This is a tale of two digital media companies.
The first is the largest ‘new media’ company of all, Vice Media, of the US. The one-time Canadian magazine publisher was launched by Shane Smith 26 years ago although it has been a major digital group only since 2006.
In the past seven years, Vice has raised some $1.4bn from corporates including Disney, 21st Century Fox, and Hearst. The likes of James Murdoch, Bob Iger and Martin Sorrell have eulogised the company which has some $600m revenue, and 300m monthly uniques, almost 60% of them outside the US. The trouble is it just can’t make money.
Ex A+E Networks boss Nancy Dubuc, who took over from the Vice founder as CEO in 2018, has had the task of cutting the workforce by 10% (250 jobs), raising $250m in debt finance, and reforming the company’s sexist culture which has included payment of $1.9m to settle a class action lawsuit. On the creative front, Vice lost its much-vaunted weekly documentary show on HBO, and the half-hour show “Vice News Tonight”.
Vice is believed to have lost more than $200m in the last two years and the company which was once valued at $5.7bn may – even with last year’s $400m acquisition of Refinery29 (itself once valued at $500m) – now be worth “only” $2-3bn or 4-5 x 2019 revenue. During 2018-19, Disney (which owns 27% of Vice) wrote-off its $510m investment in the company.
Vice keeps missing its budgets: revenue was $50m off in 2019. Dubuc has been hacking back the lossmaking projects and establishing corporate controls across the business. One vote of confidence in her management has been the decision by James Murdoch to invest $25m of his own cash as part of the Vice-Refinery deal. But it’s still a fight to get Vice into shape.
One of Dubuc’s latest battles has been with TPG private equity which invested $450m in Vice Media at that $5.7bn valuation in June 2017. But, as the Wall Street Journal reported last month, the investment came at the cost of substantial guaranteed cash and equity payments to TPG up to a total of $400m during 2020-24.
The deal, which has now been renegotiated, almost defined the hubristic, do-anything, go-anywhere strategy of Shane Smith’s Vice. He simply never expected the TPG payments to be made because the high-flying company would IPO or be sold before having to generate profits.
Apart from the super-optimism of its bosses (and, until relatively recently, its investors) it simply took Vice too long to realise that the growing domination of digital advertising by Facebook, Google, and Instagram would be as challenging for “new” media as for traditional brands. That’s why Vice has stopped growing.
Contrast that with LADBible, the social media launched in Manchester, UK, just eight years ago by two schoolfriends, Alexander “Solly” Solomou and Arian Kalantari. Solomonou had developed the idea while studying business management at university. It started with a Facebook page and then the content, traffic and followers just exploded. Their first Facebook posting achieved over 75k readers. They were in business.
The site had been launched just a few a years before the demise of FHM, the monthly which had led British “lads” magazines all the way up to almost 2m monthly copy sales and back again in a frenzied 15 years.
Somehow, LADbible seemed like a logical successor to FHM, Loaded, Nuts and Zoo magazines which had stamped British “blokeyness” across the world in the last years of the 20th century. By 2014, it had more than 5m monthly uniques. But that was only the start.
Today, it claims a ‘community’ of 120m followers for its portfolio of digital brands including SPORTbible, FOODbible, GAMINGbible, UniLad and Tyla (for women). LADbible publishes shareable clips, pictures and longer form cause-related campaigns, giving 18-34 year olds a voice “by building communities that laugh, think and act, across all social channels”. In practice, the site originally became best known for male banter, pranks, sexist jokes, and video of America’s fattest bear. But, along the way, it has grown up and won two Cannes Lions Grand Prix awards for its ground-breaking environmental campaign, Trash Isles.
In July 2017, LADbible was the world’s most watched video creator (yes) with 2.8bn video views according to Tubular Labs. In the UK alone, it was followed by more 50% of all 18-24 year old men and 20% of young women, and is the country’s 13th most visited site.
UK media regulator Ofcom last year reported that, among Brits reading news on Facebook, LADbible is third most popular source after only the BBC and Sky News. It’s also among the news leaders on Twitter, Instagram and SnapChat.
Last year Solomou bought LADbible’s archrival, UniLad for some £17m and now claims to be the largest social video publisher “ever”, with more than 125m followers across its combined social media and 4bn video views every month.
LADbible has worked hard to (almost) extinguish the sexism that spawned its original popularity but the site has also drawn the ire of traditional media for its blurring of the lines between advertising and independent content. But then, like all other digital media outlets, content marketing is the primary source of LADbible’s revenue.
Those brand relationships have, presumably, helped to shift LADbible away from the seedier side of “lad” culture, through campaigns for mental health and relationships with the UK’s Channel 4 television. The shift has been consolidated by the recent appointment of veteran advertising agency executive Colin Gootlieb as Chief Growth Officer. The former European boss of Omnicom, who is spearheading efforts to expand revenues beyong advertising and branded content, said: “This business is a hidden gem of epic proportions – immense talent, a refreshing culture and enormous potential. We have only scratched the surface of opportunities closest to hand, while already delivering healthy results.”
So, a bit like Vice News, LADbible has a substantial millennial audience, is seamlessly international and has a history of sexism and tastelessness that it wants to forget. Both have been among the ‘bad boys’ of media. But, there, the similarity ends.
In 2018, LADbible (still majority owned by Solly Solomou) made EBITDA of £4.8m on revenue of £20.4m, a margin of 29%. The profit growth was 24% and the year before had been 28%. Some 43% of revenues were from outside the UK and it is believed that 2019 EBITDA was closer to £10m, reflecting the acquisition of UniLad.
LADbible revenues are small numbers alongside the media monolith that (still) is Vice Media. But the UK company has been profitable literally since its first set of accounts in 2013. It has been bootstrapped and, even now, has medium-term borrowings of only the £18m needed to fund the acquisition.
The scale difference between Vice and LADbible is not significant. The real distinction is, of course, in the funding and peformance. Vice simply couldn’t resist the enthusiastic offers of funding and, perhaps, even grew its business to accomodate the funds available. LADbible had no such need of the cash, even though would-be UK investors have been just as enthusiastic.
Whether the hubris (and careless management) of Vice that has cost investors so much was a product of the funding euphoria or vice versa, there are plenty of other digital startups that have similarly accepted more funding than they needed. It is just too easy.
Investors and entrepreneurs alike might periodically remind themselves of what newspaper proprietors used to tell investors in the early days of the internet: the web will sharply reduce the costs of mass media without the need for print, paper and transportation.
The fact that those same traditional mass media have (mostly) made a mess of the transition should not disguise the attractive cost characteristics of so much ‘new media’. Many digital startups should simply ignore the seductive surfeit of available investment cash, other than ‘when and if’ the founders want to exit. It’s not just a question of value or management control. They shouldn’t spoil a great idea by taking the money too soon, or at least not more than they really need. Just wait.