Upstart new media firms see investor cash dry up
As legacy news companies suffered tremors over the past decade, money from venture capitalists poured into upstarts that promised to leverage a keener understanding online reading habits to create a giant-killing class of new media ventures.
Today, the money is starting to dry up. Big ambitions have been downsized. And the tremors that continue to shake many newspapers are now moving through newmedia companies.
Among those facing headwinds are BuzzFeed, Vox and Vice. Another one, Mic, last week abruptly laid off most of its staff — and the company that a year ago was valued at $100 million garnered a fire-sale offer of $5 million for its remnants.
The numbers tell the story: Investors closed 27 deals worth about $206 million in 2014, but are on track to close just 19 such deals worth $130 million this year, according to PitchBook, a private capital market data provider.
One reason for the wariness among venture capitalists is that many sites relied on Facebook and Google to build their audience. But just as many financiers were pressing to see more tangible financial results, Facebook changed its algorithm to favor posts from friends and family.
Some new digital media firms saw audience declines. Others scrambled to alter their business models on the fly, making expensive bets that did not pan out.
The most recent example of industry troubles is Mic, a millennial friendly news site, which was recently sold to Bustle Digital Group, a publishing company focused on female readers. Last year, the site received $25 million from venture investors, giving it a valuation of more than $100 million, according to Pitchbook. A year later, it was sold to Bustle for a reported $5 million.
“Our business models are unsettled,” Mic publisher Cory Haik wrote in a letter to staff, most of whom were laid off as part of the deal. “If anyone tells you they have it figured out, a special plan to save us all, or that it’s all due to a singular fault, know that is categorically false.”
Bustle hasn’t announced its plans for Mic, one of the sites that tried to make the difficult pivot to video.
“Instead of creating highquality products that readers and consumers of news wanted, these new media companies were chasing Facebook’s algorithms and pivot-to-video,” said Raul Fernandez, vice-chairman of Monumental Sports & Entertainment and a longtime investor in online media. “This has led many of them to run out of capital without finding the correct balance of talent to produce compelling content.”
The disruption comes at a time when Facebook and Google are eating up most of the money spent on advertising on digital media — about two-thirds of internet advertising and growing, by one estimate.