Vice Media Shane Smith Business Prospects
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“Are you getting high?” asks a marijuana entrepreneur’s mother in his new TV series “Weediquette,” fearing he will be caught smoking on screen. It’s a sly joke, considering how much pot consumption is crammed into seemingly every minute of the show produced by Vice Media, which will program the series as part of a newly branded cable channel the heavily hyped upstart co-owns with one of its investors, A+E Networks.

But many across the media industry are wondering if anything is being inhaled off-camera by Vice, A+E and many of its other major backers: Disney, 21st Century Fox and British ad agency WPP (to name just a few). Putting aside the fact that two of the most family-friendly media companies in the U.S. — A+E parents Disney and Hearst — are backing a new channel featuring series titled “F*ck, That’s Delicious” and “Balls Deep,” there is no shortage of skepticism that Vice is capable of delivering a return on their investments.

Kelsey Dake for Variety

“They are going after millennial men — it’s what everyone is trying to do to get them to embrace television channels like they did MTV back in the 1980s,” says Ira Berger, director of national broadcast buying at the Richards Group, a large independent ad agency based in Dallas. “I just think you have to win the lottery to make that one work.”

With the launch of Viceland (the channel formerly known as H2) on Feb. 29, Vice has arrived at the most critical juncture in its 22-year rise from Canadian punk zine to global multi­media dynamo. To justify an eyebrow-raising valuation of between $4.2 billion and $4.5 billion, the company needs this new push into old-media extensions — not only Viceland, but its deepening relationship with HBO — to compensate for diminishing returns expected for its core digital-based business.

The pressure is on 46-year-old co-founder and CEO Shane Smith, who cultivates a persona as brash as the brand for which he doubles as on-screen talent. He seems bemused by reactions to Vice going into TV. “It’s like Dylan going electric,” he jokes in an interview with Variety last week.

Smith is betting that Vice can make more money owning 49% of a TV network than it could by just continuing to distribute its online content piecemeal to international TV outlets. “If you want to grow as a media company, you have to have TV as part of the equation,” he says. “Scale is going to come from mobile, but money is going to come from TV, and if you can combine those two and have a huge online presence, then I think you have won.”

If it’s any comfort to Smith, he’s not the only digital player looking for a new edge. Strange bedfellows abound these days, from Buzzfeed and NBCUniversal to Univision and the Onion, as digital content companies seek out the backing of old media, which needs the upstarts to attract the young audiences they lack.

“They are going after millennial men — it’s what everyone is trying to do to get them to embrace television channels like they did MTV back in the 1980s. I just think you have to win the lottery to make that one work.”
Ira Berger

The future of companies like Vice may depend on these dysfunctional co-dependencies, according to Seth Alpert, managing partner at AdMedia Partners, a boutique firm that specializes in mergers and acquisitions in the media and advertising sectors. “Let’s say you’ve got at least 100 million unique monthly users. If you are an AOL or a Buzzfeed or whomever, it’s hard to believe that you are going to grow more significantly,” he says. “Let’s just say it has become challenging.”

Vice got its start in 1994 as a punk magazine called Voice of Montreal, and has since cut a bold swath across the world with so-called “immersionist” video that takes viewers to places and people they never thought they’d encounter. A quick glide through Vice’s digital hub one night might take a reader to Canada, where melting ice threatens to let loose a climate-changing onslaught of “pulverized rock slurry,” or to Afghanistan, where a daring correspondent somehow has infiltrated the ranks of the resurgent Taliban. Lest all its globe-trotting be mistaken for high-minded journalism, there are plenty of salacious bits like one of its all-time most popular videos: a visit with the woman who boasts “the biggest ass in Brazil.”

Nancy Dubuc, president and chief executive of A+E Networks, is well aware of Vice’s irreverence, but believes it’s important to experiment with a “fresh” tone in hopes of resonating with a new generation of viewers. “I fully embrace their brand,” she says. “The most important part of that is they try stuff, and that’s what we did in the early days of cable: We tried stuff.”

Vice operates 34 overseas bureaus as well as a TV production studio, a magazine and an in-house “creative services” agency to help sponsors. In recent months, the company has turned more to hooking advertisers with sponsorships of its streaming-video offerings as well as new ways of distributing its content, doing deals with partners ranging from Spotify to Snapchat.

Little wonder, then, that Vice is making a counterintuitive move in an era when smartphones and social media are all the rage. Building a cable network is a grab for the broader crowd the brand will require to be able to market itself successfully to advertisers.

“TV is like the big leagues. Vice is coming out of the minor leagues,” says Tom Freston, the former Viacom chief who not only invested early in Vice but is credited with evangelizing the brand among his fellow moguls. “They are major league digitally, but making the migration,” he declares.

DECIPHERING VICE’S COMSCORE TRAFFIC: Don’t confuse Comscore’s calculation of Vice’s online traffic with the actual audience for, which accounts for less than half of that total. The other half comes from a selection of other websites (any color not in black, below) neither owned nor operated by Vice, which handles some ad sales for these partners only. Comscore enables this arrangement through what’s known as “traffic assignment letters”; note the significant mid-year lift Vice traffic got when a trio of websites including Daily Dot were swapped out. January 2016 could be an interesting month for Vice, which is losing OMGFacts and Dose — two notorious clickbait websites — and exchanging them with still other non-affiliated websites.

Simply put, sticking only to the Web isn’t a viable business model. Digital publishers have a seemingly infinite amount of inventory to sell, but consumers have only so much attention to give, and advertisers have only so many dollars with which they will part. “We deal with mass advertisers who have to move vast quantities of product,” says David Cohen, president of Magna Global U.S., the large media-investment operation owned by Interpublic Group. “It’s incumbent upon us to reaggregate in whatever way we can across platforms and across partnerships.”

Vice isn’t just developing unconventional shows for Viceland; the company is trying to capitalize on a new trend advanced by other cable groups like Turner Broadcasting that seek to blur the traditional boundaries between content and commercials with 30-second and 90-second branded videos that weave big brand names into Vice-devised vignettes. It’s an approach Smith has used online, where Vice has crafted brand-integration videos for AT&T and Anheuser Busch InBev, among others. “We helped pioneer that on the Web, and this would work really well on TV,” he says.

But all that may be a bit much for Madison Avenue, where Vice executives have joined with A+E ad sales honchos to pitch the strategy. “It was a little bit offbeat,” says Anthony Laurenzo, senior vice president of media strategy at BPN, an ad buying firm that works with Applebee’s and Tyson. “It kind of reminded me of Adult Swim — a little less comedic, but still that same sort of tone.”

The pitch to advertisers is this: Ratings may not always be the highest, but who else is as expert at reaching elusive young male consumers? Indeed, A+E and Vice have told advertisers they won’t release Nielsen measures publicly for the network’s first six months, hoping that by the end of that time there will be better measurement of mobile usage.

It’s a convenient excuse for obscuring what will be Viceland’s biggest challenge: luring young males in significant numbers to a medium they have been ignoring for decades. It doesn’t help that the set-top box is littered with new cable networks that have no perch in the basic tier reserved for the most appealing outlets. Discovery Communications, for instance, has in recent years frequently swapped out such concept channels (Oprah Winfrey Network was once Discovery Health Channel; Discovery Family Channel was once known as the Hub, which was previously known as Discovery Kids).

“We have political contacts and military contacts. We have terrorist contacts. We have contact with everybody, and can go in and get the story out. I think I would put our team up against any other team that’s out there.”
Shane Smith

While such turnover eliminates little-watched content, the switches do cause some confusion in the marketplace. And if the consumer demand for a smaller, so-called skinny bundle of networks from cable distributors wins out, it’s unclear how Viceland would fare. “I think it will thrive with the appropriate consumer,” says Dubuc, noting fans can also sample Viceland via nontraditional viewing methods. “Cable operators are looking at change, but they are also looking for networks that provide a differentiated, valuable viewer at a value price. We are certainly that.”

Even more daring, perhaps, is Vice’s bid to establish a five-days-a-week daily newscast on HBO. The idea has sparked the curiosity of senior executives at traditional news outlets, who privately confide that they want to learn more, even as they suggest that launching a competitor to Lester Holt, David Muir and Scott Pelley may look easy, but making it succeed day in and day out is hard work.

The program could bow as early as next quarter, though Smith says Vice will not rush the concept to the screen. One vision is for the show to highlight short-form dispatches from Vice correspondents around the world, rather than serving as a summation of daily headlines. But Smith also sees the program as a way to keep tabs on ongoing stories from various regions. Vice has tapped Josh Tyrangiel, the former chief content officer and editor of Bloomberg Businessweek, to oversee the daily half-hour show.

It’s hard enough for any kind of new entrant in TV news to secure a foothold — as the well-heeled backers of the soon-to-be-shuttered Al Jazeera America recently discovered the hard way. What may be doubly difficult is attracting millennial viewers with a genre that skews notoriously past retirement age. But Smith says he’s already got a newsgathering infrastructure in place and a young audience following it online. If they refuse to come to the TV, he said, HBO is also planning for the newscast to be used on streaming venues.

“I think there’s a huge white space,” Smith says. “We have political contacts and military contacts. We have terrorist contacts. We have contact with everybody, and can go in and get the story out. I think I would put our team up against any other team that’s out there.”

But some question whether any new TV launch can bring the younger generation back to the linear fold. “Their content is so well defined on digital platforms that they aren’t going to have to work to get their perspective out there,” says Chris Geraci, president of national video investment at Omnicom Group media buyer OMD. “This is really more about the ability to get that audience that doesn’t watch an awful lot of television to watch some TV now. That’s the real challenge.”

One factor driving Vice’s embrace of the traditional is added pressure being placed on the pioneers of the new to keep their growth stats from flagging.

Consider the fact that Buzzfeed saw a jump of 42.6% in the unique views it captured in December 2014 over the previous year, according to ComScore. In December 2015, unique views rose 4.7%. Vice’s unique views at its owned-and-operated sites and sites that assign traffic to Vice increased more than 173% in December 2014, but in December 2015, the same metric rose a little more than 64%.

Vice has made a name for itself by reporting on news in regions of conflict, including a special report on ISIS that aired on HBO.

Just as TV, which has brought billions of dollars in revenue through the door over the decades, has fallen upon more challenging times due to new technology, so too have digital players. Usage of ad-blocking software, which helps consumers filter out targeted display ads, has grown by 41% between the second quarter of 2014 and the second quarter of 2015, according to data from PageFair and Adobe. Digital publishers are coming under more pressure to prove “viewability” — that users are actually seeing the content being counted in clicks and unique views.

“It’s harder and harder to predict truly reliable numbers for potential reach and traffic and engagement,” says Adam Shlacter, chief investment officer at DigitasLBi, a digital-advertising specialist that’s owned by France’s Publicis Group.

In the past, so the operating theory went, old and new media had little need of each other. At the outset of 2016, however, digital companies need to align themselves with firms that can help them build broader audience and develop advertising for which Madison Avenue is willing to pay higher prices.

“We are just seeing the tip of the iceberg as it relates to these alliances,” says Magna Global’s Cohen. “Legacy linear players want to be more relevant to audiences, and the young upstarts need distribution to get their entertainment into the living room.”

In recent months, NBCUniversal has invested $200 million each in Buzzfeed, a leading online publisher of shareable breaking news; and Vox Media, owner of sites like the Verge, SBNation and Re/code. “We don’t see ourselves as just a collection of websites, which five years ago we probably were,” says Lockhart Steele, Vox Media’s editorial director. “NBC is giving us a leg up.”

But a digital partner helps the traditional company, too, by giving it a shot at doing what may turn out to be impossible: aging down their audiences. Dubuc is hoping Vice can help her stake a claim on the 18 hours of TV that millennials still watch each week. “Even if I can get a portion of that, in the face of other youth brands faltering, that would be great,” she says.

Smith is aware the big media companies that are his investors are scrutinizing his efforts. He holds the majority of Vice’s super-voting shares, meaning that he and his management team can do what they like, but he thinks his backers want him to try bold, even counterintuitive things.

“If we figure out the algorithm, then they have their toes already in the pool,” Smith says. “They get to share in those learnings, and so they won’t want to curtail that. They want to turn on the jets on that.”

If Vice’s efforts in cable bear fruit, look for the rest of the digerati to try to get their own TV deals done. Already, Vox’s the Verge has a partnership with MSNBC to produce a weekly series, and its SBNation is promoting NBCSN’s English Premiere League soccer. Buzzfeed is going to send staffers down to the sites of NBCU’s Olympics coverage to do interviews.

But not everyone will follow Vice’s lead. “Look, if we did everything Shane Smith did,” says Steele, “we’d end up in jail.”

Todd Spangler contributed to this report.

Vice Video: Sex, Drugs and Cannibals
Vice has drawn considerable acclaim in recent years for its unique style of hard-hitting journalism on everything from ISIS to climate change. But a closer look at the most popular videos on its YouTube channel indicates that the salacious subjects it has steadily mined ever since the company was a mere magazine are still what drives the brand’s mojo.
#1 World’s Scariest Drug 16m views
Venture to Colombia to encounter the drug scopolamine, a.k.a. the Devil’s Breath. At parties, it’s given to unsuspecting users; in video form, it’s apparently highly addictive.
#2 The Biggest Ass in Brazil 16m
Meet the Watermelon Woman, possessor of the “largest and most impressive ass in Brazil.” Interest seems to extend far beyond South America.
#5 Real Life Ukrainian Barbie 14m
You won’t soon forget this model who has transformed herself into the human version of the iconic doll. Actually, you will soon forget it.
#9 Krokodil: Russia’s Deadliest Drug 11m
Who could resist this Siberian opiate that prompts addicts’ skin to turn “scaly, dry and eventually rot right off their bodies.” Maybe they should have called it “The Walking Krokodil.”
#10 The Cannibal Warlords of Liberia 10m
Feast on these West African soldiers who take “bloodthirsty” to a whole new level of tastelessness.
#11 Interview With a Cannibal 9.6m
Chew on this lengthy conversation with a Japanese man who once spent three days eating a woman he killed.

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