The Global Media Weekly for executives and entrepreneurs

Why Vice failed

The onetime darling of the new media boom,Vice Media, may be forced to file for bankruptcy next week in a process which could lead either to a breakup auction or to a speedy cut-price sale followed by further rationalisation. Whatever happens next, though, it will be the end of a long dream for the digital media company that promised so much.

Once valued at $5.7bn, Vice has so far failed to find a buyer, even at a sharply reduced price. Equity investors (and especially those who, even quite recently, loaned the company $250mn) are looking to recoup as much as they can. One may even end up buying whatever is left. As we publish, there is speculation that the company might very briefly enter Chapter 11 bankruptcy and conclude a speedy refinancing deal which would wipe out virtually all shareholders and give ownership to Vice lenders, apparently for a price of just $400mn.

In the month when BuzzFeed’s financial failures plumbed new depths, Vice’s ignominious collapse recalls the words of Warren Buffett who famously said: “Only when the tide goes out do you discover who’s been swimming naked.” That was his 2007 warning as the banking crisis squeezed the world’s economy (the last time).

It perfectly fits the media market of 2023. Among the most obvious naked swimmers are the lossmaking digital natives which have been kept afloat by endlessly optimistic investors. Nobody now doubts that the tide is going out on so much lossmaking, advertising-funded digital media: If you haven’t yet managed to become profitable, how can you possibly do it now? If virtually all media and tech companies are dramatically re-setting their costs, how can you survive?

Vice Media may, of course, be the most celebrated naked swimmer of all. It’s the company whose founder Shane Smith once predicted $450mn EBITDA on revenues of $1bn in 2016. It missed the target by miles. In 2019 and 2022, Vice revenue reached $600mn – but, again, did not generate a single dollar of profit. 

His dreams became a nightmare for investors.

Smith and co-founders Suroosh Alvi and Gavin McInnes had launched Vice in Canada 29 years ago as a free punk magazine, originally called Voice of Montreal. After moving to Brooklyn in New York in 2001, it evolved into a multi-platform media group with international television channels, a substantial online presence and marketing services. It became a hot, insurgent media brand.

Vice rode the phenomenal early 21st century growth of online video. It piled up advertising and sponsorship revenues from companies targeting young audiences which could no longer be reached effectively through TV. It seemed like the perfect media platform at the perfect time. 

It moved quickly to create news content and social commentary, and stepped up to reporting from North Korea, Iran and Russia, initially for the 2006 online TV series Vice Guide to Travel. The sideways, devil-may-care video commentary was followed by spikey political coverage from Afghanistan, India and Spain in an Emmy-winning series for US cable channel HBO. It was fresh, raw and exciting.

But the biggest leap in the company’s fame (and potential fortune) came in 2013 with the launch of Vice as “a global news channel”. This almost coincided with an outbreak of hostilities in the Middle East whose impact on Vice was compared with that of CNN at the start of the First Gulf War, when only the Time Warner-owned network had reporters in Baghdad. As if to emphasise the dramatic media change in the intervening 24 years, the last Iraq war was characterised by astonishing internet footage behind enemy lines by a Vice reporters embedded with the ISIS terror group. The media upstart became famous.

It left the rest of the media scrambling to catch up. Or to do what broadcasters like the BBC did – pay to replay Vice’s own footage. Its five-part series on ISIS was viewed by tens of millions on YouTube, complete with ads. 

Vice News became “an international news organisation created by, and for, a connected generation”, which told followers it was: “Bringing you an unvarnished look at some of the most important events of our time and shining a light on under-reported stories…we get to the heart of the matter with reporters who call it like they see it.” 

Vice’s European head of news told admiring TV executives at the Edinburgh International Festival in 2013: “Vice News isn’t TV news. We are building it out of an already engaged online audience in their 20s. We are in a different space. People are moving away from the old fashioned forms of TV news, whether that’s news bulletins or 24-hour [rolling news] TV. We have responded to that.” 

In 2016, Smith was back in Edinburgh to claim that “the secret of our success can be traced to the day we changed our content. The business grew and the audience exploded and we made more money”. Except that “making money” did not mean it was “making profit”. 

Over the years, he had subtly shifted his target audience from fellow Gen Xers (born in the late 1960s and 1970s) to millennials (1980s and 1990s). He said: “The over-all aim, the over-all goal is to be the largest network for young people in the world.”

But, even as Vice-mania was taking hold among marketers and media people, there were warnings of problems to come. Back in 2014, one advertising executive said sceptically: “What you have to believe to work with Vice is that their audience and content is completely unique.” Another was quoted as saying that “Vice’s traffic is nothing to joke about, but a valuation in the billions is placing intangible worth on their cool factor. It’s something they can’t maintain forever.”

But not everyone was listening and, anyway, there were many other advertising people saying: “Brands are obsessed with cool and that’s hard to buy”. Blue chip companies like Samsung paid tens of millions of dollars to attach their brands to Vice’s video content. The electronics manufacturer also became one of the early big spenders when Vice launched its Thump site for electronic dance music (closed in 2017).

Along with investment cash, the plaudits kept coming.

Smith was eulogised by Disney’s Bob Iger and fellow investors Rupert Murdoch, Tom Freston, and Martin Sorrell. But Vice was, arguably, always much better at self-promotion and fund-raising than managing its business. It drew criticism for blurring the line between journalism and advertising, for hyping its online audience figures, for extravagant spending, and for a notoriously sexist culture in the years before MeToo. 

Just imagine a media company where employees were asked to sign a “Non-traditional Workplace Agreement” that included the words: “Although it is possible that some of the text, images and information I will be exposed to in the course of my employment with Vice may be considered by some to be offensive, indecent, violent, or disturbing, I do not find such text images or information or the workplace environment at Vice to be offensive, indecent, violent, or disturbing.” 

But it took a few years before Vice paid the price for what was revealed to be a scandalous culture. A large part of that price was the $1.9mn said to have been paid to almost 700 former employees to settle a class action alleging the company routinely paid women less than men. There were other settlements, believed to total hundreds of thousands of dollars for sexual harrassment at a seemingly new-style business that simply didn’t practice what it preached.

Meanwhile, Vice Media built huge valuations by promoting itself as the key to youth audiences, the media company that really understood the millennial demographic and knew what they wanted. It received $70mn investment from 21st Century Fox in 2013, valuing the company at more than $1bn. It got a further $500mn from investor Technology Crossover Ventures and US cable broadcaster A+E Networks, at a valuation of $2.5bn.

In 2015, Disney, owner of A+E, invested another $400mn. In 2017, a $450mn investment from private equity group TPG pushed Vice’s total valuation to $5.7bn.

But its been largely downhill ever since. 

In 2018, former A+E boss Nancy Dubuc became CEO, taking control of Vice from founder Shane Smith – now chairman –  following a slew of MeToo scandals. The following year, she raised a further $250mn in debt. 

Fast-forward to 2023 and the company has been reduced to pleading with one of its lenders, Fortress Investment Group, for a mere $30m so it could pay its mounting bills – some reportedly outstanding for at least six months – pending a proposed sale, IPO or refinancing. Fortress – now Vice’s largest creditor – has been leading recent talks with possible buyers and is expected to take control of a 45-day auction process when/ if the company becomes bankrupt.

But a measure of just how long Vice has been in crisis mode is that, when Dubuc became CEO, cash was reportedly so tight she was canvassing opinion among her team on whether they should cancel Friday morning’s free donuts and bagels for staff. The cash squeeze, sexual harrassment legal claims, and some advertisers pulling their campaigns forced the TV veteran to cut 250 of the then 2,500 staff. She also, incidentally, cut the Friday donuts – but not the bagels.

In 2019, Vice acquired women’s interest site Refinery 29 for $400mn in a mostly-shares deal. In her email to staff, the CEO called the acquisition “a transformative day”. But the deal was concluded just a few months before the pandemic struck. The Refinery29 audiences helped to mitigate the impact of the sudden downturn and its profitable production business added muscle to Vice Studios. Dubuc remained bullish and predicted that Vice Media would become profitable “very, very quickly”.

No such luck.

For all the energy and imagination with which Dubuc attacked the problems of Vice, she simply wasn’t able to kick-start the revenue or breakthrough to profit, even though she was believed to have brought losses down to tens of millions of dollars. She left the company in February 2023 after five years.

As with many of the stories of once-lauded media companies facing trouble, one of the key questions is: should Vice have sold up earlier? Disney reportedly wanted to pay $3.5bn for the company in 2016. Last year, Antenna Group, of Greece, was reportedly interested at a price of $1.5bn. Interest from SPAC investors has come and gone.

This year, the asking price had declined to just $400mn, reportedly offered by Group Black. But a deal has not so far materialised. Now bankruptcy is on the cards with or without the prospect of a speedy acquisition by Fortress.

It’s another tale of hype and fall in digital media, following the recent closure of BuzzFeed News. And it looks set to mean a similar loss of journalism jobs at an outlet that once really did produce content to rival any legacy media company. 

The business model and management control were the problems, not the content.

Vice has never lived up to its hype, and in recent years had simply been unable to dig itself out of a hole created by wider industry headwinds to pay off its lenders, let alone justify its price tag. Throughout its digital life, the company has consistently missed its revenue targets – sometimes by substantial margins. Last year’s $600mn revenue was $100mn below even quite recent forecasts and $80mn down on 2021.

In those early years, Vice justified its ads being more expensive than its peers… because it was cooler. When and how the brand since lost its cool is open to conjecture. But what is clear is that the company could not make a profit even when brands were willing to pay the “cool premium”. It was another warning for the future.

But the most compelling reason for Vice’s failure is that – long ago – it made the same mistake as BuzzFeed and many of its peers in throwing its lot in with the big tech platforms in search of audiences it would never really own, be able to monetise or even sustain. There was, of course, a time when even serious daily news brands were fooled into thinking that piling up huge audiences via Facebook would be good for their business not just for the platform. But, even when the realities of clickbait and viral content became clear, Vice had seemed also to be building a substantial brand with multiple revenue streams.

Back in 2014, Vice was doing good business with licensing TV shows and on-site advertising. Its $40mn branded content deal with Intel, in particular, was held up as a paragon of the new, high-quality digital marketing from which savvy media companies could make money on the web. 

But that year, CEO Smith had told Business Insider that, while Vice had previously believed in “owning” its audience, he had no qualms about embracing platforms: “We used to believe much more in owned and operated content. We felt we had to own every eyeball, but now it doesn’t matter. As long as you’re growing an audience that’s branded, and you’re making money, then who the fuck cares? It’s actually very restricting to keep everything on your own platform.”

With 20:20 hindsight – in a world where Google and Facebook are hoovering up the large majority of digital advertising revenues – the assumption that a media business could be built primarily on content that lived on platforms owned by others looks misplaced, to say the least.

The difference between Vice (and BuzzFeed) and the legacy media brands is that the all-digital wonder kids went all-in and (unlike quality newspaper brands) had no alternative when the strategy ceased to deliver. But that does not entirely explain Vice’s precipitous decline. 

One clear mistake was the gutsy attempt to launch Vice-branded TV stations. Vice’s half-hour Vice News Tonight show has apparently been a success and well syndicated, though even it will come to an end later this month. The company has also built out a profitable production operation and its ability to produce compelling TV has rarely been in doubt.  

But the Viceland TV channels always seemed like a retrograde step for a digital video pioneer bursting into a world where linear TV was under attack. The core US channel – a takeover of an existing A+E Channel – pulled in just half as many viewers following the switch, even if it did skew much more towards Vice’s sought-after youth demographic and produced some memorable programming.

At the time Dubuc, who was still at A+E, said they were “trying to pivot the conversation away from just purely ratings”. Never a good look for a TV executive.

Meanwhile, a rollout of Viceland channels in countries such as the UK, France and Canada, fared even worse. It’s difficult to get a clear idea of how much was spent and lost on these ventures, but – when Canadian broadcast partner Rogers pulled the plug on a $100mn joint venture for Viceland Canada in 2018 – the channel’s most recent accounts showed $2.49mn pre-tax loss for 2016, with revenue down 14% from 2015.

It turns out that – while Smith was telling the TV business their content was the problem – its failure had much more to do with sharply declining viewing by younger audiences: it was more the medium than the message.

Ultimately, though, Vice’s biggest problem was hubris. 

Smith’s pitch – that legacy media was out of touch and that only Vice knew what young people wanted – had been compelling for a TV industry acutely worried about young people losing interest. It’s what allowed Vice to achieve valuations that (like BuzzFeed’s) more resembled those of tech companies than media outlets.  

But the pitch was eventually exposed as, at best, overblown. Vice has ended up looking too much like most other media companies – and not the best ones at that. Doing edgy, often brilliant, journalism that appealed to millennials, sure. But, when that came up against the technological changes that have seen advertising shift wholesale into the hands of tech companies, Vice lacked the foundations and resources of its legacy media, and was saddled with a cost base designed to justify a price tag that had always been unrealistic. 

Assuming that nobody emerges at the eleventh hour to keep Vice Media together, a post- bankruptcy auction will focus on the four operations:

  1. Studios: The production operation, Pulse Films – which makes shows such as Gangs of London and films including the Nicholas Cage-fronted Pig and documentary Meet Me in the Bathroom, looks a solid bet. Having acquired a controlling stake in Pulse in 2016, Vice took full control last year. The business is solid, making $4.2mn on $89mn revenue in 2020. Not much of a margin, but profit is profit.
  • Agency: Creative division, Virtue –  while still a potentially appealing asset – looks a less good bet. After a tough couple of years during the pandemic, Vice executives spoke of hoping to reach full year profitability for the agency in 2022. But much of Virtue’s allure for brands has always been tied to its parent, without which it starts to look like just another content studio.
  • Vice News: The core operation has two things going for it. One is its undeniable expertise in video. The company’s gonzo documentary style, distributed successfully on YouTube in the mid-2010s, was trendsetting and has managed to adapt and maintain that cutting edge. Only last year, Vice executives were at events touting the success of its TikTok strategy, which saw followers for its news content jump from 100,000 to 1mn in the first few weeks of the Ukraine war. Its also done well on other platforms such as Instagram and streaming service Twitch. 
  • Online journalism: Similarly, the written content, retains both a recognisable voice and a set of interests that still hits well with a millennial (if not necessarily Gen Z) audience. It has big existing social distribution channels and – despite closing many of its standalone sites – strong brands such as Motherboard and Refinery29. The problem with both of these content ‘channels’ is that, while they make for a solid business model, it’s no longer possible to pretend they are the hot new thing. Good journalism does sell, but it doesn’t unlock new audiences and new revenue streams, in the way Vice had always claimed.

Bankruptcy may present would-be buyers with opportunities denied them by a previously bullish (and defensive) management team. It could involve a break up and, therefore, give the chance for TV producers to buy Vice Studios and ad agencies to buy Virtue.

Then comes Vice News.

Significantly, some legacy news groups would (even now) have been interested in acquiring BuzzFeed if only its valuation was not complicated by being part of a wider portfolio and of a listed company.

A bankrupt Vice News would have no such constraints. For many young people, it remains a strong brand.

Media as diverse as the New York Times, Washington Post, The Guardian, CNN and News Corp may want to use the Vice News content, style and brand to broaden their audience reach – without having to worry about the Shane Smith regime.

Unsurprisingly, perhaps, he is the one person who appears to have come out of the whole Vice Media saga just fine (sort of). In 2015, Smith reportedly spent $300k on a Las Vegas dinner for Vice executives and friends, with bottles of wine apparently costing more than $20k. That was a year after he had sold $100mn of his shares at the time when A+E and others had invested $500mn in Vice. He bragged that the deal had made him “post-economic”. 

It was an almost prescient boast by one of the few involved in Vice who isn’t now preparing to take a huge haircut. Let’s see how he will explain the fiasco. Presumably, the “explanation” (a tell-all series on Netflix or HBO?) will be his next big payday.

Will Vice Media be celebrating its 30th anniversary in 2024?