The biggest brand in digital media has lost much of its lustre

SOON AFTER the new year in 2015 Shane Smith, co-founder of Vice Media, enjoyed an epic run at the blackjack tables in Las Vegas, and spent $300,000 of his $1m winnings on dinner and booze with his buddies, according to media reports. It was a heady moment to be gambling in, and on, digital media. BuzzFeed and Vox Media, which like Vice were rapidly accumulating young audiences coveted by advertisers, would eventually be valued by investors at $1.7bn and $1bn respectively. By June 2017, Mr Smith had charmed the likes of Fox, Disney and TPG, a private-equity firm, into investing a combined $1.4bn in his rapidly expanding news, cable, video and advertising operation. Vice, which started out as a print magazine called Voice of Montreal, was valued at $5.7bn.

No longer. Vice and other formerly hot digital media properties are on a losing streak, as Google and Facebook have squashed all competitors in the digital-advertising marketplace. The duopoly commands the majority of the $100bn internet advertising market in America; Vice, BuzzFeed and Vox combined get less than 1% of that market. Vice fell well short of its total sales target for 2017, of $800m, and will fare little better in 2018, with perhaps $700m in revenues. Previously profitable, Vice is losing money. The company has also been beset with allegations of sexual harassment and reports of a misogynistic culture. In March Mr Smith stepped aside as chief executive and was replaced by Nancy Dubuc, the boss of A&E Networks (which helps oversee Viceland, a Vice-operated cable channel). Ms Dubuc has said she plans to trim the workforce to reach profitability next year. In November Disney disclosed it had written down its $400m investment by $157m. That puts the value of Vice Media at around $2.5bn to $2.7bn, a steep drop.

Even that is optimistic, industry analysts say. Fire sales are in progress elsewhere in the industry. On December 11th Verizon, a wireless giant, wrote down the value of its digital-media properties—a combination of Yahoo and AOL—by $4.6bn, as they had simply failed to build a robust ad business. (Verizon acquired Yahoo’s core business for $4.5bn only 18 months ago.) In November Mic Network, which had raised $60m and was valued last year at $100m, fired most of its staff and was sold to Bustle Digital Group for just $5m. BuzzFeed, which has raised $500m to date, is looking to merge with other digital companies in what would amount to a bloodbath for investors. Jonah Peretti, chief executive of BuzzFeed, has acknowledged that the best way to compete for digital-advertising dollars would be to combine his firm with as many as five of its peers.

Dominique Delport, global chief revenue officer for Vice, contends that the company is diversified enough beyond digital advertising to avoid the fate of its peers. He points to Vice’s cable channel and a daily half-hour news show Vice produces for HBO, “Vice News Tonight”; a studio business that produces television shows, documentaries and feature films; and Virtue, an in-house ad agency that produces both branded content and more conventional campaigns for clients. He also notes that the company operates in several dozen markets, producing content daily in Spanish, Arabic, Hindi, Chinese and so on.

But studio production is a commodity business with thin margins. Viceland, the cable channel, is little-watched. And it is not clear how long HBO will keep the nightly show, for which it pays at least $60m a year (the network may discontinue a separate hour-long weekly news magazine show, which would mean a loss for Vice of tens of millions of dollars in revenue).

What can yet differentiate Vice from its digital peers, analysts say, is its brand halo. Vice still has some of the edgy cachet manifested in the free-spending, free-living antics of its co-founder. “There’s certainly a business there, but I do think they need a major reset,” says one executive whose firm considered investing in Vice several years ago. But Vice needs to convert its brand into content and advertising that customers will pay a premium for; a challenge in an age of proliferating content and given how easy it is to place targeted ads on Google, YouTube and Facebook.

Not all Vice’s investors will fare equally poorly. TPG’s investment was structured so that its stake would be protected if the firm’s value diminished, increasing from its initial level of 8% and diluting earlier investors, according to sources close to the firm. Ms Dubuc has said the company’s valuation is of little concern as Vice is not for sale. That seems wise; no one sane would pay top dollar for punts on digital media.