Capital flows like water to media companies (of a certain kind)
December has started with a bang-up ten days financially for some leading American media companies.
Vox announced it has raised another $46.5 million in a new round of venture capital bringing its total valuation to $385 million. CEO Jim Bankoff, in a internal memo he made public, announced ambitious expansion plans for 2015.
Outbrain, a content recommendation/native advertising company, indicated it is tentatively planing an initial public offering early next year, with a target valuation of $1 billion. (Outbrain, like its biggest competitor Taboola, is Israeli in origin but has moved headquarters to New York and plans to be listed on NASDAQ).
Meanwhile expanding Buzzfeed's growth continues and its investor valuation stands at $850 million. Editor Ben Smith was lecturing in Australia late last week as the site announced it has hired a star from Wired to be its Silicon Valley bureau chief and is forming a health and science desk.
And in case you missed it, Vice attracted nearly $500 million in new venture capital funding in September and now is valued at $2.5 billion. Founder and CEO Shane Smith confirmed that he wants to try again to buy and repurpose the broken-down HLN franchise from CNN/Time Warner. (CNN chief Jeff Zucker said HLN was not for sale -- especially to Smith.
Vice also got a kiss of legitimacy December 1 when the Knight Foundation awarded it an Innovation Prize and partnered with the site and CUNY to create a $500,000 initiative to foster innovative story-telling internationally.
I could go on, but you get the drift.
None of these companies have the asset -- or is it a liability -- of a legacy operation. Likewise Outbrain has come from nowhere to being a major player in the sponsored content boom in part because it has no need to modernize a traditional ad agency structure.
The capital markets' infatuation with these newcomers takes place as tough times for legacy companies just keep on coming. The New York Times did a buyout deal last week with 60-plus news staffers and will add some layoffs to reach a staff reduction goal of 100. The same has been happening over the last few months at Poynter's Tampa Bay Times.
A reporter for the Sacramento Business Journal called me recently asking whether McClatchy can survive as a family-controlled public company. I think so -- but it's not an unreasonable question.
Venture capital valuations are somewhat different than the market capitalization of an existing public company. When and if a VC-backed company goes public, it may or may not be worth as much as its investors hope.
With that qualifier, check out how the market capitalizations of some familiar legacy companies (as calculated by Yahoo Finance) compare to the figures mentioned at the top of this post:
*McClatchy -- $337 million (considerably less than Vox).
*Tribune Publishing -- $584 million (more than Vox, less than Buzzfeed).
*New York Times Co. -- $1.93 billion (roughly twice Outbrain but not as big as Vice).
*Time Inc. -- $2.55 billion (for now still a little more than Vice).
These numbers speak for themselves in terms of what investors favor in the media space. They also confirm the truism that short term revenue growth prospects matter much more to those placing bets with their capital than longevity or even profitability.
I would add two more short bits of commentary:
*Capitalism's "creative destruction" dynamic works in part by accelerating the growth of promising new ventures while pulling investments out of fading older ones. So you could say the money folks, as 2014 rolls to 2015, need no persuading that media transformation is in full gear.
*A small saving grace for newspaper companies as an investment is that a balanced portfolio (appealing also to many individual investors) includes profitable companies that pay a good dividend, even if share price may not move up quickly. That's the premise for the relaunch of GateHouse Media as New Media Investment Group, paying out about 5 percent on its current share price, and a likely strategy for other spinoff companies being formed like Gannett Publishing and Scripps's Journal Media Group.
Unfortunately, as anyone from the boardroom to the back corner of the newsroom knows, it is not so easy to earn enough profits to pay a dividend while also making the needed big investments in new digital news products. And the industry still has on its to-do list for next year (pardon if I'm repeating myself) achieving net revenue growth.