How new media firms such as Vice and BuzzFeed are losing their gloss

Digital media is not, and will likely never be, anywhere near as lucrative as technology.

The disruptive influence of the internet on legacy print media companies is well established. But recent reports demonstrate that it won’t be straightforward for the supposedly nimbler digital upstarts that were meant to replace them.

Take BuzzFeed, which has evolved from a producer of light-hearted listicles and quirky social media round-ups into a global news and entertainment publisher. The company is expected to miss its revenue target of $350m by 15 to 20 per cent. This is the second time it will have fallen short in three years.

Another case is Vice, the one-time hipster magazine that transformed itself into an online video giant by promising advertisers access to a cool millennial audience. Like BuzzFeed, the company is expected to miss its 2017 revenue target of $800m.

These firms were hailed not just for their digital savvy, but also for their investment in quality journalism. BuzzFeed has broken stories on everything from corruption in professional tennis to the dossier on Donald Trump’s alleged connections to Russia. Vice has made documentaries exposing the abnormal worlds of Isis and the US far right.

However, while their journalism won them plaudits and imitators, it was their supposed innovative approach to digital advertising that delivered huge valuations: $1.7bn for BuzzFeed and $5.7bn for Vice.

The third case study helps explain why these numbers now appear so dubious. Mashable began as a small tech blog, written from the Aberdeen bedroom of its founder, Pete Cashmore. It grew into a more general news organisation before “pivoting” to feed Facebook’s voracious appetite for entertainment stories and video. In 2016, after Time Warner invested $15m, it was valued at $250m. It is now expected to sell for around $50m, just a fifth of last year’s valuation.

There is a clear explanation for such struggles: digital media companies are even more reliant on the big tech platforms of Facebook and Google to reach their audience than their traditional counterparts. And the advertising money they compete for is dominated by the same companies.

“It’s a really tangible example of the downside of focusing so much of your business on Facebook,” says the long-time media watcher Mathew Ingram, a senior writer at the Columbia Journalism Review in New York. He warned of the danger of “building things that Facebook wants or says it wants” that prove to be less beneficial than hoped.

Yet beyond the difficulties posed by these powerful “frenemies”, the lesson of new media’s current travails is that building a business on journalism, whether light entertainment, in-depth reporting or hard news, is very difficult.

“Media involves investment, risk and liability, which you don’t have with tech platforms,” says Jason Kint, the head of the US media trade association Digital Content Next. “The richer long-term sustainable business of creating great media, covering news and storytelling is a good business, but the multiples and returns may not line up with venture capital expectations.”

It’s those expectations – which treat media companies more like tech companies – that take the gloss off relatively successful outfits.

“What you are seeing is just a correction in the valuation expectations,” says Justin B Smith, the chief executive of Bloomberg Media. “We’re definitely seeing a slowdown in growth for the digital ad model, but they [the firms] are still growing.”

Strong relationships, built on good journalism, are the cornerstone of all media companies in print, digital or any other medium. Yet new firms simply do not scale up in the manner of tech platforms such as Facebook. There are fewer shortcuts to growth, fewer quick innovations that turn into licences to print money.

That means BuzzFeed, Vice, Mashable and many others will have to face the reality that digital media is not, and will likely never be, anywhere near as lucrative as technology.