New media investing in favor but hazards lurk
BuzzFeed employee works on a computer at their office in New York
By Jennifer Saba
NEW YORK (Reuters) - New media websites from BuzzFeed to Business Insider are on a roll lately, showered with dollars from venture capitalists betting that they will crack an advertising market that has stymied traditional media companies.
With their mix of top-ten lists, slide shows that highlight the indignities of air travel, eye-catching headlines and thoughtful news, such media start-ups think their fresh approach to working with brands will coax more money from advertisers.
They build large audiences by using social media like Facebook and Twitter to push content to young readers that marketers covet.
Some investors are already true believers, as evident in the much higher valuations that digital content start-ups are commanding - in some cases, they are valued at five times the multiples that venerable old media companies fetch. Still, the start-ups face steep odds in the long-term as scores of competitors vie for marketers' dollars.
Venture capital firm Accel Partners recently led a round of new financing of nearly $34 million for Vox, the publisher of sports and technology websites SB Nation and The Verge that has raised nearly $70 million so far. Last week, Vox announced it bought the Curbed Network, a group of blogs that cover real estate, food culture and fashion. Reports pegged the acquisition in the range of $20 million to $30 million.
BuzzFeed, a social news and entertainment company, received $46 million, including $19.3 million in January from venture capitalists. Technology-focused Business Insider and the fashion-oriented Refinery29 have also raised tens of millions of dollars each.
The influx of money has some industry watchers proclaiming the comeback of content, as entrepreneurs try to appeal to so-called millennial readers who grew up on digital news and have likely never touched print.
"If you can get to scale, the media model is fantastically profitable," said Dan Marriott, managing partner at the investment firm Stripes Group and an investor in Refinery29.
Thirty-four percent of people between the age of 18 and 24 consume news through social media, compared to 10 percent of people between the age of 50 and 64, according to recent figures from the Pew Research Center. Only 6 percent of 18- to 24-year-olds read a newspaper, and only 29 percent get their news by watching television.
New media companies that are grabbing a lot of Web traffic can command valuations in the range of four to five times forecast revenues, according to venture capitalists and other investors.
BuzzFeed's last round of capital-raising valued the company at $200 million, or roughly five times estimated 2013 revenue, according to press reports. The New York Times Co trades on the New York Stock Exchange at about 1.2 times estimated 2013 revenue, according to Thomson Reuters I/B/E/S.
"There is an argument that these (new media) valuations even with high growth rates seem high," said Greg Gottesman, managing director at the Seattle-based VC firm Madrona Venture Group and an investor in Cheezburger, a collection of humor sites.
"The only way you could justify that is if you believe monetization will catch up with where people are spending their time. I think it will. The question is how long will it take."