September 7, 2021

Vice Continues to Spiral With No End in Sight

In what can only be described as déjà vu, news came out while I was off that the deal Vice had been working on to go public through a SPAC had been called off. According to The Information:

Vice Media is raising over $85 million in fresh capital from existing investors, as talks to go public via a special purpose acquisition company have ended for now, according to people familiar with the situation. As part of the fundraising, Vice’s co-founder, Shane Smith, has agreed to give up his voting control, said the people. He remains chairman of the board.

The media firm had been hoping to raise money by going public through a merger with a SPAC backed by 7GC & Co., but a slowdown in the once-hot SPAC market has ended those discussions for now, one of the people said. The existing investors, which include James Murdoch’s Lupa Systems, TPG, TCV and Sixth Street Partners, agreed to invest in Vice to help it get to profitability. The valuation of the latest round couldn’t be learned. Vice raised money at a $5.7 billion valuation in 2017, but it has fallen significantly since then.

“Hoping to raise money by going public” is being very kind to Vice. It was not only hoping. It needed to go public. Desperately, some might say. When Vice last raised a $450 million round in 2017, valuing the business at $5.7 billion, it made certain promises to TPG, its biggest investor. According to a WSJ story from March 2020:

Vice agreed to guarantee TPG substantial payouts down the road. Under the terms of the initial deal, Vice anticipated making payments worth up to nearly $400 million to TPG in stock and cash dividends between 2020 and 2024, starting last month, according to documents reviewed by The Wall Street Journal.

Last year Vice Media renegotiated terms with TPG, which agreed to adjust the payments to favor stock over cash, people familiar with the situation say. That gave Vice some breathing room, but the new arrangement could leave TPG as the largest outside shareholder and dilute other investors.

Vice—and specifically, co-founder Shane Smith—made a bet that it would be acquired or go public before those difficult terms came due. But when the market for media companies disappeared over the past few years, Vice was left dealing with a scenario it had not expected to worry about.

That’s why all the recent SPAC activity was a possible saving grace for the company. If it could make the deal happen, TPG and all its investors would convert from their special shares that guaranteed certain returns to common shares.

Alas, with the company still not being profitable, growth slowing, and a valuation more inflated than a pool toy, it should come as no surprise that the deal fell apart. This leaves Vice in a very precarious position. While TPG and others have invested over $85 million in fresh capital, the clock is ticking.

So, what comes next?

You can tell a lot about a team by how it deals with adversity. You can also tell a lot about a media team by what tools they pull out of their toolbox. I’m a newsletter guy. My first instinct when dealing with something might be to think about how a newsletter can help solve it. They’re tried and tested. I know them.

Vice is doing the same thing, but with video. In July, it told The New York Times that it was cutting the number of text articles it published by 40-50% across its network of sites and focusing more of its effort on video.

Cory Haik, the company’s chief digital officer, said videos and other visual content were increasingly popular with the Vice audience.

Since 2019, Vice’s YouTube channel has more than doubled its number of monthly views, to 87.8 million in May, and engagement on Vice’s Instagram account has had a similar rise. At the same time, engagement with text articles on Vice sites has dropped by 26 percent, Ms Haik said.

“You can’t be a youth media company if you’re not focused on where the youth are consuming media,” Ms. Haik said. “And more and more, that’s off-platform, that’s built-for-mobile.”

For some reason, the executive team at Vice thinks that it can refocus on platform-based and studio-quality video as a way of achieving its goals. The problem is that this is not too dissimilar to what it tried doing over the past few years. This is the pivot to video part deux.

It let go fewer than 20 people as part of this move, likely because it needs to do everything in its power to break even and reach profitability before that $85 million runs out.

Even if that does happen, it’s hard to see how this can become a positive scenario for Vice shareholders. And I really can’t understand throwing additional money at the problem. Frankly, this feels more like shareholders being unable to admit they made a mistake than a sound investment.

One possible scenario is that this gives Vice more time. And, perhaps, that time is what is needed to find a new SPAC partner. But despite all the excitement about SPACs, how many media deals have we seen? BuzzFeed, Forbes (just announced), and Group Nine’s snake eating its own tail (not actually real yet because it needs to find another company to buy along with itself).

My suspicion is the SPAC ship has sailed. If it can’t convince new SPAC investors to agree to its valuation or convince current shareholders to take an even bigger cut in valuation, I think Vice’s hope for liquidity this year is gone. We’ll learn a lot more when BuzzFeed shares start trading.

The focus turns to retention

There has been a lot of ink spilled over the past couple years about how great subscriptions are. And with a volatile news cycle, media companies left and right saw considerable growth in their subscriber lists.

But now comes the hard work. According to Digiday:

Retention rates are holding steady — for now. But to ensure that they can keep the customers they’ve won over the past 18 months, publishers are hiring more people focused on keeping and bringing in subscribers and also investing more in content across multiple formats to add to the value of a subscription.

Several publications have made additions or changes to their leadership ranks to keep their subscriber momentum going. On Aug. 16, Michael Ribero took on the role of The Washington Post’s first chief subscriptions officer, tasked with overseeing the company’s digital subscriptions business. Karl Wells was promoted to a new role at Dow Jones, chief subscriptions officer, in April, and he will have three new vp positions reporting to him starting this fall: vp of WSJ Core Subscriptions, vp of Barron’s Group Subscriptions and vp of International and Young Audiences.

As someone who runs a paid subscription newsletter (you can sign up here), I know how important this is. On one hand, I get very excited whenever I get a new paying subscriber. It’s like a hit of dopamine. But logically, I know what matters most is that I reduce how often people unsubscribe. It’s hard to get to a big number when you take two steps forward and then one step back.

One area of the story, in particular, really jumped out to me:

To keep that growth going, Nicholas Thompson, CEO of The Atlantic, said editorial is investing in areas of coverage that have “defined and distinguished” its reporting over the past year: on the pandemic, the rise of authoritarianism, the dangers of extremism, the fracturing of the country across political and racial lines, and examinations of culture and society. The Atlantic is also expanding its coverage into topics like climate and technology.

While I get paid to write about strategies to reduce churn, increase revenue, etc., this is the most important thing publishers can do. By paying very close attention to what types of stories subscribers are engaging with, publishers can invest more resources in deepening those categories.

For The Atlantic, that’s the above topics. For A Media Operator, it’s focusing on the business of media. Unless you’re The Times, zeroing in on the specific niches that your audience cares about is critical to keeping a sustainable subscription media business going. Even generalist publications still need a niche focus.

Once there’s a deep understanding of what content paying subscribers care about, we can shift toward other tactics to reduce churn. That could mean things like reducing passive churn and communication strategies to keep users coming back.

But it starts with the content, our main product. If the content isn’t engaging or it is bad, no marketing tactic will matter.

Thanks for reading today’s A Media Operator. If you have thoughts, hit reply. And if you want to become a premium member, sign up here. Thanks and see you next week!