It wasn’t Vice’s business model that sank it
Even years after the cash infusions had dried up, Vice’s management was still struggling to get its overhead under control.
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Back in 2008, Jeff Zucker, then the president of NBCUniversal, coined the phrase “trading analog dollars for digital pennies.” He was referring to the widespread belief at the time that audiences became vastly less valuable to advertisers as they migrated from print to online.
Today, that idea is even more pervasive, so much so that it’s widely believed that you can’t adequately fund news gathering with advertising revenue alone. The rapid collapse of high-profile media outlets like BuzzFeed News, Vice, and The Messenger has largely been interpreted as a failure of ad-supported media. Their very business models, in other words, doomed them from the start.
But while I do believe that it’s often a good idea for a media company to diversify revenue streams beyond just advertising, I also recognize that plenty of outlets have optimized the ad model so that it does a perfectly fine job at content monetization. Back in 2022, for instance, I wrote about how impressed I was with how Axios took its rather broad audience and segmented it down into niche verticals via its newsletters, thereby creating valuable channels for advertisers. There are also early reports that Semafor has already reached break-even status on the back of online ads and event sponsorships. In fact, I speak to successful media entrepreneurs pretty often who have built their businesses mainly on top of advertising and marketing products.
Over the last few weeks, I’ve read dozens of post-mortems about the collapse of BuzzFeed, Vice, and The Messenger, and the red flags that jumped out to me had very little to do with flaws in their respective business models. Instead, the recurring theme I kept coming back to over and over again was that these companies had established extremely high burn rates that were only made possible by huge influxes of VC cash, and that it was their failure to control their overhead that ultimately led to their implosions.
Take The Messenger as an example. Rather than hiring a small staff and slowly ramping up production, Jimmy Finkelstein onboarded hundreds of journalists pre-launch, agreeing to pay some of them exorbitant salaries to lure them away from their previous jobs. In fact, it acquired Grid News, an already-established media outlet, for the sole purpose of absorbing its staff. Not only did The Messenger engage in an expensive website build — rather than utilizing less expensive platforms like Wordpress — it also “rented the entire 26th floor of a skyscraper” in downtown Manhattan that sat mostly unused during the company’s entire existence. Over just eight months, The Messenger managed to spend $50 million in investment while generating only $3 million in revenue — an incredible burn rate that triggered instantaneous closure once that investment dried up.
Vice was also notorious for its profligate spending. Defector published a good dissection of its penchant for hiring top executives at exorbitant salaries, even after it was clear that the business was headed for disaster:
Vice founder Shane Smith enjoyed an infamously lavish lifestyle, back in the surreal and deeply insane times when his rollicking media company was being valued in the billions of dollars. This executive-level expectation that Vice could be raided for riches like a blasted-open bank vault was handed down to Smith's successors, even as Facebook and Google undermined and then annihilated the ad-supported digital media business and the company's valuations began trending sharply in the wrong direction. Former Vice senior staff writer Katie Way, now at Hell Gate, described in July the exorbitant pay of the executive team responsible for steering Vice Media into urgent financial disaster and thus into the hands of private equity: Vice chief communications officer Jonathan Bing took home $640,000 in salary and bonuses in the 12 months prior to Vice's bankruptcy filing; chief operating officer Cory Haik took home $726,000; executive vice president Subrata De was paid $779,000; chief marketing officer Nadja Bellan-White hauled in $835,000.
Vice Media leadership was still self-dealing hefty bonuses in the days immediately preceding its bankruptcy; De, who was given a whopping $200,000 bonus in April one day after The Wall Street Journal reported that 100 or so workers in her department were being laid off, defended her compensation in a July call with angry workers as commensurate with her experience.
On the day the news broke that Vice was shutting down its website and laying off hundreds of employees, a handful of rogue staffers recorded a (since deleted) podcast episode where they documented the collapse in real time. The entire show makes for a fascinating listen, but the most interesting part, for me, was when they detailed all the lavish, unnecessary spending on everything from real estate to milk. Even years after the cash infusions had dried up, Vice’s management was still struggling to get its overhead under control, to the point that its journalists would suddenly find themselves unable to log into certain SaaS services because the company had gone so long without paying its vendors.
BuzzFeed was perhaps the most irresponsible spender of them all. After nearly all of its SPAC investors pulled out, it still went ahead with its acquisitions of HuffPost and Complex Media anyway. So essentially you had this already-unprofitable company taking on enormous amounts of debt so it could acquire two other companies, one of which was also struggling. It was the sunk cost fallacy playing out at a grand scale, and now BuzzFeed is hurriedly offloading assets at bargain prices just so it can generate some free cash flow.
It didn’t have to be this way. I believe there are alternative scenarios where these companies could have either raised far less cash or established much lower burn rates, and that would have put them on the path to sustainability. While their advertising models made them more vulnerable to swings in marketing demand, I don’t think their lack of revenue diversification spelled their doom. As a friend of mine put it in a text message the other day, “like WeWork could have been a nice little real estate business, Vice and BuzzFeed could have been modestly profitable media enterprises. Instead, they dramatically overcapitalized and reached for the stars, but then investors looked down and remembered gravity, and they fell back to earth.”