I don’t know who should be happier. CEO Shane Smith, who just reportedly sold 10% of the company he founded, Vice Media, at a valuation of $2.5 billion, or all of the traditional cable media barons, who just saw the hottest thing in out-of-the-pay-TV-ecosystem sell out to one of its partners.
So why did he do it? Why did the man and its investors that I have personally heard speak out against traditional forms of advertising revenue, YouTube pre-rolls and the business model of CNN, give way to an age-old business that is only invested in keeping premium video content exclusive to the pay-TV ecosystem?
Is this an admission of defeat by Vice?
Because if it isn’t an admission of defeat, I’m not sure what Vice is doing with this move. That’s not to say that it comes as a surprise. We’ve known for many moons that Vice was having talks with both Time Warner and Fox at different times throughout the summer. And while the specific choice of A+E does seem to be less expected than the other two companies, the reasoning behind this move still matches what people thought all along: Vice wants a seat at the cable channel trough.
And one has to ask themselves exactly why that is? If Peter Kafka’s estimations are right, and I tend to agree with almost everything Peter has ever written, then Vice will likely end up in control of A+E’s fledgling cable channel, H2, the ever-so-popular “info-tainment” channel.
But why does Vice need a cable channel? Is it that they see easy profits? Is it that they need more exposure and an ability to reach a mainstream audience? Or is it possible that they just don’t see an actual future in which Vice, and its many internet brands and activities, yield a sustainable business model solely online?
Like most everyone not named Shane Smith, I have no idea what the answer is. Of course, that won’t stop me from speculating, but I’ll get to that later.
Before I do, let’s explore the the options for Vice in running a cable channel:
- One Block Per Week: Take one block of primetime every week, leaving it exclusively for Vice original programming (much like HBO does 90+ percent of their original programming on Sunday nights)
- Strictly Primetime: like Adult Swim, only run programming from 8pm to midnight on school nights
- Operate 24/7: Taking a cue from the very company Shane Smith said was “spiraling into shit,” Vice could program a 24/7 network, and become the CNN he apparently wants to be, despite having metaphorically flushed it down the toilet
Which of these options are best? I have no idea. But if Vice can draw nearly the same audience it draws with its show on HBO, they will be profitable with any of the aforementioned options. Between the advertising revenue they can get for comparable audiences and the fees they would demand from cable companies as being a cable channel that Millenials want access to, Vice’s options on cable television could be quite lucrative.
But that’s where you lose me with Vice’s decision here. I’ve heard time and time again that Shane Smith doesn’t like most of the traditional media’s standard ways of operating. He thinks the revenue opportunities online far outweigh that of old media. He promotes the journalistic content that he monetizes, despite some of old media’s complaints about Vice’s journalistic approach. And he’s really not about that branded content life, despite traditional media taking so kindly to it. So if he has all of these issues with traditional media, and he thinks Generation Y (as he loves to refer to me) is going to find their content online, then why go the route of the old guard?
Not that I claim to have all the answers, but I have the answer. The truth is, Vice is a media company, and yet they aren’t being valued as one by the public at large. The fact that Shane Smith has no problem calling the company the Time Warner of the Street alludes to just how much of a media company Vice is. And perhaps I’m playing the strawman card, but Vice is being looked at as if it is a technology company, when it absolutely isn’t. If you send some journalists to the Middle East and throw it up as a video on YouTube or HBO, you don’t get to be called a technology company. But Vice is no fool. They knew there was a bubble, and they took advantage of it.
Just look at Buzzfeed’s recent $850 million valuation on the basis of listicles and some promising hope for future technological developments that they have yet to develop. While we may never know what Andreessen Horowitz’s actual valuation of Buzzfeed was, it’s at least somewhat clear that Buzzfeed’s status in the market was inflated beyond what a media company should be valued at. At media company should be valued at 1.5 to 3 times revenue. Again, I don’t know Vice’s revenue numbers, but if this Forbes article is even remotely close to their 2012 numbers, then even accounting for 100% growth in 2013, Vice is being way overvalued as a media company.
But even as a media company, Vice is a risky proposition on cable television, and you’d think A+E of all entities would know that. I alone can think of a million reasons why Vice could end up treading water as a cable entity:
- Vice News on HBO scored about 900k viewers/night. While Vice and its HBO partner may argue that the on-demand view counts add to that number, Vice won’t have that opportunity on a non-premium channel, like that of HBO, because Vice as a cable channel network will have to rely on advertising–in all likelihood.
- The Demographic that Vice so proudly captures is less likely to pay for a cable subscription now, and trends suggest Gen Y will be even more less likely to pay for it down the road.
- Going up against CNN, Fox News, MSNBC, ESPN & MTV is a cutthroat endeavor. Shane’s love/hate relationship with cable channels is weird, but it’s even weirder that he thinks he has the secret sauce to being better than CNN. Sure, it sounds cool in theory, but CNN’s been trying to figure it out for a long time, and programming just isn’t the easiest thing in the world when you have to do it on your lonesome.
- Speaking of programming, does Vice have any idea what that’s like? Obviously, they can bring in a team of people with linear programming experience, but I’m of the belief that using a stable of veterans and people that have been in your content pipeline are necessary to a network’s programming success. If you could just buy good cable television, every Wall Street Banker and Silicon Alley investor would have their own network.
I know this may come as a surprise after reading all of this, but I’m actually a big fan of Vice. I love their content. I love Shane Smith’s attitude. And I loved their business model so much, that I wanted to replicate it. I personally want to see them succeed, and I want to see them be to Millenials what CNN is to an older generation. But this move to A+E, while expected, was a step away from everything Vice represented to me as a consumer and business mind. Don’t get me wrong, I’d probably make the same move they’ve made, but I’d make it without disparaging everything that old media is and not claim to be this purely forward-looking, all-digital network brand.
Vice represented content you want, when you want it, where you want it, and for free. Now after this reported deal with A+E goes through, there’s a good chance I can only watch particular Vice shows the day after they air, if at all, depending on whether I pay Time Warner Cable a monthly fee. Shane Smith wants Vice to be the next CNN, ESPN and MTV combined. If he can do that, that would be awesome for him. But for you and me, there’s no win here. We’ve just lost the most interesting, cord-cutting content company out there to basic cable and the status quo.
So Smith and Vice can say all they want to about being the changing of the media guard for our generation, but reality is that they just joined up with the old guard and will likely soon adopt the stance that the pay-TV ecosystem, as it stands, is worth preserving. So much for putting your money where your mouth is.