Media Fortune Fame & Folly

Vox in ‘cut price’ digital coup

Vox Media is acquiring Group Nine Media in a deal – expected to complete early in the new year – which will create one of the largest digital media companies. It will have expected revenues of $700m and more than $100m of profit in 2022, some 2,000 employees and a portfolio of brands including: Vox Media’s Vox, SB Nation, Eater, Vulture, Polygon, The Verge, and New York Magazine; and Group Nine’s PopSugar, Thrillist, The Dodo, and NowThis.

Under the terms of the all-paper deal, Vox will have 75% ownership and Group Nine 25% of the company which will be led by Vox CEO Jim Bankoff. Group Nine founder Ben Lerer will join the board of Vox Media and “maintain a presence at the company to help drive key strategic initiatives and advise on commercial and corporate development.”

Announcement of the deal, leaked by the Wall Street Journal, is the culmination of more than a year of exploration by both consolidation-focused companies of ways to raise cash. Both have had talks with BuzzFeed. The search also motivated Group Nine’s formation of a “completely separate” $200m SPAC. Insiders believe it is still possible that Vox will choose to go public via the SPAC, as part of the deal.

But, for all the euphoria of a acquisition which Bankoff says is about growing the revenue and scale “to invest more in our products and people”, it is – to say the least – bitter-sweet for longterm investors.

Vox may be paying as little as $225m for Group Nine – 40% of its $600m valuation of just two years ago. That was when lead investors Discovery and Axel Springer invested a further $50m to bring the total funds raised to almost $200m. With the combined company apparently valued at $896m, Group Nine’s 25% shareholding is worth some $250m.

The deal is a haircut too for Vox Media shareholders whose stake in the combined company will be worth some 40% less than its $1bn valuation in 2015 – when NBCUniversal invested $200m. But at least the estimated $670m valuation of Vox shareholders’ 75% shareholding represents a notional gain on the $310m invested in Vox since 2011. Comcast – owner of NBCUniversal – is believed to own more than 30% of Vox.

The numbers tell the story of two creative companies whose business models have never really worked because they – like much of the traditional media they have been seeking to supplant – have been way too dependant on advertising. That’s why one reporter has compared the combination of these two smart, content-rich digital companies as “two drunks leaning together to stand up.”

But nothing could be further from the polished image of Vox Media which has been transformed from a network of sports blogs into a $300m-revenue media business that has always looked like it could become a winner.

It started in 2005, as SB Nation. CEO Jim Bankoff was hired in 2009 as it launched and acquired digital brands. He was hot from his experience as an executive at AOL: “I learned that it’s one thing to get a lot of traction and a whole different thing to build a business with a strong foundation. We try to spend money on things that matter. I don’t have an assistant, which I think annoys people more than delights them. Vox has taken a lot of risks and grown, but we haven’t been reckless.”

Vox. com itself was launched in 2014 by ex Washington Post journalist Ezra Klein as a new form of “explainer journalism” which brought a distinctive approach to news with interpretive sidebars, reporters’ notebooks, and yellow highlighting to explain the intracacies of policy. Klein’s access to Barack Obama – who became the first US president to give regular interviews to digital-only media – gave Vox credibility and cut-through.

That cred is presumably why Bankoff has tolerated the branding confusion between a broad-based information and entertainment company called Vox Media and Vox itself. Klein and other founding talent have long since defected but Vox has found new growth in producing movies for TV, streaming and online.

In 2021, Vox Media’s 10th anniversary has been marked by producing no fewer than 20 shows, variously for Netflix, Hulu, YouTube Originals, Apple, and HBO – double the 2020 movie output, which had included Eater’s Guide To The World (Hulu), the Emmy-nominated YouTube series Glad You Asked, and Little America (Apple TV).

The Vox Media Studios (VMS) output also includes more than 200 podcasts annually which have revenue of more than $10m. Last month, it acquired podcast studio Criminal Productions. Total VMS revenue may now be more than $120m – more than one-third of total Vox Media revenue.

The 2019 acquisition of New York magazine for a share-value equivalent to its $105m revenue has proved to be a game-changer because it – suddenly – put Vox on a flight path more similar to Condé Nast than anyone could have guessed.

New York magazine had been launched in 1968. Tom Wolfe, Jimmy Breslin, Gloria Steinem, Nora Ephron, Pete Hamill, Ken Auletta, and Gail Sheehy were among the writers who made themselves and the magazine famous. But the then weekly never forgot the ‘bread and butter’ coverage of where to eat, shop, drink and live that kept readers hooked. For New Yorkers and those who admired the city from afar, the magazine perfectly captured the city’s energy and excitement. 

Its 1976 story, “Tribal Rites of the New Saturday Night”- about a young man in a working-class Brooklyn neighborhood who, once a week, went to a local disco – became the movie blockbuster “Saturday Night Fever” which made John Travolta into a superstar.

The stylish magazine had been quicker than most to embrace the web as a potential source of profit. Way back in 2010, the New York Times noted: “In a way, New York magazine is fast becoming a digital enterprise with a magazine attached.”

The sale to Vox in 2019 brought together two quite different companies with remarkably similar strategies. Both were hot on editorial quality and cold on clickbait. NiemanLab had greeted news of the deal by saying: “So the most print-like digital publisher is joining up with the most digital of print publishers.”

Bankoff has said that “no other media merger has been remotely as successful,” in a boast that should motivate all those newspaper and magazine companies fighting to modernise by acquiring digital insurgents or vice versa.

But Vox Media is still a work in progress because, arguably, it needs to shift its earnings more strongly towards readership revenue. Its diversified model includes advertising, branded content, and e-commerce across print, digital, audio, and video. But New York magazine, with its tradition of copy sales and subscriptions, has started to change the emphasis. Subscriptions, reader contributions (as on Vox and Recode) and metred paywalls have now become a major part of the business model but there’s a long way to go.

Before the Group Nine deal surfaced, the Vox Media CEO had outlined his post-pandemic agenda broadly under three headings:

  1. Subscriptions: “More people are willing to subscribe to things they care about”.
  2. E-commerce: “That means a real investment in curated, affiliate commerce”.
  3. Streaming / video/ podcasts: “More so than any other web publisher, we’ve been successful”.

That is now the agenda for the “new” Vox Media. Over the years, Jim Bankoff has praised the apparent built-to-last qualities of Time Inc, Condé Nast, and Disney. He says: “Disney has emerged over decades as a leader in its business. Vox Media is a lot younger, but I think there are good parallels.”

We can forgive the self-flattery. But now is the big test. You may think Vox is buying the estimable brands of Group Nine Media for a good price. But these two companies – even with the benefit of reduced overheads and enhanced scale – still need to find solid ways to accelerate readership revenues and become soundly profitable.

Vox Media must keep its eyes on the prize and, for example, defer any ambitions to go global. It must also resist the temptation to get another “cheap” digital deal. BuzzFeed (along with HuffPost and Complex Networks) is languishing at 60% of its recent IPO price, and the once-gilded Vice Media, Axios, and The Athletic are still looking for Mr Goodbar. Tempting stuff and (who knows?) one day, the Vox Media boss may realise his dream “merger” with Condé Nast. But not yet. Stick with the plan.

Vox Media