May 30, 2023

Vice Failed Because of Vice, Not Private Equity

When I was a kid, I couldn’t take accountability for anything. I did something wrong, I blamed someone else. I was always the victim. It took my Mom sitting me down and telling me to “not be a victim” to make me realize I had to take ownership over my actions.

Vice might want to take a lesson from my Mom.

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Now let’s jump in…


The Financial Times published a piece about the fall of Vice and in it, much of the blame seems to fall squarely on the large private equity firms that pumped cash into the company.

It raises questions about the tactics of private equity companies, which have in recent years earned a reputation as the curse of the US news media, gutting newspapers for short-term profits. Some Vice investors and former executives, including shareholder James Murdoch, the son of Fox Corporation chair Rupert Murdoch, blame TPG for Vice’s demise.

Rather, the key figure at the time was the “liquidation preference” on the preferred stock of 1.8 times. That meant that in the event of a bankruptcy, TPG and Sixth Street were entitled to receive $810mn — their $450mn original investment multiplied by 1.8 — before any other of the then shareholders could get any proceeds.

“Private equity does this: they give you a high headline valuation. But the paper they give you is like a noose around your neck that gets tighter the longer you don’t have a liquidity event,” says one longtime shareholder, referring to either an IPO or a sale of the company. “If it goes past two years, forget it. They basically own the company.”

I find the last quote rather remarkable. Investors don’t give you anything. They buy something from you. In the case of vice, private equity bought equity in the company. But rather than just buy common shares, it wanted some guarantees. It wanted to know that if it put up hundreds of millions of dollars, that its money would take priority over other investors.

That’s where the liquidation preference comes into play. In exchange for giving $450 million, TPG and Sixth Street wanted to know that it would get a guaranteed return in the event of a liquidation. There’s nothing wrong with that.

And this is where Vice executives and even early investors need to look themselves in the mirror. They agreed to the terms. TPG and Sixth Street said, “we’ll give you $450 million at a valuation that you want, but in exchange, we want a liquidation preference.” Vice agreed. No one forced it on them.

Want to know what happened to Vice? It wasn’t private equity. Vice happened to Vice.

Merriam-Webster defines hubris as, “exaggerated pride or self-confidence.” If you’ve followed Vice’s story over the past decade, you would see immense hubris over time. Here are two examples of said hubris reported by FT:

Speaking at an advertising festival in Cannes, with sunglasses on and the French Riviera behind him, the blustering media executive joked with reporters that he “rounds up” Vice’s $5.7bn valuation to $6bn “because it’s easier to say”.

In 2016 he said that the media business was on the verge of a “bloodbath” and that “we will be sitting there laughing our heads off”, while predicting that Vice could soon be worth $50bn.

The team was more worried about all the accolades that come with a massive, top-line valuation versus building a highly sustainable media company. And its decision making was immensely flawed.

In reading the entire FT story, I looked for the word “profit.” There are four mentions. None of those are in connection to Vice ever being profitable. That wasn’t the name of the game at Vice. Instead, the goal was to get as big as humanly possible with no long-term dream of sustainability. The FT reporter calls it out when they writes, “What Vice lacked was a stronger voice in the boardroom calling for a sustainable business strategy, says the investor.”

How is this TPG’s fault? I’ll tell you how. TPG should have been that voice, pounding the table for sustainability. But for all we know, it was. And at the end of the day, TPG was a minority investor. There’s only so much pounding the table a minority investor can do.

We should not confuse TPG’s investment in Vice with how other private equity firms have gutted local newspapers. Vice chose to take the money from investors and then waste it. These local newspapers, frankly, had no choice. They were truly failing.

For all of us, though, this is a valuable lesson in deal making. It is easy to get caught up in valuation as the key negotiating point. As we are seeing with this deal, TPG gave Vice the valuation it wanted, but it hedged that investment with liquidation preferences. That would have ensured that TPG got its money out first (had Vice not gone on to raise a ton of debt).

As I said above, Vice could act like the victim of private equity. But that would be a lie. It was a victim of its own overconfidence. It was a victim of wasting hundreds of millions of dollars. It was a victim of a bad business plan. No one forced it to take investor dollars.

To blame private equity is to not take accountability. We operators own our decisions. Vice should do the same.

Axios Local slowing down

Over on Adweek, Mark Stenberg reported that Axios Local would be pausing future launches after its 30th in July.

After Axios Local launches in San Diego in July, its sixth new market of the year and 30th overall, it will not expand any further in 2023 and is still determining whether it will enter any new markets in 2024, Axios’ chief business officer Fabricio Drumond confirmed.

In 2021, its first year, the program entered 14 markets and generated around $4 million in revenue, according to a person familiar with its finances. In 2022, it entered 10 markets and netted a total of $8.6 million—short of its $10 million forecast. 

So far this year, Axios Local has booked $7.5 million in revenue, although it is not currently profitable. Across all markets, it has 1.55 million free subscribers, up roughly 500,000 from last summer, according to Drummond. 

The plan, according to Stenberg, is to focus on the current markets, get them to scale, and introduce new monetization opportunities so that the publications are more sustainable. It’s the right approach. Scott Brodbeck, founder and CEO of Local News Now, tweeted:

Local is hard and my take is that Axios is right to retool rather than pressing forward and getting stretched too thin, which is basically what happened to Patch.

By my math, Axios Local generated $358k per city in 2022 — $283k/city if you exclude Charlotte at pre-acquisition rev levels. Should be sustainable for a two person/city team + some freelance + a lean back office/sales operation, but challenging for co w/ more management layers.

The bolded part is from me, but it’s worth exploring. Patch was an early attempt at online hyperlocal news that got caught up in the aggressive expansion strategies of the late aughts. According to a 2011 story in The New York Times:

Over the last year and a half, AOL, the former Internet colossus, has spent tens of millions of dollars to build local news sites across the country through The idea is that the service would fill the gap in coverage left by local newspapers, many of which are operating on a string after declines in advertising revenue.

Patch has already set up shop in nearly 800 towns. By the end of this year, it expects that to be in 1,000 — each one with an editor and a team of freelance writers.

The story goes as you’d expect. AOL spun out Patch into a joint venture with Hale Global in 2013. Over the next year, hundreds of employees were let go. The company is now profitable, but not after first costing AOL hundreds of millions in cost.

And so, it makes perfect sense for Axios to slow down and make sure the model makes perfect sense before it expands aggressively. But I question whether the model actually makes sense. Axios is looking to grow by getting its current audience to open more newsletters. If it can do that, it’ll be able to show more of its national-level ads to these readers.

In the short-term, that might be a good approach. Over the long-term, though, I’m less convinced. If you look at Scott Brodbeck’s, it’s covered in actual local ads. They may not be pretty, but they are what local ad buyers care about. But this is not an efficient way for Axios Local to grow because you need local people helping to sell the ads.

The reality is, local media is incredibly hard. The future is more likely going to be hundreds of entrepreneurs like Scott Brodbeck operating local networks versus one major company operating national publications.

Thanks for reading. If you have thoughts, hit reply or become an AMO Pro member to start receiving even more AMO. I am going to be in Portugal next week for the FIPP World Media Congress, so if you’re going, please let me know so we can meet. Have a great week!