This week, media brand Vice Media filed for bankruptcy. Its downfall is not only a blow to its backers but also underscores the challenges of turning a profit on digital content in an era of rampant disruption.
Vice, which started in the 1990s as a Quebec-based culture magazine, spent the last decade reinventing itself as a digital media empire producing written content, video and podcasts. In 2017, the group—already backed by Disney—raised $450 million from TPG Capital at a $5.7 billion valuation. With its bankruptcy, Vice's creditors, Fortress Investment Group, Soros Fund Management, and Monroe Capital, have agreed to buy the company for $225 million.
The deals come weeks after another digital media group, BuzzFeed, shut down the last of its news department; the parent company revealed it would lean more on AI to generate its content. Given the fate of both companies, potential investors of the next big digital media property will be cautious about the future of the business model and what the next wave of disruption—specifically the rise of AI-generated content—may bring.
To be sure, Vice Media's bankruptcy says as much about the current economic climate as it does about the publishing industry. The year is expected to be the busiest for Chapter 11 filings in more than a decade.
Nevertheless, the downturn has exposed the fragility of digital media, which often relies on a relatively capricious income stream: ad revenue made through clicks. Not only is such an income stream vulnerable to ever-changing audience trends, but in times of a recession, companies are quick to cut back on marketing expenses.
Yet it wasn't long ago when spunky upstarts like Vice and BuzzFeed heralded the digital rebirth of news content, just as traditional print media was being obliterated by the online migration of ad dollars. As legacy newspapers scrambled to reinvent themselves, a handful of pioneers went all-in on being digital first.
VCs have played a significant role in building an ecosystem that initially saw success. Among the earliest examples was HuffPost (formerly Huffington Post). It received several rounds of VC funding in the early 2000s from the likes of Greycroft and Softbank Capital before being acquired by AOL in 2011 for $315 million and then by BuzzFeed for an undisclosed amount in 2020.
Buzzfeed and Vox Media similarly received several rounds of VC-backing before the former went public via a reverse merger in 2021, and the latter received a takeover offer from GroupBlack and CVC Capital Partners last year.
Cracking the monetization code
In many cases, these companies have sought to diversify their income streams. Vox, for example, has built up a portfolio of titles. In addition to advertising, it has made use of branded content, paywalled content, events and media partnerships. Similarly, Insider—which was founded in 2008 with early backing from Kohlberg Ventures and Marc Andreessen, among others—managed not only to generate income from branded content and native advertising, but to launch research unit BI Intelligence.
Digital media as a whole will likely continue to struggle to monetize content, particularly as it faces fierce competition for ad revenue from social media platforms such as TikTok. Even if there are examples of digital media platforms that have cracked the code in the post-print world, and therefore can generate decent exits for their backers, there are many unknowns regarding the next wave of technological disruption.
BuzzFeed has already given us a hint of this with its pivot to AI-generated content—not just saccharine and anodyne pop quizzes, but entire articles. This development may perhaps be a tragedy for the human intellect, but it's altogether a boon for a business model that looks to cut expenses while maximizing ad-generated revenue with minimal labor costs. More will likely follow BuzzFeed into AI.
While there is a clear short-term opportunity here, there is also the risk that digital media will become saturated as generative AI lowers the bar to entry even further. At the very least, the dawn of better, more sophisticated AI could introduce more complexity to an already difficult business model. Private markets will inevitably have a role to play in this next stage of disruption, but the content industry that emerges could be unrecognizable from anything we have today.