Chasing the ever-changing goal of media scale

Note: This was originally published as the daily newsletter at the Columbia Journalism Review, where I am the chief digital writer

On Tuesday, Vox Media and Group Nine announced that they have agreed to merge their operations, in what Jim Bankhoff—Vox’s co-founder and CEO—told Axios will create “the fastest-growing company of scale in media.” Vox controls a suite of websites, including the eponymous Vox, as well as The Verge, Eater, and SB Nation, while Group Nine owns a number of niche interest sites such as NowThis, The Dodo, PopSugar, and Thrillist. The merger comes on the heels of a number of media-related deals, including BuzzFeed’s merger with a special-purpose acquisition company (SPAC), which gave the company a public listing and a theoretical value of $1.5 billion, and Axel Springer’s acquisition of Politico, in a deal valued at $1 billion. Donald Trump has also hitched a ride on the SPAC train by merging his media venture with an entity in a deal valued at $2 billion.

The idea of achieving something called “scale” is often referred to when deals like the Vox-Group Nine merger are announced, but the definition of that term is surprisingly hard to pin down. For example, Group Nine acquired PopSugar less than two years ago for $300 million, and yet, according to some sources who spoke with the New York Post, the Vox merger deal values all of Group Nine at less than $300 million—a little over half what the entire company was valued at in 2016, when it got a $100 million investment from Discovery. The current deal reportedly values Vox at $672 million, substantially less than the $1 billion it was theoretically valued at in 2015, during its last funding round, despite the growth the company has reported in the years since that investment.

In a similar vein, BuzzFeed’s SPAC deal originally valued the company at about one and a half billion—less than what it was theoretically worth in 2016, when it got a two hundred million dollar investment from NBCUniversal. Since BuzzFeed merged with the SPAC—and subsequently acquired Complex Networks, a global content network targeting millennials, which itself had a theoretical market value of three hundred million dollars—the new entity’s market capitalization has plummeted by close to forty percent, to the point where it is worth less than eight hundred million dollaes, or less than half what it was supposedly worth when it got the NBCUniversal funding. BuzzFeed had seventy-two million unique visitors in May of this year, according to Comscore; even after the merger with Complex Networks, it will only be slightly larger than Vox (by that measure, at least).

What all this suggests is that the definition of sufficient scale is a constantly shifting target—especially if the companies merging or being acquired are shrinking in valuation at the same time, as virtually everything in the mainstream media industry has been doing for a number of years, with the exception of a few standouts. (As the Red Queen said in Alice in Wonderland, “It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast!” Brian Morrissey, the co-founder and former editor of Digiday, wrote that “‘scale matters’ is still the message,” but many legacy digital publishers are still trying to catch up to giants like Google, Facebook, and Amazon on the monetization front. “Citing Comscore [traffic numbers] is a red flag that you’re fighting the last war, not the next one or even the current one,” he added.

In some of these cases, the justification of merging for “scale” may be just one goal among several. At BuzzFeed, for example, the company’s investors had reportedly been pushing it to come up with an exit strategy for some time—a way for NBCUniversal and others to get out some of the money they put in. The merger with a SPAC was seen by some as a desperation move to allow the company to go public at any cost;the aftermath of the deal suggests that at least some investors are not encouraged that BuzzFeed will achieve some kind of “scale” that will enable it to prosper. In the days leading up to the finalization of the merger, the funders behind the SPAC pulled almost all of their money out of the vehicle, leaving BuzzFeed with much less than it had hoped for when it originally announced the deal.

At Recode, which is part of Vox Media, Peter Kafka boiled down the pitch that Vox and Group Nine and BuzzFeed and others are making.  “The optimistic version of that pitch: Combining equals more reach, more efficiency, more awesomeness,” Kafka wrote. “The flip side: If we don’t combine, we may not make it.” Left unspoken, of course, is the possibility that even if they do combine, they still might not make it.

Here’s more on media deal-making:

  • Hopes dashed: When BuzzFeed went public, The New Yorker reports, “ex-staffers learned something alarming: they were unable to sell the stock that they had waited years to trade.” Employees watched as the stock fell by as much as forty percent, erasing much of the gains they had hoped to lock in by selling during the public offering. “Hopes of windfalls, large and small, were dashed. Some former employees are now asking whether they were cut out of trading owing to incompetence, or deliberately misled.” Jonah Peretti, co-founder and CEO of BuzzFeed, said in internal Slack messages that he was “very upset” by the way the merger and public issue were handled. 
  • SPAC excitement: Bryan Goldberg, who controls Bustle Media Group and a stable of websites such as Bustle and Input, said earlier this year that he was interested in pursuing a merger with a SPAC as a route to a public offering and expanding the company’s scale. “As we’ve spent a lot of time in the market speaking with SPACs, there’s a lot of excitement about a digital-media roll-up strategy,” Goldberg told the Wall Street Journal in July. “So while [Bustle’s acquisition of Spider Studios] is being done while both companies are still private, it is very much being done with an eye towards the public markets.”
  • Food and decor: Axios reported that TCG, the investment arm of The Chernin Group, is putting eighty million dollars into Food52, a cooking and home goods brand, including forty-eight million dollars to pay for the acquisition of Schoolhouse, a home decor company. According to Axios, the deal values Food52 three times higher than its one hundred million-dollar valuation in September 2019, when TCG purchased an eighty-three million dollar majority stake. Food52 was founded in 2009 by former New York Times journalists Amanda Hesser and Merrill Stubbs. Prior to its deal with TCG, it raised thirteen million dollars from venture and strategic investors.

Other notable stories:

  • A freelance photojournalist in Myanmar has died in military custody after being arrested last week while covering protests. “Soe Naing is the first journalist known to have died in custody since the army seized power in February, ousting the elected government of Aung San Suu Kyi,” the Guardian reports. “More than 100 journalists have been detained since then, though about half have been released.” Soe Naing was arrested Friday when he and a colleague were in downtown Yangon taking photos during a “silent strike” called by opponents of military rule.
  • The Associated Press has asked the Department of Homeland Security to explain why it has used government databases designed for tracking international terrorists to investigate as many as 20 American journalists, including an AP reporter. “In a letter to DHS Secretary Alejandro Mayorkas, AP Executive Editor Julie Pace urged the agency to explain why the name of Pulitzer Prize-winning investigative reporter Martha Mendoza was run through the databases and identified as a potential confidential informant during the Trump administration,” the AP reported.
  • Alden Global Capital, a hedge fund that has acquired and downsized a number of local news companies, is suing Lee Enterprises after Lee’s board of directors voted to reject Alden’s hostile takeover bid, according to a report from Axios. Alden argues that the Lee board “infringed on company bylaws when it denied Alden’s request to nominate three members to its board.” The claim says Lee has “breached the fiduciary duties they owe [to Alden Global] in an effort to prevent the stockholders from having a say on Lee’s future through the election of directors at the Company’s next annual meeting.”
  • Joe Nocera, a former Bloomberg columnist who was fired by the company, is suing for a share of the proceeds from a TV show called “The Shrink Next Door,” which was adapted from a popular podcast of the same name that Nocera created while he worked at Bloomberg. “According to his lawsuit, when Nocera inquired with the company about his earnings from the deal after he was fired, he was told that Bloomberg’s stance was that journalists were not entitled to a share of advertising revenue generated by an adaptation,” the Washington Post reported. Nocera claims that his deal with Bloomberg specifically included a share of the revenue that might be generated from the material.
  • Google has offered the French government’s antitrust regulators a set of commitments to pay news publishers for their content, in the hope that it can avoid a costly fineTechCrunch reports. “In July, France’s Autorité de la Concurrence slapped the tech giant with a fine of half a billion euros over a series of suspected breaches in how it negotiated with news publishers to remunerate them for reuse of their content,” the site notes. Like other European countries, France has been adapting its copyright laws to new EU rules that were first adopted in 2019, which cover news excerpts posted by aggregators.
  • Reuters reports that Smartmatic and Dominion, two manufacturers of voting machines, are asking a court to give them personal communications from both Rupert Murdoch, chairman of Fox, and his son Lachlan, the company’s CEO, to help them in their attempt to prove that Fox News either knew statements it aired about the companies’ voting machines were false, or else acted with reckless disregard for whether they were true or false. “Fox News has moved to dismiss the lawsuits, saying it reported on matters of paramount public concern, and that this coverage is protected by the First Amendment of the U.S. Constitution,” according to Reuters.
  • Darryl Holliday writes in CJR about the need to build public infrastructure for journalism. “Ivory-tower journalism has failed. It’s time we focus on building public infrastructure where everyone can find, factcheck, and produce civic information,” he writes. “This is not a problem that journalists can solve on our own. The best response to the current crisis in journalism is to get more people involved, at a level at which everyone is willing and able to participate. Not just as news consumers, but as distributors and—most importantly—producers of local information.”

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