Can Ben Lerer Turn Discovery-Backed Digital Roll-Up Into the Next Vice?

Courtesy of Thrillist/Discovery Communications

Shane Smith’s Vice Media has been the poster dude for how to build a next-generation media brand: amass a big digital audience — albeit with bumps in the road — and migrate the internet-incubated content and editorial style over to TV. A key ingredient in Vice’s growth has been millions in investment from Disney and A+E Networks.

Now Ben Lerer is embarking on an ambitious strategy in a similar vein with the newly created Group Nine Media, fueled by Discovery Communications’ $100 million cash investment. The company melds five digital-media properties under one roof, and Lerer believes he can turn those into much more than the sum of their parts — a vision that includes potential new opportunities on television.

“Consolidation is going to come to digital like it did in cable TV,” said Lerer, as advertisers look for more efficient ways to reach millennials who aren’t watching TV the way their elders did.

“We saw a way (with Group Nine) to hack the system and not just grow by putting one foot in front of the other,” he continued, “but by taking category-leading brands that share a belief in a distributed-media landscape and putting these things together and have a bunch more scale – and be deep and wide.”

Lerer’s Thrillist Group Media lifestyle website is merging with two other startups backed by his father, venture-capital investor Ken Lerer: social-news distributor NowThis Media and animal-focused The Dodo (founded by Izzie Lerer, who is Ben’s sister).

In addition, Group Nine will incorporate Discovery’s Seeker digital network and SourceFed Studios. The transaction gives Discovery a 35% ownership stake in Group Nine, which has a valuation in the neighborhood of $550 million.

Ben Lerer will oversee a company with around 540 employees that, all together, pulls in 3.5 billion video views monthly to put it in the big leagues of internet video distributors. The deal is expected to close by the end of the year.

Discovery investors weren’t exactly sold on the strategy: The media company’s stock closed down 1.9% on Thursday after the deal was announced.

For Discovery, the deal made sense because it needed a way to super-charge its digital revenue, said Paul Guyardo, Discovery’s chief commercial officer. He joined Discovery last fall, after previously serving as DirecTV’s chief revenue and marketing officer, and consolidated the company’s YouTube networks under the single Seeker brand, hiring ex-E! boss Suzanne Kolb to run Discovery Digital Networks.

But while Seeker and SourceFed have doubled their video views year-over-year, Guyardo said, “candidly what we needed was more scale, more brand and more resources.”

Group Nine has an advertising-sales deal with Discovery, so that each group can sell inventory that spans digital, mobile and TV. “This gives us resources to reach that attractive 18-34 demo… that advertisers really want to reach in a digital-native way,” Guyardo said.

Beyond the ad-scale story, Discovery and Lerer see potential for the Group Nine brands to develop long-form programming that can find a home on one of Discovery’s linear nets. “Imagine a day when you see a Seeker show on Discovery, or a Thrillist show on TLC,” Guyardo said.

In many ways, Discovery’s deal and the creation of Group Nine is similar to other old-new media marriages. Besides Vice’s backing from A+E, Disney and 21st Century Fox, NBCUniversal has poured $200 million into both BuzzFeed and Vox Media, and Turner led $45 million round in female-focused Refinery29. All of these deals are designed to help the media conglomerates reach younger audiences on digital, while giving the upstarts more cash to work with and to migrate the digital brands over to TV in some way.

Lerer sees digital media following the same trajectory as cable TV. Networks like ESPN, MTV and Comedy Central launched at a time when there was a disruption in distribution, and ultimately those brands became consolidated.

“Today we have the same consolidation, but there are a new set of owners of the distribution pipes,” he said. “They’re owned by Google and Facebook and Snapchat… Today there’s an opportunity to not build one giant brand per se that’s all things to all people – but to build a collection of brands that matter to people.”

The deal with Discovery got rolling earlier this year after “some dreamy conversations I was having with my leadership team, and my father and sister actually, and our investors at Axel (Springer),” Lerer said. “We were talking about, ‘What are the different paths forward to scale?'”

The focus coalesced around Discovery, which already has a relationship with the Lerers as the lead investor of two rounds of funding in Izzie Lerer’s The Dodo. “We really respected what they were doing, and they were thinking about how to scale it up too,” Ben Lerer said. “It’s a really natural partnership.”

The stats on Group Nine’s individual holdings show promise in the roll-up strategy, particularly in delivering younger audiences.

Thrillist, which centers on food and drink, travel and other lifestyle content, has nearly 20 million unique visitors on its owned-and-operated sites, with 60% of its audience 34 and under. NowThis boasts 2.4 billion monthly video views with 15 million social-media followers, and 85% of audience under 34. The Dodo has 15 million monthly uniques, generates 700 million monthly video views, with 55% of its audience 34 and under.

Discovery’s Seeker, focused on science and exploration and built on its acquisition of Revision3, along with SourceFed Studios (which grew out of Phil DeFranco’s YouTube channels) all together have 23 million-plus YouTube subscribers. According to Discovery, 75% of the audience for Seeker and SourceFed programming is under 34.

“What I’m really excited about is figuring out how we’re going to sell advertising across linear and digital, how we’re going to take our brands to television – these brands can become linear (TV) brands.”

The challenge for Lerer will be tackling the logistics of integrating all the pieces into a cohesive, well-functioning operation — while still letting each of the brands maintain a distinctive editorial voice.

Asked if Group Nine will be looking at additional digital-media acquisitions, Lerer said, “Theoretically, yes, but we’ve got a lot of work together to put these things together. So my first meetings won’t be with prospective acquisition targets.”