If you are considering becoming a 1M/1M premium member and would like to join our mailing list to receive ongoing information, please sign up here.

Subscribe to our Feed

Implosion of Media Startups

Posted on Monday, Jan 16th 2017


The year 2017 started off with news of blogging platform Medium laying off 50 people or one-third of its staff because it is unable to make money selling ads. Since then, the media industry has been on tenterhooks. BuzzFeed also reduced its revenue projections by 50%. The latest news from Medium has renewed fears that the media industry is about to implode.

Hardly a month back, Medium had said that its unique monthly visitors grew 140% to 60 million. The number of posts increased 295% to 7.5 million, the hottest topics being politics, startups, and technology. Medium introduces users to specific content that might interest them. It lets you follow people in your network and offers content recommended by your friends, and the opportunity to follow popular tags.

Founded by Twitter co-founder Ev Williams, Medium has raised $132 million from well-known investors, including Andreessen Horowitz, Google Ventures, Greylock, and Spark Capital. Its most recent funding round in April 2016 for $50 million valued it over $600 million. An earlier round in September 2015 for $57 million had valued it at $400 million.

Is Subscriptions a Viable Business Model?

Facebook and Google, with precise targeting algorithms and immense data, have made the ad-based revenue model work for them but have made life difficult (if not impossible) for most others.

Medium is trying to find a business model that will reward quality. For some inspiration, it could look toward Patreon, which helps fund YouTube channels and podcasts through its platform. Some suggest Medium should buy it.

Another option is subscriptions. But only a select few media properties like The Economist, Wall Street Journal, and The New York Times have been able to pull it off. In 2006, circulations and subscriptions accounted for just 16.2% of the revenue of New York Times, but in the third quarter of 2016, it accounted for nearly 60% of revenue. Circulation revenue from its digital-only subscriptions increased 16.4% to $58.6 million. Digital-only subscriptions totaled 1.5 million. Digital advertising revenue was $44.4 million, or 35.5% of total advertising revenues. Third quarter revenue was $363.5 million and net income $283,000. Its unique visitors were 77 million in February 2016.

Unique visitors at rival Washington Post were 73.3 million. Washington Post was acquired by Jeff Bezos in 2013 for $250 million. Taking advantage of Bezos’ Amazon connection, it has made its app free on the Amazon Kindle Fire tablet and in mid-2016 offered free, six-month subscriptions to Amazon Prime members. As a result, its digital-only subscriptions grew 145% and its unique visitors shot up to 82 million in July 2016 while traffic at New York Times reportedly declined. The Post digital subscription costs about $99, half that of New York Times digital subscription that costs $195.

Pando Daily, the independent technology website, has also shifted to a subscription-based revenue model. Pando lets subscribers unlock certain links by sharing it on social media within 48 hours. Within a year, it has nearly 5,000 subscribers. It charges $100 per year or $10 per month, which would mean it makes nearly $500,000 from subscriptions. It does have ad sales, but it says it is not depending on it and plans to never raise money from investors again. I doubt if they will be able to. It last raised $1.2 million in February 2014 in a Series A round led by Base Ventures and VTF Capital. Overall, it has raised $4.2 million in funding

Another technology news platform VentureBeat provides advertisers with over 8 million monthly unique readers. It raised $3.28 million in July 2014 to create a research platform, and it has raised $3.6 million in all from investors including Crosslink Capital.

GigaOm, one of the best known of this lot, shut down in March 2015 after it ran out of money before being acquired by Knowingly in May 2015 for peanuts.

Acquisitions in the Media Industry

Then there is the option of exiting in the arms of a bigger player that is looking to boost its brand.

Huffington Post was acquired by AOL for $315 million in 2011. But since Verizon’s $4.4 billion acquisition of AOL in June 2015, Huffington Post has been in a state of limbo. Soon after Verizon announced its plans to buy Yahoo, Founder Arianna Huffington quit Huffington Post. Its traffic has declined 71% from 200 million monthly visitors in May 2015 to 57.4 million monthly visitors in April 2016. In 2014, it broke even on revenue of $146 million. Revenue growth decelerated: it grew just 15% in 2015 compared to 46% in 2014.

AOL had also acquired TechCrunch for $25 million to $40 million in September 2010. It was then generating $10 million in revenue annually from 9.2 million unique visitors. Today, TechCrunch has over 12 million unique visitors. Revenue figures are not available, but my guess is that it has declined.

In September 2015, Business Insider was acquired by German media company Axel Springer for $343 million. Its revenue grew 41% in 2015 and it claimed to break even in 2014. In its annual report in 2016, Axel Springer disclosed that from October 30 through December 31 of 2015, Business Insider generated revenue of €9.4 million ($10.2 million) and a net loss of €1.1 million ($1.2 million). In October 2016, Business Insider claimed to have a monthly audience of 328 million people contrary to ComScore’s figures of 100 million.

Crazy Valuations for Sponsored Content Startups

At the other end of the spectrum, we have sponsored content, where we have seen heavy venture investments and crazy valuations.

In August 2015, Comcast’s NBC Universal invested $200 million in BuzzFeed at a $1.5 billion valuation and $200 million in Vox Media at a $1 billion valuation. Around that time, Vox had 54 million unique visitors while BuzzFeed attracted about 80 million unique visitors in the 18-34 age group. Overall, BuzzFeed has raised $446.3 million and Vox has raised $307.6 million.

While the funding has helped grow traffic, the struggle is still on to generate revenue and profits. BuzzFeed had 181 million unique visitors in 2016. However, it missed its revenue target by 32% in 2015, and cut down its 2016 revenue projections to $250 million from $500 million. It has also laid off its employees. Analysts say BuzzFeed’s business model of creating customized content campaigns for brands is difficult to scale.

Vox, on the other hand, has about 170 million unique visitors. Its revenue grew more than 50% in 2015 and it appointed Stephen Swad as its first CFO in April 2016. It also acquired 18-month old tech news startup Re/Code for an estimated $15-20 million. Re/code had about 1.5 million monthly visitors and was generating revenue of $12 million from alternate channels like conferences.

Facebook and Google have made ad-based revenue models unviable for media companies. WPP CEO Martin Sorrell said in a speech at the UBS Conference last year that WPP will spend some $5.5 billion on advertising in 2016 with Google on behalf of its clients (up from $4 billion a year ago). He also said that WPP will spend about $1.75 billion with Facebook in 2016, making it the third-largest media supplier.

Most media startups will be experiencing a draught in financing 2017. They are cutting down costs as investor money dries up. But with no viable business model in place, the industry looks set to implode.

Photo credit: Epic Fireworks/

Hacker News
() Comments

Featured Videos