Vice, digital colossus in decline, files for judicial recovery – 05/15/2023 – Market

Vice Media filed for bankruptcy on Monday, punctuating a year-long decline from a new media darling to a cautionary tale about the problems facing the digital publishing industry.

The bankruptcy will not disrupt the day-to-day operations of Vice’s business, which, in addition to its website, includes ad agency Virtue, its Pulse Films division and the women-oriented website Refinery29, which Vice acquired in 2019.

A group of Vice’s creditors, including Fortress Investment Group and Soros Fund Management, are in the lead position to acquire the company to avoid bankruptcy. The group submitted an offer of US$ 225 million, which would be covered by its loans made to the company.

A sales process follows. Lenders have secured a $20 million loan to continue operating Vice, and if no better offer comes along, the group that includes Fortress and Soros will acquire the company.

Still, the dreams that Vice executives had of going public or selling at an impressive valuation have been snuffed out. The company was valued at $5.7 billion at one point.

The investments of media titans like Disney and savvy financial investors like TPG, which have spent hundreds of millions of dollars, will be wiped out by the bankruptcy, cementing Vice’s status among the media industry’s most notable bad bets.

Like some of its peers in the digital media industry, including BuzzFeed and Vox Media, Vice and its investors bet heavily on the growing power of social media networks like Facebook and Instagram, predicting that they would provide a wave of young, up-and-coming readers that advertisers wanted to achieve.

While readers numbered in the millions, new media companies struggled to make a profit from them, and most digital ad dollars went to the big tech platforms. Last month, BuzzFeed closed its Pulitzer Prize-winning news division after going public at a fraction of its previous valuation, and Vox Media earlier this year raised money at about half of its 2015 valuation.

“There are definitely commonalities in the struggles that media organizations are facing, and Vice is no exception,” said S. Mitra Kalita, founder and editor of community journalism firm Epicenter-NYC, based in the Queens borough of New York. “Now we know that tying a brand to the social network just for growth and audience is not sustainable.”

Filing for bankruptcy will give the company some relief from its heavy debt load as its creditors, including Fortress, try to salvage their investments. Vice Media raised a $250 million loan from Fortress and Soros Fund Management in 2019 as it battled a profit slump. She has been in default on that loan for months.

“It’s the creditor coming in and saying, ‘I’m done financing losses — if I’m going to finance losses, I’m going to take over the company,’” said Eric Snyder, president of bankruptcy at law firm Wilk Auslander. “It’s not uncommon for the creditor to come in and say to the debtor, the borrower, ‘You’re putting this into bankruptcy, you’re going to make a motion to sell, let’s make a first offer.'”

Fortress sees an ongoing role at Vice for Shane Smith, the brash co-founder who became synonymous with the company’s “gonzo” journalism from exotic locales and oversaw a culture of pushing boundaries, rife with allegations of sexual harassment, according to with a person familiar with the matter. Hozefa Lokhandwala and Bruce Dixon, co-CEOs of Vice, will also remain.

In a statement, Dixon and Lokhandwala said bankruptcy would ultimately “strengthen the company”.

“We look forward to completing the sale process within the next two to three months and mapping out a healthy and successful next chapter at Vice.”

The bankruptcy is a humbling moment for Vice, which a decade ago looked set to either sell for a staggering sum or debut on public markets. In the 2010s, Vice raised a lot of money from traditional media companies, which it had attacked for becoming complacent. The company sold advertisers and investors on its ability to reach young millennials who were eager for an alternative to its corporate rivals, delivering “you are there” stories from North Korea and Liberia without the moderation of the mainstream news media. .

But the harsh reality of digital publishing hit Vice, and things went wrong. In 2017, the company raised $400 million from private equity firm TPG in a deal called “The Venus Project”, which valued the company at $5.7 billion. But the cash infusion saddled Vice with financial obligations if it didn’t meet aggressive profitability targets, and ultimately became a burden on the company. Later that year, The New York Times and other outlets published investigations into allegations of sexual harassment at the company, setting off a crisis at Vice that undermined confidence in its management.

Smith replaced himself as CEO of the company, appointing Nancy Dubuc – a former A&E TV executive who helmed hits like “Duck Dynasty” – to oversee the growing media empire based in New York City’s Brooklyn borough. Investors expected Dubuc to sell the company or take it public, and she made several attempts.

The most recent took place last winter, in a sales process that aroused the interest of several potential suitors. Antenna Group, a Greek media company that has done business with Vice before, expressed interest in acquiring it, but the deal fell through. Dubuc left in February, with no buyer in sight and failing to consistently turn a profit on Vice.

The situation got worse last month. The company laid off employees after Antenna stopped making payments to Vice for a production deal worth hundreds of millions of dollars. The cuts included employees at Vice World News, the company’s global journalism initiative, after it became clear that those efforts were no longer financially viable.

Alex Detrick, a spokesman for Antenna and former vice communications director under Smith, declined to comment.

Kalita of Epicenter-NYC, who also co-founded URL Media — a black and brown-owned media network that shares content and advertising — said Vice’s bankruptcy is a reminder for the founders to develop many different types of media. business beyond advertising.

“I think even those of us running profitable media startups today,” Kalita said, “are thinking more carefully about growth and making sure we can continually define our audience and the value we represent to them.”

Article originally published in The New York Times.

Translated by Luiz Roberto M. Gonçalves