Complex Networks
Rich Antoniello, CEO, Complex Networks.
- Sneaker culture-focused
media company Complex Networks is an exception to the gloom and doom surrounding digital media. - CEO Rich Antoniello has avoided a lot of the playbook that's driven digital media in the past several years.
- Complex has diversified its business and now gets half its revenue from non-advertising sources.
- It's been profitable since 2010 and looks to be in the black again this year, with revenue projected to grow close to 20%.
- This year it'll drive growth from video licensing, events, and commerce, and it's even exploring a membership program.
It's a gloomy time for digital media, but not for Rich Antoniello.
While headlines scream about other digital media companies trying to cut their way to profitability, hanging for-sale signs, and selling at fire-sale prices, Complex Networks, a 17-year-old, digital video-driven media company focused on sneakers and youth culture, looks like an anomaly.
Complex has been profitable since 2010 and is on track to be in the black again this year, with revenue projected to grow close to 20%, according to Antoniello. Complex has diversified its revenue mix and now gets half its revenue from outside
"We're an anomaly here," Antoniello told Business Insider.
It did this by avoiding a lot of the playbook that's driven digital media in the past several years.
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- It didn't take a ton of venture funding that can accelerate a media company's rise but also set unrealistic growth expectations. Complex Networks raised just $40 million in its first 12 years, in contrast with other digital media darlings like Vice Media, which raised $1.4 billion; and BuzzFeed, $500 million.
- Without the growth pressure tied to VC funding, it didn't staff up like crazy or chase Facebook audience as other companies did, only to see that audience vanish when Facebook deprioritized publisher content in the news feed and ran their videos but didn't deliver meaningful revenue in return. Complex's social followers are divided roughly evenly between Facebook, YouTube, and Instagram, according to Tubular Labs. Typical of a VC-backed digital media company, BuzzFeed gets two-thirds of its followers from Facebook, per Tubular.
- It avoided going deep into hard news, which is expensive to do and scares off certain advertisers that don't want their ads to appear next to anything that sniffs of controversy.
Instead, Complex focused on building high-quality, longform video series that would keep viewers coming back and whose regularity in subject matter made it well-suited to advertising integrations.
Complex's video series helped drive other revenue streams
Those shows beget other revenue sources. ComplexCon, an annual festival of street culture in Long Beach, California, attracted 65,000 people and contributed around 8% of Complex Networks' revenue in 2018, across ticket sales that start at $55 each, $10 million worth of hoodies, skateboards and other merchandise sales specially designed by the artist Takashi Murikami, space rentals, and ad sponsorships. Its food vertical, First We Feast, spawned lines of hot sauce that did an estimated $7 million in sales in 2018.
Complex sold in 2016 to a joint venture of Hearst and Verizon, which enabled it to get funding and keep operating independently. That led it to avoid integration into a larger company, a process that has ended badly for other acquired media outlets like Yahoo and AOL.
It keeps costs down. Complex has only 300 employees, which, assuming annual revenue of $200 million, per three sources close to the situation, enables it to stay in the black. Its two biggest shows, "Sneaker Shopping," where stars like Wiz Khalifa buy shoes; and "Hot Ones," where celebrities like Scarlett Johansson eat wings with progressively hotter sauce, are hosted, respectively, by homegrown talent Joe La Puma and Sean Evans.
Contrast that with a one-time digital media darling, VC-funded Vox Media. By the end of 2018, Vox Media was about the same size in revenue as Complex Networks but with about three times as many employees.
Antoniello is the anti-digital media CEO
At the center of Complex Networks is an unlikely digital media CEO. Raised in the blue-collar Canarsie section of Brooklyn, he keeps a low profile (except for Twitter, where his tweets are known for all-caps rants on everything that drives him crazy about the media business).
While other media CEOs use PR to carefully cultivate their images and rarely talk publicly about their competition, Antoniello regularly takes profanity-laced shots at them, which doesn't endear him to everyone.
- On media companies' dependence on Facebook, he said: "I wasn't worried about getting to a billion Facebook views like Group Nine was because that did a lot for their business."
- On the pivot to video: "Add up Vox, Vice, Group Nine, whatever. I think in total they have three or four shows together on Netflix, whereas we have six."
- On owning youth culture: "Even when we were a magazine, the topics we covered and tone, we never f*cking changed. We let everyone come to us. We are the originators of that, and everyone else are vultures who couldn't come up with a goddamn original idea if your f*cking life depended on it."
Print influenced Antoniello's thinking
Complex Networks' evolution into a modern media company started, of all things, with a glossy print magazine.
It was created in 2002 by the streetwear designer Marc Ecko, who saw the connection between culture and media. Antoniello, a former salesman for National Geographic Adventure, has been at the head of Complex since 2003. Antoniello said his experience selling print heavily influenced him.
"It all comes back to brand, being the creator of the conversation," he said. "Print experience informed that thinking 1,000%. Being a salesperson, of not just the audience, the pink sheets and Simmons data, but selling what it really means. That informed a lot of who I am today."
By 2007, the magazine was profitable. But people were starting to get their news and information online through portals like Yahoo and AOL that rode the tech bubble. Venture capitalists poured money into media companies, putting pressure on everyone to scale an online audience fast. That led to ad networks like Glam Media, which rolled up women's blogs to become the seventh biggest online media property at one point.
Complex also created a network to augment its own sites with independent ones around sneakers plus adjacent topics like music and food. But it has always maintained that it was more choosy than others about who it partnered with, to keep quality high. Later, Complex would buy sites, shifting the network to an owned-and-operated model.
That brand-focused thinking also informed Complex Networks' first big push into video in 2013, when it raised $25 million from Iconix Brand Group, the owner of Rocawear, Ecko Unlimited, Umbro and other brands.
Unusual for a text-rooted media company, Complex started making digital video in the form of longform series. The massive media industry "pivot to video" has since become ridiculed for its association with short, viral videos that did little for companies' businesses. Instead, Antoniello focused on making cable network-worthy, high-quality video series that could be adapted to many platforms and spawn other revenue lines.
"Everyone was in love with a three-second view," he said. "We ran the other way. We went hardcore."
Complex Networks initially ignored YouTube
The execution wasn't flawless. Now Antoniello gets credit for success on YouTube, but for months, he eschewed the platform, wanting to keep all the views on his own site.
"It's kind of my biggest mistake," he said. "I was like, 'We're so big we don't need YouTube.' Um, biggest mistake I ever made, hands down. YouTube, it already had done too good a job establishing themselves into the lower end of the 25-and-under, where if you wanted to be massively impactful on longer-form, premium video, you had to be on YouTube. Once we did YouTube, it was like throwing kerosene on it."
The bet paid off.
"Very few people invested in YouTube early on the way Complex did," said Eddie Kim, CEO of Memo, a startup that sells metrics on article readership to brands. "By the time most folks realized the Facebook video bait-and-switch, it was already too late to build up a YouTube presence because the barriers only get higher and higher. Whether it's media or commerce, the challenge today is, do you truly own an audience. In media, it means you can create a branded video and hit your numbers without buying much traffic. Brand equity takes time to build. This creates a natural tension with the growth expectations tied to VC funding. Complex is a brand 20 years in the making."
A big video accelerant came in 2016 when Complex Networks sold to Hearst and Verizon in a 50-50 deal valued at more than $250 million. The new owners saw in Complex a way to quickly increase their digital reach with millennial males. Verizon had just launched Go90, a free mobile video service where young people could watch video from providers like HuffPost, Vice, and AwesomenessTV, on their phones. Verizon paid Complex Networks roughly $150 million to produce shows that would appear on Go90, according to two sources close to the situation.
For Complex Networks, the Go90 money enabled it to go from 12 to 33 video series but also move further upscale. It worked with "Friday Night Lights" director Peter Berg on a docu-series "QB1"; and made "Thanksgiving," created by Dan Powell and Bethany Hall and starring Chris Elliott and Amy Sedaris.
"We were making the bet of linear cable without having the linear cable distribution deals," Antoniello recalled. "And when they bought into that, and were willing to pay what they paid for the company, it created a tremendous opportunity for us because we can continue to run as an independent asset, because it was a 50-50 JV. So we didn't have the pressure of integrating into either large-scale company."
Then, in June 2018, Verizon shut down Go90 after less than three years. The move was the demise of Awesomeness, whose fortunes were tied to Go90 and which sold to Viacom for $50 million after having an implied value of $650 million.
Hearst and Verizon wouldn't comment for this story.
Post-Go90, Complex had to reset its goals
The Go90 demise has reset Complex's goals.
Complex Networks shrunk its staff from around 400 in 2017 to 300 by the end of 2018, mainly by cutting people who worked for now-defunct RatedRed.com and Seriously.TV, two digital media properties that Hearst and Verizon created for millennials and which had been absorbed by Complex.
Complex Networks has to return profits to its owners instead of having full freedom to reinvest it. And while Verizon is increasing its video output at Yahoo Finance, questions swirl around Verizon's commitment to media now that it's closed Go90 and written down its media arm that contains AOL and Yahoo. Complex, though, is in a different boat from that arm given that it operates independently.
But Antoniello is seeing the payoff of his earlier bet on high-quality series and says he likes his independence. Complex was able to keep the shows it created for Go90, and he's licensed 16 of those 33 shows to Netflix and Hulu, and he's not done doing deals.
"There is no question, Verizon is not as interested in media as it was theoretically. We were disappointed. Obviously we would have loved to have continued to be a strategic partner," he said. "It would have been a tremendous play for us long term to have this funding resource and audience discovery platform for younger consumers from a mobile perspective. We had to be beholden to ourselves faster than we had originally planned. Trying to replace a great deal of capital is hard because we're going to have to do it from multiple outlets."
Earlier, Complex insisted on licensing rather than selling outright its video series to distributors as Vox Media and BuzzFeed have done. It also insisted on limiting distributors' exclusive windows to short time periods like five days rather than the more typical 12 months. Licensing is harder to do with a behemoth like Netflix, which increasingly wants to own the shows it airs, but this approach has enabled Complex to keep generating income from those shows with other distributors.
Antoniello said distributors initially pushed back, but he argued his shows had big followings of young men that are hard for advertisers to reach, and that using social media to promote shows would help maximize the viewership before audiences get bored and move on to the next thing.
"How many series are going to last that are young person-oriented?" Antoniello asked. "They run out of steam. So you have smaller windows in general to take advantage of these things. So we had a lot of discussions on distribution with all these premium platforms. But we have the discipline to say no."
Complex Networks isn't insulated from the reality all media companies face, as most of the digital ad dollars are going to Google and Facebook and there's pressure to stay current with young audiences.
"There is a gluttony of digital choices for advertisers looking to target Gen Z," said Doug Rozen, chief media officer at the agency 360i. "Publishers like Complex and others need to be aggressive to stand out - to a buyer and to a user."
Antoniello likes his chances, though. This year, Complex sees revenue growing almost 20%, Antoniello said, with three knowledgeable sources saying revenue will be at least $200 million, with at least $30 million in profits.
The growth this year is coming from video licensing; a second ComplexCon, in Chicago in July; and a membership program it's aiming to launch by the end of the year that would give superfans benefits tied to various Complex brands, like early access to ComplexCon, exclusive merchandise, and a first look at Complex's video shows.
"It's a great time to be an anomaly of anomalies - a fast-growing, differentiated brand business in media that is profitable," he said.