The Journal. - The Downfall of Vice

Episode Date: February 28, 2024

Vice Media was a digital-media pioneer, built on provocative journalism and the promise of reaching younger audiences, a boon for advertisers. In its heyday, the company was valued at $5.7 billion. But last week, Vice Media said it would stop publishing content on its website and plans to cut hundreds of jobs. WSJ’s Keach Hagey and Alexandra Bruell on the rise and fall of Vice. Further Reading:  - Vice Media to Stop Publishing on Vice.com, Plans to Cut Hundreds of Jobs  - Vice Media to Be Acquired Out of Bankruptcy by Fortress, Soros Fund  - Essence in Talks to Buy Refinery29 From Embattled Publisher Vice Media  Learn more about your ad choices. Visit megaphone.fm/adchoices

Do you remember the first time you encountered Vice or Vice Magazine in the real world? Oh, yes. So I lived in Williamsburg in the early 2000s. That's our colleague Keech Hagee. And so, you know, I'd be walking down Bedford Avenue in Williamsburg, and there would be stacks of Vice Magazines pretty much inside the door of every business. For more than a decade, Vice has been a major player in the world of online news. But Keats remembers it before it got big,

back when it was still just an indie magazine. You know, they would have do's and don'ts, which were just like these candid photographs of people in the neighborhood wearing fashion choices that they would then rate as, was it a do or was it a don't? And it was like written in this like savage tone. Please tell me you were the subject of one of these do or don't photos. Like they had your picture in the magazine. No.

Thankfully, I escaped that, although I was definitely wearing some questionable things at the time. At first, Kitsch says Vice was more of a punk magazine, more sex, drugs, and rock and roll. And it tried to be as shocking as possible. And over the years, as they got into video, it

turned into a legitimate journalism outlet that would do really brave and sometimes crazy things. We're in Moscow to find out what it's like to be young and gay in Putin's Russia. Over the past few years, female-friendly erotica has become increasingly more popular in Japan. I'm smoking weed with the president of Uruguay

at his farm outside of Montevideo. Vice pioneered a style of journalism that was different from most mainstream news outlets. One of the Weiss co-founders called it subjectivity with substantiation. So you're not trying to be objective. You use I a lot in the writing and often go do wild things

and you as the journalist become sort of a character in the story. But it's still journalism in that, you know, you're there witnessing and checking facts. And in many cases, this resulted in really great journalism. In other cases, you know, it was stunts that were upsetting to people. But it was always something that demanded attention. But Vice has fallen on hard times. Last year, the company filed for bankruptcy.

And last week, it said it would lay off hundreds of employees, and it stopped publishing new content on its website. It's a dizzying fall from grace for one of the most iconic digital media brands in the world. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Wednesday, February 28th. Coming up on the show, why Vice is on its deathbed. Discover more value than ever at Loblaws. Like price drop. Hear that?

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The personality of Vice News is pretty similar to the personality of Shane Smith, the magazine's co-founder. So Shane was in a punk band called Leather Ass Butt F***, which I think maybe tells you what you need to know about his sort of aesthetic and approach to things. Yeah, okay. So, you know, Shane is a hilarious, wild guy. He's a great raconteur. He loves gambling, very famously likes to hang out in Las Vegas and gamble. He's a party guy.

Smith founded Vice Magazine with two friends in Canada in 1994. They moved the company to Brooklyn a few years later. But it wasn't until around 2007 when they teamed up with MTV Networks, which was owned by Viacom, to launch this thing called VBS.TV, that they really became a force in video. And through that partnership, Vice began to meet a lot of traditional media companies and media moguls and raise money from them.

As Vice grew from a print magazine into a larger news organization, the company took on more ambitious reporting, often led by Smith himself. Here he is in a Vice video from 2011 on a visit to North Korea. It's so surreal. There's nothing normal that happens ever in this whole country.

They just made, like, cool content. I mean, it was legitimately good. It was legitimately cool. Vice's popularity soon started to get the attention of the rest of the media industry. So Vice was really good at getting young male audience members, readers and viewers. And as the media industry was going through this period of transformation that was really caused by the rise of digital, there was this panic in the halls of big media that these young men were absent from their reach, that they were too online

and that they were never going to watch traditional cable or other things. So because they were edgy and cool, Vice sold this dream to the broader investment media world that they were able to reach these especially male young people that traditional media was not able to reach anymore. Here's Smith in an interview in 2015 on The Late Show. Look, you know, the thing is, is everybody's looking at us because we're hot and we're new media. We're new media, not old media. And we have the demo that everybody wants, which is millennials. And, you know, we're just trying to do what we're trying to do. Vice appeared to have another edge over traditional media companies.

It understood how to make money on the internet. And this was at a time when the digital ad industry looked promising. They had a really smart advertising model, which was they weren't just going to sell the eyeballs of the people who are on vice.com. They had another business where they would make native ads and these sort of big integrations with really fancy advertisers. One of the ones they did was with Intel. They got a huge pile of money to basically put on art and music festivals, which is kind of a weird way to sell microchips, you know? But that deal was, they got so much money for it and so much buzz for it that

it suggested that they would be able to replicate that kind of thing. And they did. So Vice wasn't just innovating in its content and in being edgier and reaching men in a way that legacy media brands weren't able to. It also sounds like it was innovating in its content and in being edgier and reaching men in a way that legacy media brands weren't able to. It also sounds like it was innovating in its business model and how to make money in a new era of digital news. Absolutely. I mean, it was native advertising, basically, where they would sort of make content in partnership with brands and they would give brands this cachet of cool, right? Like if they were making something in partnership with Vice, like that was going to make the brand cool because Vice was cool. Like, look how awesome our Intel microchips are. They can skateboard.

Basically. And so that was a really successful strategy when you had someone as charismatic as Shane Smith selling it to people. What was his ultimate vision for Vice? He wanted Vice to be the largest media company in the world. Throughout the 2010s, Vice continued to raise more and more money. And with each successive round of investment, Vice's valuation grew higher and higher. The company's content grew more ambitious

too. Vice began to put out shows with higher production, and in some cases featuring celebrities like the rapper 2 Chainz. Most expensive is stirring the pot. I'm your host, 2 Chainz. Let's get into it. At its peak, Vice still had its print magazine. It had a digital newsroom that was enormous. It had around the world localized newsrooms. They had an in-house advertising agency. They also had a whole business of making documentaries and selling them in the international market to be on other people's channels. So they had a studio that was kind of what they thought would be the future of the business.

They were a global media company. And the company even launched its own 24-7 cable channel called Viceland in 2016. And that was around the time that it was really clear that cord cutting wasn't going to do anything but accelerate and the cable bundle was going to quickly unravel. But Vice saw potential in cable to keep growing. By 2016, just about every major media company was interested in working with Vice. Every major media company was interested in working with Vice. Viacom, 21st Century Fox, Time Warner, Discovery, Comcast. They all had either invested in Vice or held talks about investing in Vice.

And the largest media investor of all was the house of mouse, Disney. It invested $400 million into the company. And there were discussions about doing more. They were in talks with Disney for a deeper partnership. And really, there are many folks throughout that company that wanted and expected Disney to buy them. And in fact, according to our reporting, there was an offer from Disney to buy them for something in the zone of $3 or $4 billion.

But Shane wanted a lot more than that offer from Disney to buy them for something in the zone of three or four billion dollars. But Shane wanted a lot more than that and turned it down. In 2017, Smith kept chasing a higher valuation for the company. Shane, he wanted a bigger number. And so they got investment from private equity, TPG, which is a private equity company that had these conditions baked into the deal that basically meant that if Vice failed to hit certain revenue and profitability targets over time, that TPG would automatically come to own more and more of the company. So yes, you get the high valuation, but you set yourself up for a really dangerous situation where a private equity company can easily just come to own you over time if things get a little hard. So they did go on to get a higher valuation of $5.7 billion, but that came from investors that had terms that turned out to be really onerous and dangerous for the company.

That's after the break. We'll see you next time. with them. Ooh, must be mating season. And hiking with them. Is that a squirrel? Bear! Run! Collect more moments with more ways to earn. Air Mile. Summer is like a cocktail.

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Bacardi. Do what moves you. Live passionately. Drink responsibly. Copyright 2024. Bacardi, its trade dress and the bat device are trademarks of Bacardi and Company Limited. Rum 40% alcohol by volume. After Vice received that private equity investment in 2017 that valued the company at $5.7 billion,

several problems started to emerge. One had to do with company culture. That year, the New York Times reported incidents of sexual harassment and other inappropriate behavior. They cited accounts from over 20 women. In a statement at the time, Smith and another co-founder acknowledged a boys' club culture. Its advice had failed to create a safe workplace for women, quote, from the top down. Another problem had to do with advertising. Here's our colleague Alex Bruel, who began covering Vice as the company's growth began to stall. Google and Facebook started assuming a greater share of marketers' budgets,

and the pie had shrunk for these digital publishers. The way the ad industry works is you have very large ad-buying agencies that represent very large advertisers that own multiple brands. They have very large budgets, sometimes in the billions of dollars, and they want to target people who are going to buy their product. So they quickly learned that it was very easy to spend large sums with Google and Facebook that could then target these individuals. Over time, a greater share of their annual budgets would go to Google and Facebook, and the digital publishers had to work harder to earn a smaller slice of that pie. While advertising started to decline, so did traffic devices' websites, thanks in part to changes Facebook made to its newsfeed.

thanks in part to changes Facebook made to its news feed. Publishers got really confident in the amount of traffic that they could generate from social platforms like Facebook. Facebook was sending them lots and lots of traffic, which was generating lots and lots of ad revenue. And so people would find the Vice articles on Facebook, and that would be good for Vice. And then Facebook changed its algorithm, deprioritized news. And this was very bad for the Vices of the world that really, really relied on that traffic to make money.

Vice was out there telling investors that it's, you know, projecting revenue in the hundreds of millions that it could not live up to. It kept failing to generate the amount of revenue that it promised. And it had this cultural moment that was difficult where this boys club was no longer the hottest game in town. And at the same time, they were struggling to generate ad revenue in the way that they had so easily just years earlier. It was a perfect storm. It started to look like Shane Smith's grand ambitions for Vice were not coming true. Vice's investors were getting antsy and some of the targeted growth just never came. And the company's investors wanted a grown-up.

They wanted someone to come in and clean up this operation, make it profitable. In 2018, Smith stepped down as Vice's CEO. He was replaced by Nancy Dubuque, a seasoned TV executive who tried to turn things around. One of Dubuque's moves was to purchase Refinery29, a culture and lifestyle website targeted at young women. Refinery29 was going to help Vice diversify its revenue.

Refinery29, you know, had big events and it was going to help Vice produce more content that could then translate into more ad revenue. But that didn't happen. Over the next few years, traffic to Vice's website continued to decline. And this is when that deal Vice made with TPG, that private equity company that gave it the $5.7 billion valuation, started to come back to bite.

As part of that deal, Vice had promised to pay TPG more than $10 million a quarter starting in 2020. Vice also promised TPG that it would hit certain revenue targets, which it wasn't able to meet. The pressure was building. Vice took on debt, raised more money, and renegotiated the deal with TPG to buy the company more time to pay its bills. But it wasn't enough. Last year, Vice declared bankruptcy, and it sold itself to a creditor group at a valuation of $350 million, a far cry from its once lofty valuation of $5.7 billion. The company is also now seeking to sell off

Refinery29. And last week, still struggling to make ends meet, Vice wound down further. So Vice laid off hundreds of people last week. They said they were going to stop publishing content to vice.com. The company is now focusing on the studio and producing content for platforms. We are still trying to figure out what that means. They have a large presence on YouTube where they presumably generate ad revenue. And it's essentially a studio now with an ad agency. So the company is just like a shell of its former self. It's just a shell of its former self, yes.

Keech, you covered Vice when the company was at its peak. Do you think that it was destined to fail? Or was its downfall more the result of mistakes and mismanagement? Well, there are two things going on here. One is that they were by far the most highly valued digital media company. And the chasing of that value was, it turns out to be kind of a strategic mistake.

So there was a basic error in how they went about their fundraising from investors. But also their core business of digital media was just structurally doomed from the start. There really aren't very many examples of successful, ad-supported, no paywall digital media outlets, right? I mean, if you are actually paying reporters to do original work and just trying to sell ads against that, it doesn't work. Which is something, you know, where the whole world is sort of known. It's a truth that has revealed itself rather deliberately over many years.

But this really felt like a nail in the coffin. That's all for today. Wednesday, February 28th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Alexander Saidi and Robbie Whelan. Thanks for listening. See you tomorrow.