Vice Media’s $5.7bn valuation reflects the youth premium

It is more than double the market value of the ‘New York Times’

Vice Media’s latest investment values it at $5.7bn

Vice Media’s latest investment values it at $5.7bn

 

If proof were needed that the fortunes of old and new media companies are rapidly diverging, it could be found this week when Vice Media secured a $450 million investment from TPG, the private equity group, in a deal that valued the anarchic youth-focused group at an eye-popping $5.7 billion.

Vice’s latest investment and soaring valuation, which has more than doubled since 2014, comes less than two months after Time Inc, the venerable publisher of Sports Illustrated and Time magazine, scrapped plans for a sale after failing to receive bids that met its valuation.

Vice’s is valued at almost $2 billion more than Tribune Media fetched when the owner of 42 US television stations was sold recently to Sinclair Broadcast. It is more than double the market value of the New York Times, four times what the Financial Times cost Nikkei when the Japanese company acquired it two years ago and more than 22 times what Jeff Bezos, the Amazon founder, paid for the Washington Post in 2013.

The latest investment has made Shane Smith, Vice co-founder and chief executive, a billionaire – on paper at least. He owns about 20 per cent of the company, according to one investor, and has effective control of the company through super voting shares.

But is Vice worth $5.7 billion? “At first glance, it looks like big number,” says Paul Verna, principal video analyst at eMarketer. “But Vice has been gradually building up to this valuation.”

Evolution

He points to the company’s evolution from a print-only publication into a digital video group and, more recently, a fully fledged television production company with an array of global distribution and licensing deals. “They have been around for a long time and have diversified into a lot of areas that they need to be in,” he says. “They have made intelligent expansion decisions and they understand the millennial audience they are trying to reach.”

The older media companies that have backed Vice seem to agree. WPP, the world’s largest advertising group, was an early investor, buying an 8 per cent stake that is now worth more than $450 million. Rupert Murdoch’s 21st Century Foxbought 5 per cent in 2013 for $70 million – a stake that is now worth close to $300 million – while James Murdoch, the company’s chief executive, sits on the Vice board.

Walt Disney recently paid $400 million to double its stake to about 10 per cent while A&E Networks, a television group it owns with Hearst, invested in and launched Viceland, Vice’s cable channel.

The privately owned company does not reveal its financial performance. Mr Smith said two years ago that revenues had hit $1 billion, although it later emerged this figure included future bookings, with the real total being closer to $500 million.

Still, one senior Vice investor said that revenues had grown 50 per cent a year every year since 2013. “They are globally diversifying revenues and growing the top line 50 per cent . . . they have earned their valuation,” the investor says.

Vice’s value has been propelled in part by the legacy media companies that invested in it. Sceptics say these groups covet Vice’s street savvy because their younger viewers and customers are drifting away from print and television to new technology platforms.

Desperate

“There are a lot of desperate media companies out there who want to be in the Vice game because they want to reach millennials,” says Richard Greenfield, analyst with BTIG Research.

Vice’s appeal is all about how it talks to its audience, according to Mr Verna. “A lot of companies that have tried to talk to millennials do it in a very clumsy or pandering way,” he says. “But with Vice it feels very genuine and comes from the ground up whereas other companies approach millennials from the top down.”

Mr Greenfield add that the unravelling of the traditional cable and satellite television “bundle” because of competition from new platforms, such as Netflix, has been another factor in Vice’s appeal. “The linear TV ecosystem is crashing and everyone is trying to find out how to stay relevant,” he says.

Viceland has not been the ratings hit Vice would have wanted. In fact, ratings have been poor.

Still, this did not deter TPG. It is not a media company and has no ageing audience to worry about yet it valued Vice at more than any of the company’s previous investors. “They did a load of work on this deal and they took their time,” says the Vice shareholder. “They think they are going to make money.”

– Copyright The Financial Times Limited 2017