported sites filled with free content. Substack, a digital newsletter platform that relies on subscriptions, is now in vogue. Puck, a newsletter founded by a former Vanity Fair editor, recently started up with millions of dollars in funding. News sites with strict paywalls, including The Information and Insider, are growing.
The media industry has turned into a barbell. On one end, there are The Post (3.2 million print and digital news subscribers), The Journal (3.4 million) and The Times (six million) — large news operations that rely on their prestige, breadth and experience to attract subscribers. At the other end are The Information, Insider, Axios and others that provide hyper-focused reporting on subjects of special interest to smaller but intensely loyal audiences.
It gets murky between the two extremes. BuzzFeed, Vice, Vox and Group Nine find themselves in a difficult competition with the legacy publications for general readers and with Facebook and Google for ad dollars.
“You either need huge scale, or niche or specific market dominance,” Jim VandeHei, the chief executive of Axios, said in an email. “The middle has always been the resting place for roadkill.”
Axios, which brings in most of its revenue through sponsorship deals, had an 80 percent jump in ad sales during the first half of this year, according to two people familiar with the company; they estimated that Axios’ 2021 revenue could top $85 million.
Mr. VandeHei credits the company’s laser focus on what its audience wants, as opposed to an editorial strategy of trying to be all things to all readers.
“The silly companies and ideas washed away, and rightly so,” he said in the email, without referring to any specific businesses, “and it’s now clear the advertising and subscription markets are there AND growing if you deliver a quality product for a specific, identifiable audience.”
Axios has fielded a takeover offer from Axel Springer in a deal that could top $400 million, the two people with knowledge of the company said. Mr. VandeHei and Axel Springer declined to comment on the matter. (The Information reported on the talks.)
SPACs are at the center of many digital companies’ plans to reposition themselves. Also known as “blank check” firms, these are shell corporations that list on a stock exchange with the goal of buying a private business and taking it public without the regulatory hassles that go with an initial public offering.
Digital publishers see this once-arcane Wall Street maneuver as a way to raise money at valuations that could match funding rounds in more buoyant conditions. In the 38-page prospectus published when it announced its SPAC plan, BuzzFeed projected a revenue surge, from $521 million in 2021 to over $1 billion by 2024. BuzzFeed also agreed to cut a quarter of its valuation for the transaction, setting a bad precedent for rivals now seeking to go public.
Blank check deals have become harder to pull off. In April, the Securities and Exchange Commission said it planned to inspect SPAC mergers more closely and could issue new rules, holding these transactions to the same standards of a traditional I.P.O.
Although the S.E.C.’s statement has slowed the financing market for SPACs, Vice Media is working with the blank check firm 7GC, according to the three people with knowledge of the company. Vice and 7GC recently completed the due diligence stage of the deal, the people said, and Vice is reaching out to investors to raise money to complete the transaction.
The deal could come at a huge cost. Like BuzzFeed, Vice might lower its valuation, the people said, adding that it could fall below $3 billion from $5.7 billion.
Vice had been staring down big cash payments to TPG as part of a $450 million investment that the private equity firm made a few years ago. Vice has since renegotiated those terms to principally include stock, two of the people said. A SPAC merger could clean up its ownership structure. Vice declined to comment.
Of all the digital publishers currently pursued by Wall Street, Vox Media could reverse the trend of reducing a company’s value to go public. It anticipates around $400 million in revenue this year, growing at a rate of more than 25 percent, two people with knowledge of the company said.
Perhaps more noteworthy: This year, Vox Media is likely to hit a financial metric known as cash flow positive, the people said. That means the company’s operations have more cash coming in than going out, which makes it easier to expand or even pay dividends to its investors. It also makes going public less urgent.
“For us, it’s a question of ambition and opportunity, and we are ambitious,” said Jim Bankoff, Vox Media’s chief executive. “We are going to evaluate our options, but we’re going to do it from a position of strength.” He would not comment on financial details or any potential deals.
Group Nine had talks with major publishers, including Vox Media, about a possible merger for its own SPAC listing, but so far none have materialized, according to three people with knowledge of the matter. Ben Lerer, the head of Group Nine, said in an interview that the company was “in an enviable position” given its recent sales growth.
“The SPAC obviously allows us to be even more ambitious,” he said.
An option for Group Nine would be a deal with one of its largest backers: Discovery Inc. The media giant recently orchestrated a daring takeover of WarnerMedia in an effort to better compete in streaming. Group Nine’s properties have helped drive hundreds of thousands of new customers to Discovery’s streaming platform through content partnerships, making it an attractive takeover target.
The digital ad market thrived during the pandemic, as people started spending more online; BuzzFeed, Vox Media and Group Nine all benefited. Still, their gains were nothing compared with the amounts brought in by the digital giants.
“Facebook, Google and Amazon’s crumbs are Vox, Group Nine and Buzzfeed’s cake,” said Brian Wieser, the lead analyst at GroupM, the media investing arm of the ad company WPP.
That disparity underlines the need of the ad-driven publishers to keep getting bigger.
BuzzFeed’s entry into the public markets is likely to give it an advantage. In addition to cash, it will be able to use its stock as currency to make another deal along the lines of its HuffPost purchase.
“We’ll have opportunities to pursue more acquisitions, and there are more exciting companies out there that we want to pursue,” Jonah Peretti, a BuzzFeed co-founder and the chief executive, said last month.
When asked if BuzzFeed would consider entering the subscription business, he said in a recent interview: “Sure, we’d consider it. Why not?”
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