January 3, 2023

Looking Ahead to 2023

I sat at my keyboard a year ago, thinking about what would happen in 2022. I wasn’t terribly controversial with my opinions—events would continue to strengthen, and NYT would buy The Athletic. But I ended my thoughts with, “The last decade was rough, but as we move farther into this one, I feel very bullish. I hope you do as well.”

I’ve thought about those words a lot in the week and a half that I have not been working (plus formed my thoughts on AMO, which are below). I remember what I was thinking about when I wrote that. We were nearly two years into the pandemic. People were increasingly talking about the second “roaring 20s” as things continued to open up. Although many of us were hungover from the markets booming in 2021, we were confident about the future.

But 2022 was anything but easy. The ad markets started weakening as the year progressed. Consumers second-guessed whether they actually needed that subscription. As Semafor’s Ben Smith wrote, “the ceilings seem to be a little lower than anyone hoped.”

And so, as I think about those words, I am left asking myself whether I still feel very bullish. It depends.

Do I feel bullish that 2023 is going to be painless? No. Do I feel bullish that the ad markets will start improving now that the holidays are behind us? Also no.

But do I feel like media has a bright future, and am I bullish on that future? Yes, I am. Media is a tricky business. However, when we narrow it down to its base inputs, it becomes straightforward. Create. Grow. Sell. Repeat. That’s it. Whether you were creating IP 100 years ago or launching a newsletter today, there are three steps to success: create, grow, and sell.

And when I talk to many operators who read AMO, they all execute from that same playbook. Create great content, grow an audience with it, and then sell—directly or indirectly. Then repeat.

So, the start of 2023 is going to be rough. Some of the most seasoned operators tell me they would be lying if they weren’t a little anxious. But if you are focused—truly focused—on creating, growing, and selling, you’re going to figure it out. And for those operators? Damn straight I’m bullish.

This aside, here are a few of my predictions for 2023.

Vice Media as we know it ceases to exist

The past few years have been a challenge for Vice, and I don’t anticipate things getting much easier over the next year. Before the holiday break kicked in, WSJ reported that Vice would be missing its 2022 revenue goal by $100 million. According to the story:

The company presented a revenue target of over $700 million at an off-site with senior employees earlier this year, one of the people said. The expected shortfall would leave Vice with around $600 million in revenue for the year, roughly flat compared with 2021, the people said.

The anticipated revenue miss comes as the company has been in talks for months to sell itself to Greek broadcaster Antenna Group. The two companies are partners on Vice’s push into international news.

Vice has sought a valuation of around $1.5 billion, according to people familiar with the sale process. The expected 2022 revenue miss could make it harder for the company to fetch that price.

A statement from the company talked about growth in EBITDA year over year, but the reality is Vice can’t get control of its growth. And if we look at 2023 as an even bigger struggle from an advertising perspective, I would anticipate its ad revenue dropping this year rather than improving.

Therefore, with all the debt it owes coming due—$250 million raised in 2019—it will need to find cash. I anticipate it will prove difficult to find a single buyer. A source tells WSJ, “One option being discussed is to continue to cut costs and then attempt to sell Vice in parts.”

If I’m Vice, that’s what I focus on. Maximize EBITDA, make assets look compelling from a cash flow perspective, and sell them. I expect a solid chunk of this to be done over the next year.

BuzzFeed goes private

What would be your reaction if I told you there was a business that had generated an estimated $430 million in 2022 revenue and was trading for $95 million?

I pull up BuzzFeed’s stock price once a week and am consistently astonished to see it cratering the way it has. $0.69 per share as of Friday. According to Yahoo Finance, shares of the SPAC merging with BuzzFeed were $9.62 a share the Friday before the deal. By the end of December 6th, day one of the merger, shares had dropped to $8.56. By December 10th, they were $6.07.

There were people confident that BuzzFeed would find a floor and then begin to turn things around. Bustle Digital Group’s Bryan Goldberg told CNBC, “I just bought a fuck ton of BuzzFeed shares at $6.00. If it goes lower, I’ll really back up the truck.”

The problem with the thesis of backing up the truck is that the logic was a bit faulty. Goldberg told CNBC that “4x revenue should be the default, but it may take six to eight months to get there.”

This is where things get a bit funky with multiples. I’ve heard that 4x is the default for media companies, but that doesn’t consider growth and profitability. A faster growing company that is kicking off more profit would likely trade for a far better multiple than a shrinking one. The quality of the revenue matters, so a blanket statement of 4x revenue is unhelpful and limiting.

All this is to say that no one knows what BuzzFeed should be worth. However, I will say that $95 million is ridiculously cheap for this company. 0.22x its estimated 2022 revenue is just preposterously low. And let’s not forget, at the end of Q3, it had $59.1 million in cash and cash equivalents on the balance sheet. If we assume that’s down to $50 million, it’s trading at even less than 0.22x its estimated 2022 revenue since there’s cash on the books.

That’s an insane price for BuzzFeed. So some private equity company will come along, buy it, cut costs, and then figure out what comes next. I anticipate it following a similar playbook to Vice, where the owner will identify which assets are valuable and sell them piecemeal. BuzzFeed’s obsession with scale will die with its fragmentation.

News Corp splits for the right reason

In November, I wrote:

Sure, Irenic did the analysis and found that News Corp should trade at $16.01/share on its own, except it’s not on its own. So, you can’t invest in News Corp with the rational understanding that the parts are worth what their contemporaries trade for. To realize this sort of value, spin-offs of some sort would have to occur.

But now that investors are getting so vocal, something will have to happen. Investors have been pushing for selling its real estate assets, with others suggesting Dow Jones is a unique asset worth spinning off. Whatever happens, it doesn’t look like the Murdochs will get their mega-merger.

While the Murdoch family is pushing for a merger between its two assets, Fox and News Corp, I imagine the opposite will occur. Seeing that this deal is on the table, investors will instead push for unlocking value at News Corp by selling assets.

According to Irenic Capital, which owns 2% of News Corp’s Class B shares, the entirety of News Corp is worth ~$34 per share. The B shares closed on Friday at $18.44 per share. So essentially, Irenic is proposing that there is 84% of value waiting to be unlocked if assets were sold or spun out.

Last week, Axios reported that Mike Bloomberg might make a play on Dow Jones. According to the story:

Michael Bloomberg, the billionaire businessman and media mogul, is interested in acquiring either Wall Street Journal parent company Dow Jones or the Washington Post, a source familiar with his thinking told Axios.

Still, Bloomberg has not yet approached Murdoch about his interest, nor has he begun to engage any official third parties, like bankers, to evaluate the opportunity.

A Dow Jones deal would give Bloomberg access to a premiere business title that could be leveraged to sell more subscriptions to the Bloomberg Terminal, a real-time data, news and analysis platform for financial professionals.

The thought that Bloomberg would buy Dow Jones is fascinating and would make Bloomberg Media a true behemoth—more than it already is.

But my guess is that Bloomberg would have a lot of competition. I can only imagine there are media conglomerates worldwide, not to mention private equity, that would chomp at the bit to take over Dow Jones. Why not? It’s wonderfully profitable, has a nice blend of advertising and subscriptions, and is building a legit b2b business.

Whether investors can force this sort of deal remains to be seen. It’s clear that the Murdochs want to merge rather than split, but if enough of the minority investors push, there may not be a choice.

In summary…

None of these predictions are all that controversial. Two are about struggling businesses, while the third is about a genuine diamond of an asset. But 2023 will be a pivotal year for all of these companies.

I’ve heard from publishers that they expect a tough first half of the year but anticipate things strengthening in the second half. Unfortunately, I’m not smart enough to play in that prediction game.

But I’ll close with this. The economy is going to do whatever it is going to do. None of us are powerful enough to change the course of the economy. Therefore, we need to run our businesses as efficiently as possible. When opportunities present, take them.

Industry Dive CEO Sean Griffey said, “this year is an opportunity for premier publishers to separate themselves from their competitors. It’s hard to differentiate yourself when things are easy.”

I couldn’t agree more.

Update on AMO

Many of you who have been reading A Media Operator for a while know the story behind why I launched. I’m a horrible networker. Ask the events team at Morning Brew, and they’ll tell you I’m the guy in the corner. But I genuinely believed that people would react if I publicly wrote my thoughts about media.

And it worked. On September 13, 2019, a month after I launched AMO, Griffey (mentioned above) tweeted a story I wrote about Industry Dive. That day changed the growth trajectory of AMO, and if I were still on Substack, I’d share the screenshot because people were really subscribing. So I owe a lot to Sean for that initial boost.

It showed that if I wrote, far more competent people than I would reach out. Fast forward 3.5 years, and that remains true. I’ve made great friends, met terrific operators, invested in an exciting media company, and I have a great job building an exceptional media company.

I never intended for it to be a business. I already had a full-time job, first at CoinDesk and now at Morning Brew. But on a whim, I spun up the paid subscription. And on a whim, I started to receive interest from some advertisers. So one thing has led to another, and it has become something.

And so, I intend to take that more seriously. Here’s how.

First, the paid subscription is going to provide more value. Right now, premium members get an additional issue of AMO on Fridays, which dives deeper into tactical and operational topics related to building a media company. They also get an invite to the AMO Slack, which has a motley crew who discuss different topics and ask questions.

That’s going to continue. However, I also want to focus on other things premium members need. And so, I am going to be adding, over the next quarter, the following:

  1. Transcripts of all previous podcasts: having to listen to the entire episode to find nuggets is annoying. I will be getting all the podcasts transcribed. The podcasts will remain free to listen to, but the transcripts will be part of the subscription.
  2. Earnings reports: I write about the earnings of media companies in my Tuesday newsletters, but there’s no structure. I want a place for people to see the earnings and short commentary. This will be a resource for CEOs and investors.
  3. Live discussions: When the pandemic started, I hosted one or two evening Zooms with other media operators. The conversations were great. I want to bring those back. I need to figure out the timing for these because I know everyone is busy, but I think they’re an excellent way for people to connect, especially since AMO readers are worldwide.

You’ll notice two of the three here are about finding ways to share the thoughts of other operators. There is only so much of what I write that people want to read, so finding a way to share the voices of different operators is important to me.

You can sign up here if you want to become a premium member. I also offer group subscriptions if you want your team signed up.

Second, Omeda and House of Kaizen were great ad partners of mine in 2022. But if an operator came to me and said, “we generate all of our ad revenue from two partners,” I’d tell them that was foolish. So I’m going to change that.

AMO has 4,400 subscribers, 51% of whom open the newsletter weekly. And so, if you are looking to get in front of media operators, publishers, creators, and anyone else building or growing a media company, hit reply. We can discuss creative ways to get your message in front of them. I’ll also be putting together a formal advertising page throughout the quarter.

Third, I’ve had people reach out about consulting over the years. I’ve done diligence on possible media acquisitions and helped others think through their 1st-party data strategies. But I’ve never formalized this process. If you want to talk through this in a more structured way, hit reply.

Fourth, I want to include more of you in A Media Operator. Like I said above, I want to share the thoughts of other operators. The only way we all get better at building media companies is if we hear from other operators. I’m not the smartest. I promise.

And so, if there’s a topic you’re particularly passionate about or an expert on, I want to help you write it and publish it here on AMO. For example, I’d love to talk with a CRO about how you structure your sales teams and co-write a piece with you on that. But I am sure there are plenty of other topics as well.

The reality is, A Media Operator is a business. Even if I have always considered it a side hustle, it’s become something bigger. And so, it’s time I start treating it that way.

As always, thank you so much for reading. Your support over the years has meant the world. Your replies are always appreciated. And if I can ever be helpful with what you’re building, don’t hesitate to reach out.

And if you want even more AMO, become a premium member today. Happy New Year, and I hope 2023 is successful for you. Have a great week!

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