March 26, 2014

Vice Media is not Twitter


11_vicemag2011I am delighted to call bullshit on this: Vice Media co-founder Shane Smith’s claim, to Bloomberg TV, that his company could soon “have a market value equaling” Twitter.

The numbers thus far are impressive, if they are to be believed: according to an unnamed company insider, Vice’s 2012 revenue was $175 million. (As a mark of comparison, Gawker Media takes in about fifteen to twenty million dollars a year.) A recent investment from Rupert Murdoch’s 21st Century Fox valued the company at $1.4 billion, after Fox bought a 5 percent stake for $70 million. Smith now tells Bloomberg that he projects 2014 revenue will reach $500 million.With the recent launch of Vice News, the company plans to “double revenue to $1 billion by 2016 and may pursue an initial public offering.” Smith shares that profit margins are targeted “to widen to 50 percent of sales from 34 percent now,” per Bloomberg.

$500 million in revenue seems hard to fathom, though Felix Gillette at Businessweek sees a lot of growth possibility for Vice in online video ads, where it has succeeded in ways old media competitors haven’t. As Gillette notes, “it’s Vice’s stepped-up investment in original Web video that will ultimately determine whether its potential IPO will be worth investing in.” That said, while the online video ad market is expanding, growing 24% in the first six months of 2013, there may be limits: eMarketer projects that the market will reach just $6 billion in 2014. How much of this market can Vice actually take?

Vice, which always touts its international presence in 30 countries, may be hoping to expand its advertising sales abroad, but the entire international digital ad market has been a slow growth segment as compared to U.S. sales numbers.

To get back to Smith’s IPO and whether it could reach Twitter-esque proportions (Twitter currently has a market value of $28.9 billion): could video ads alone account for this? Smith implies that new products and licensing video content will be the biggest contributors to the company’s bottom line. The company produces 60 minutes of new video daily, and Smith sees video licensing as “sort of a pure margin business.”

Twitter, though unprofitable, reaches about 240 million users a month and took in some $665 million last year, and revenue is growing quickly. One reason for its huge valuation is a bet that the company will transform itself quickly into a mainstream destination for news and opinion, as Facebook has. But as a question of scale, it’s hard to see Vice in the same league as Twitter or Facebook. The site’s numbers certainly don’t support the comparison. Bloomberg helpfully points out that Vice’s YouTube channel has only 236,597 subscribers.

But, says Smith to Bloomberg, there’s a lot of money “sloshing around the system,” so why not Vice?

Well: There are a lot of reasons. Even if Vice could deliver on its ambitious revenue goals—owning the online video ad market, perfecting its work as an ad agency for brands wanting to reach young people, selling magazines and TV shows like wild—it still wouldn’t reach the promise to investors of a social and advertising platform like Twitter. Smith says Vice may consider buying a cable channel.

But even with a cable channel, in the media space a $30 billion valuation is almost unheard of outside of huge media conglomerates, and it would make Vice nearly as valuable as CBS or Viacom.

Why not just say it’s like ESPN, which some say is worth $40 billion, about 10 times earnings, making it the world’s most valuable media asset? Because nobody would believe you…. better to compare Vice to the unprofitable Twitter, because, you know, anything is possible with all that money sloshing around.

As for the golden touch of Rupert Murdoch: need anyone be reminded of his company’s valuation of MySpace at $580 million and its later sale of the site for $35 million? Vice may not be MySpace, but I don’t think it’s Twitter either and doubt Murdoch does. If he did, I suspect he’d be asking for a lot more than 5 percent.


Kelly Burdick is the former executive editor of Melville House.