Lessons in the price of Vice

Hindsight is 20/20, as they say, but Vice founder Shane Smith must have some pretty painful regrets. 

Back in 2015 — what feels like a lifetime ago — Vice was flying high and Disney was among the powerhouse traditional media giants throwing their money at Smith. Vice, which started as a punk magazine in Montreal, had a cachet with “young people” that Disney chief executive Bob Iger wanted a piece of, leading him to double his company’s investment to $400mn in the media start-up towards the end of 2015. 

Around that time, Iger and Disney’s dealmaking guru Kevin Mayer also held informal talks with Smith about buying out Vice entirely for north of $3bn, according to three people familiar with the matter. The deal never materialised, in part because Smith did not want to sell, said one of the people. Vice declined to comment on the talks.

In the short term, it appeared Smith was smart to hold off. By 2017, he managed to fetch a staggering $5.7bn valuation for Vice via a $450mn investment from TPG. But in 2023, Vice passing on a sale to Disney now appears to be one of the worst missed opportunities by a media company in recent memory. 

Soon after the 2017 fundraising, Vice’s growth stalled with the company repeatedly missing its revenue targets. Sustained profitability has remained elusive. Investor interest has faded in the digital media sector, and in lossmaking start-ups in general, as interest rates rise. If Vice secures a sale — which it has been exploring for the past year — it is likely to be for far less than $3bn. 

While digital media has been in crisis for several years, in the past month the sector appears to have reached a new low. Over at Ozy Media, which billed itself as a media company at the forefront of “the New and the Next”, founder Carlos Watson was arrested at a hotel last week on fraud charges. Buzzfeed’s stock jumped from levels around $1 to nearly $4 on the news that it was going to use artificial intelligence to help with content. The stock has since retraced back down to $1.50, down from its $10 listing price in 2021.

Vice, meanwhile, is reportedly falling behind on paying its bills and its chief executive Nancy Dubuc abruptly left last week. Dubuc, who took over from Smith as CEO in 2018, had been trying to find an exit for antsy investors including TPG, after plans to go public via a Spac fell apart in 2021. 

With new leadership in place, Vice has started a fresh sales process this year, with bids due soon, according to one person familiar with the situation. James Murdoch, who owns a stake in the company and sits on the board, has been directly involved in negotiating a sale, according to other people with knowledge of the matter.

During her tenure Dubuc, a well-regarded television executive who was previously the chief executive of A&E Networks, expanded Vice’s work as an entertainment studio — capitalising on the demand for programming from streamers such as Netflix by producing documentaries. She also tightened costs, laid off hundreds of staff, purchased industry peer Refinery29 and raised debt from Fortress and George Soros’s investment fund.

Vice’s blockbuster 2017 valuation came with a lot of fine print: TPG had demanded tough terms, such as entitling the private equity group to receive more stock if the publication missed profit targets. These stipulations made Vice less attractive to other investors because it would dilute their stake, executives believe.

Vice executives say that their company is more versatile than other online publishers, having reduced its reliance on digital advertising years ago when it expanded into TV through deals with HBO and international broadcasters. It has built an in-house advertising agency and pushed into online video, selling television shows and films to Netflix and Amazon. The company also produced a Sean Penn documentary about the Russia-Ukraine war. But Vice has struggled to meet its financial goals: the company had aimed to make $700mn in revenue last year but undershot that by about $100mn, according to the Wall Street Journal. 

Smith’s ambitious approach no doubt helped expand Vice from a small “zine” into a global news publisher and television company that, for a time, mesmerised the likes of media titans such as Iger and Rupert Murdoch. But such ambitions may have made him resist selling out at the top. As for Disney, it ended up writing down its Vice investment in 2019. But in not buying the entire company at 2015 prices, Iger probably dodged a larger bullet. 

anna.nicolaou@ft.com