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March 18, 2024

What Are They Thinking? NBC-U and The ‘Digital Dozen’ Seek Perpetual Youth

Consider them Ponce de Leon investments.

Just as the Spanish explorer trawled Florida for the Fountain of Youth 500 years ago, NBC-Universal and its peers are now embarking on expensive voyages to seek a solution to aging and death, investing in and buying into the newest media. Their profound 2015 mantra: Get younger fast.

This week NBCU upped the ante substantially, plopping $200 million investments into both Vox and Buzzfeed. That certifies those two fast growers, along with already certified Vice (which took in twin $250 million stakes last fall) as the breakout Big 3 in new media.

 

First published at Politico Media

Follow Newsonomics on Twitter @kdoctor

 

I’ve called NBCU and its peers The Digital Dozen. Each and all have come to the same epiphany, at about the same time. Is it groupthink? Or are they in touch with a prevailing Zeitgeist? NBCU, Verizon (with its AOL buy), 21st Century Fox (with its Vice investment), Disney (with its Maker buy) and Hearst (which invested in Vice, through A&E Networks), each and all have looked at the trend lines. They see themselves falling into a next wave of New Yorker cartoon boardroom caricature, as they try to figure out just what the next generation really wants.

That Digital Dozen is populated by global-reaching media, companies that have made it to this shore after weathering a decade-long storm of digital disruption. They are a collection of TV, movie and video companies, global news players (the New York Times, News Corp, FT/Nikkei, BBC, Guardian, Bloomberg, Thomson Reuters and AP, among them) and the newly merging pipes companies. NBC Universal’s Comcast, Verizon, Charter, Time Warner Cable and AT&T (with DirecTV) all want to be media companies with a capital M, as much as they keep their roles as our delivery agents.

The NBCU news release was all about hope and opportunity. That’s real, as the company prepares to inhale deeply whatever magic fairy dust Buzzfeed and Vox may sprinkle on its core businesses. As much as hope may support the investment of almost a half a billion dollars, consider another equally base emotion driving these deals: Raw fear.

“They’re scared,” long-time media watcher and entrepreneur Dave Morgan, the CEO of TV ad disruptor Simulmedia and a guy who has sold two ad tech startups for big money, told me. “And they’re a lot more scared than they were a year ago.”

Ratings are down for TV. Just as digital forced the switch of billions of dollars out of print, it is now slowly eating away at TV, both national and local. Finally, Over the Top has emerged as mainstream, as HBO, Showtime and ESPN unknot the cord.

To be sure it has been a slow erosion. And the attractiveness of these Digital Dozen players to the new media companies has a lot to do with the massive piles of cash these companies are still sitting on—and the opportunities for global scale they can still provide.

But what has been slow erosion may soon turn into a fault line. If we have learned anything from digital disruption, it’s that it usually accelerates, rather than steadying or slowing, once it makes its way onto the track.

Wells Fargo analyst Marci Ryvicker this week downgraded Disney, CBS, and 21stCentury Fox, saying: “After going through one of the worst earnings seasons we have ever had outside of the Great Recession, it’s time to re-assess our entire coverage universe as clearly both fundamentals and sentiment have changed …. We can’t help but think some level of value is transferring from content to distribution ….

“We’ve clearly seen the fraying of the television ecosystem in ad revenue. What seems to have really shaken the market is the fact that we are finally seeing the fraying of the television ecosystem in affiliate fees – which is just tough, as subscription revenue is supposed to be the most stable and the highest margin of any media-type revenue stream.”

So consider this week’s investments – sure to be followed soon by more, as the Digital Dozen eye each other and Wall Street sentiment – as at least a hedge. These are hedges against multiple core revenue and audience disruptions — some now clearly seen, more still hazy.

How big will Buzzfeed and Vox themselves get, and how meaningful will their profits be to a company like NBCU at some point? It’s impossible to know.

It’s a matter of buying insurance – for those companies that have the wherewithal to do it. Ask any insurance agent, “Is this insurance worth it?” and you’re bound to get the reply, “You never know. If you can afford it, get it.”

The Voxes, Buzzfeeds and Vices publicly sell hope and opportunity, but that’s just theouter cloak. A core of the proposition is fear: Unless you buy into the future from those who are creating it, you won’t be part of it.

“The torch has been passed from the home page to distribution,” says Ken Lerer, an early Buzzfeed investor, whose Lerer Hippeau Ventures is seen in many a seed round. I talked to Lerer last week about the recent changes he’d seen in the media investing landscape, following my Politico Magazine piece on the money flow.

Lerer charts the move from home page to search to social and from sites and apps to new platform-based reading, as Facebook Instant Articles and Apple News will certify this year.

“How long will it be until Facebook eats the publishing industry whole?” he asked, and of course that’s a question for TV–video companies as well. So in addition to whatever digital video smarts and assets Buzzfeed can offer up, it also provides a hint of inoculation, a way to fend off the Facebooks, Apples and Alphabets.

How likely is it the vaccine will take?

“It’s an expensive way to learn, but a smart way to go,” Raju Narisetti, SVP for strategy at News Corp., told me. Smart, he says, because he expects it will turn out well for NBCU financially, however the exits work out.

Narisetti underlines one of the points of the deal – legacy media education: NBCU knows it needs to learn from the Buzzfeed and Vox experience.

But that learning has historically been easier sought than gained. Media start-ups disproportionately score with digital-native and near-digital-native audiences and legacy media companies like NBCU with older ones, and their corporate cultures parallel that split.

At one point, in wealthier times, daily newspaper companies made similar investments, with hopes of avoiding the massive disruption that has now stolen 90 percent of their financial value. Earlier ones, like that in Netscape, paid off in dollars, but not much in learning.

In fact, in my waning days at Knight Ridder Digital, as smaller companies were bought, the conventional wisdom became this: Don’t interfere with them, or try to integrate them, because corporate bureaucracy had sapped entrepreneurial zeal time and time again. Too often, the start-ups got slowed down and the legacy companies failed to apply much.

Our takeaway: Big legacy companies may say they want to incubate, accelerate, learn and adapt, but figuring out how to do that often results in tears.

Buying into these companies does also provide a view into the business. The earlier Comcast Ventures investment in Vox earned it one board seat. Who at NBCU may take that seat — affording a birds-eye view into the business — is still to be determined. Those board seats offer one prime rationale for such investments. Private companies, like Vox and Buzzfeed, have little need to publicly report results, so they offer them only selectively. Investors can peer inside and see what’s really working — and what’s not; a board seat provides the best viewing.

That view may well lead to an NBCU purchase of a new investment, like Vox. That’s got to be part of the calculation in its buy/build strategies. Facing these multiple disruptions of audience and advertising, how much core change does a NBCU need to make and how is it best made?

Companies like NBC adapted to the coming of cable fitfully, but finally settled on strategy to bet well beyond broadcast. Today, Bravo, CNBC and Golf attest to a strategy that moved in the nick of time. Yet, today’s disruption, with its multiple adjustments to Millennials’ differing habits, off-site consumption and great ad disruption, suggests a challenge of far greater magnitude than cable TV did.

With all due homage to Michael Wolff’s “Television is the New Television,” TV companies’ ability to adapt is in fact no more assured than was newspapers’. Calling it, as he does, “an unexpected triumph” is a tad premature.

Trial and error, a few hundred million here and there, may help, or it may not.

Getting younger is a crapshoot, as anyone who has ever tried it knows. The numbers are appealing, as Vox and Buzzfeed “over-index” for Millennials, grabbing more than their share of that now-magnetic generation. Yet, no one’s yet broken the code of importing digital DNA.

How much synergy is there in these deals for Vox and Buzzfeed? More distribution and access to the still-rich TV ecosystem will help, but we’ll watch closely how they’ll use the funding to compete against each other and everyone else. Expect targeted expansions in data, content and advertising,

As Buzzfeed CEO Jonah Peretti took the NBCU investment, he also took the opportunity to say he wanted to keep his company independent, and not sell it, last week.

That’s an important line – for now — for both Peretti and Vox Media CEO Jim Bankoff, and for Vice’s Shane Smith. Though Vice is farthest along in revenue, none are over the hump.

The new funding continues the arms race for hypergrowth. That’s been the hallmark of the Big 3. The new funding not only gives them room to run, but makes it harder for would-be competitors to bust into their bracket.

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