Digital media companies are facing a major ad downturn. Here's what VCs including Lerer Hippeau and Comcast Ventures say they should do to survive.
- Digital media companies have had to drastically reset expectations this year as the coronavirus pandemic has forced advertisers to slash spending.
- We asked five investors from Lerer Hippeau, Imagination Capital, and other firms to share advice for media companies on navigating the economic slide.
- They are recommending companies preserve cash but also test new forms of paid content and keep an eye out for potential deals.
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This was supposed to be a year of stabilization and profitability for digital media companies.
But then the coronavirus struck, leading once high-flying companies like BuzzFeed, Vice Media, and Group Nine to variously cut pay, lay off staff, and rewrite expectations.
A sampling:
- BuzzFeed cut pay for employees, going up to 25% for its highest paid execs, while Vice Media is cutting pay and work hours.
- Group Nine laid off 7% of staff while Bustle Digital Group laid off about 25 people and shut down its culture-focused publication, The Outline.
- Vox Media is reportedly planning to announce furloughs after passing the hat with a new contribution program.
Digital media companies face advertising declines of as much as 50%, industry insiders say. Even companies which diversified into areas like commerce and live events aren't out of the woods, as people have stopped spending and are self-isolating.
Companies that recently raised money or are close to profitability are in a safer place, as are founders who have raised before and have a track record, or young companies that don't have much cost to cut, investors say. More vulnerable are those that are most exposed to advertising or haven't gotten funding in a while and were aiming to raise money this year.
Investors are telling all startups to cut their costs enough to get through the next 12 to 18 months, when it's believed business will return to normal and fundraising resumes.
"We're going through a period that's unprecedented, we don't know how it's going to end," said Eric Hippeau, partner at Lerer Hippeau Ventures, whose portfolio includes Axios, Buzzfeed, and Group Nine. "There's only one thing that matters: to preserve cash so when revenues come back they have enough runway for at least a year."
Beyond those immediate cost-cutting measures, media companies are looking to capitalize as audiences soar with people looking for news and distractions online.
We asked venture capitalist investors and advisers to share the advice they're giving media operators to survive the slowdown, from finding new revenue opportunities to pitching investors. Here's what they said:
Daniel Gulati, Comcast Ventures - Go the extra mile to make customers happy
Comcast VenturesMany media companies have already begun diversifying away from advertising-only models. Gulati, managing director at Comcast Ventures, whose portfolio includes media companies The Athletic, Shine, and Tastemade, said this is a time to plan new products to launch when the economy comes back.
"We've seen companies get creative with adding related physical game sales to existing content series and even launching media that fuels retail product sales," he said.
For companies with subscribers, he said, make them as happy as possible so they don't cancel, with extensions or other incentives. If you have advertisers, consider better rates or other perks.
"See if there's additional inventory, relax guarantees, and make it easier for them to connect with their customers, given the increased engagement on media platforms," he said.
Rachel Lam, Imagination Capital - Test new ways to monetize content
Imagination CapitalLam is cofounder and managing partner at Imagination Capital, whose portfolio includes sports startup Overtime, which recently made cuts. She said this is the time for operators to be even more experimental.
"Be as creative and test as many different ways, like deep content to monetize, as possible," Lam said. "Are there ways to sell to a smaller percentage of your audience? How much would they pay? Or would they pay microtransactions? Use this window to try things in a limited test. You might be surprised and see things that do work."
That advice also extends to other areas. If you have a lot of salespeople but advertisers aren't buying, see if you can redeploy them to do other things. If you work on a royalties model, see if you can renegotiate to get that cash upfront in exchange for a discount.
Lam also urges operators to look at what their leading indicators are, such as reader engagement or subscriber log-in, so they know how to foresee and prepare for a dropoff in business.
Eric Hippeau, Lerer Hippeau Ventures - Take advantage of audience gains
Lerer Hippeau VenturesThe pandemic has forced people indoors, where they're spending more time on digital devices. Hippeau, partner at Lerer Hippeau Ventures, said that makes this a great time for media companies to grow their audiences and advertising base.
"It's a great time to grab a larger share of the audience," he said. "People are at home on digital devices and TV is being impacted. All production has been stopped. This is a great time to convince that audience that digital is a great replacement and use social media to promote their content."
Hippeau also sees an opportunity for media operators to take advantage of the dearth of live sports that has sports advertisers looking for places to redirect their dollars.
"These advertising dollars, some will make their way to digital media companies," he said. "We're advising them to put some numbers together so they can pitch advertisers on TV and live sports and prove why they should be going to this media company."
Deepen Parikh, Courtside Ventures - Prepare for a long hibernation for sports
Courtside VenturesParikh, a partner at Courtside Ventures, whose media investments include lifestyle-focused Religion of Sports and subscription-based The Athletic, says live sports may lag other activities in resuming as people won't be comfortable being in and around crowds of people before a vaccine becomes available.
But Parikh thinks there will be huge pent-up demand for sports content when that time comes, and sports media companies need to be ready, preserving cash and cutting non-core parts of the business.
"You got to do whatever you can to extend your runway," he said. "Interest doesn't go away. They're even more engaged because they're hungry for content, so it's an opportunity to showcase other areas of the sports world."
Andrew Daniel, Digital Capital Advisors - Break away from programmatic advertising
Digital Capital AdvisorsDaniel, an investment banker at Digital Capital Advisors, said with advertisers holding back spend and programmatic ad prices dropping, publishers should aggressively try to develop other revenue streams such as ecommerce and branded content, and to embrace new content formats like interactive and video.
For those with the ability, this is also a time to buy. Don't be afraid to make bets on acquisitions, which are plentiful now, while keeping cash runway a high priority, he said.
"Acquisition can be a key way to rapidly accelerate new competency development, and in the current environment, can be highly ROI positive," he said.
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