Industry Insider: Vice Media’s Bankruptcy and Its Fall from Grace
On May 15, 2023, the digital media and broadcasting company Vice Media filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. The company peaked in 2017 with a $5.7 billion valuation, collecting funding in both forms of equity and debt from investing companies of the stature of Soros Fund Management, Disney, 21st Century Fox, and Fortress Investment Group. Vice was set to reshape the digital media, but a faulty business model that couldn’t stand the test of time within the ever-evolving media news space caused its ultimate downfall.
Founded in 1994 by Shane Smith, Gavin McInnes, and Suroosh Alvi, Voice of Montreal was a small Canadian magazine that distinguished itself from the other publishing companies of the time thanks to the provocative tone with which it covered a wide array of topics, from music to the more scandalous sex and drug columns. As its success grew, in 1996 the magazine changed name to Vice, and in 1999 it relocated to New York after a $4 million private investment. Vice rapidly grew internationally thanks to its UK division, and in 2006 it expanded to digital with VBS.tv, a joint venture with MTV Networks, which gained notoriety thanks to its provocative documentaries and reportages. The company added more channels and more content, progressively focusing on news coverage.
A pivotal moment for Vice was the $1.4 billion valuation in 2013, the result of Rupert Murdoch’s 21st Century Fox’s $70 million investment for a 5% stake. A year later, Vice News was launched, and became the company’s workhorse, rapidly confirming its place as one of the main news outlets thanks to its immersive type of journalism. That same year, A&E Networks made a $250 million investment for a 10% share (thus resulting in a $2.5 billion valuation), which was followed by two further investments by Disney for $400 million total. The famous $5.7 billion valuation came in 2017 after a $450 million equity-investment by TPG Capital to further its international expansion and increase spending on original content.
From its very start, Vice had a reputation for being a modern, irreverent, and disruptive type of journalism - which translated into the company’s culture. What was a strong characteristic that defined the brand, later became problematic as the company expanded and control was difficult to maintain. Allegations of sexual misconduct arose from various employees, as well as accusations of inflating stories and reportages to amplify their shock value. Reeves Wiedeman, writer for the New York Magazine, when interviewed at the podcast Front Burner described Vice’s office as a place of both intense work and extravagant leisure - which was both a reality and an integral part of its branding strategy. As Vice grew out of its original audience, it both had to remain truthful to its roots while also modernizing itself so as to make its journalism palatable to a vaster public, a difficult task that required more control than what was possible given the exponential growth.
After a few years of unprofitability, Vice started to explore the possibility of a sale in January 2023, hoping to ride the wave of the earlier valuations. The financial obligations that resulted from the earlier capital injections, combined with the questionable company culture, the misconduct allegations, and the evolution of the digital space and subsequent struggle of the digital media companies that could not keep up with it, resulted in Vice’s ultimate demise.
June 22, 2023: this is the date when the bankrupt Vice Media will be acquired by its creditors for $225 million if it doesn’t find an external buyer in time. Among the lender consortium are George Soros’ Soros Fund Management, Monroe Capital, and Fortress Investment Group. The type of bankruptcy that Vice voluntarily filed for is referred to as a “reorganization” bankruptcy, a move that has been done multiple times by big companies such as General Motors or United Airlines. This means that the company, called “debtor in possession”, has the chance to restructure its debt position while still actively operating its business in accordance with a “reorganization plan” that was previously submitted and approved by the court, which can provide additional cash inflows to help repay creditors. Some operations, such as the sale of assets or entering into new contracts, are subjected to the court’s approval. Also, the company may be granted the possibility to borrow new money in order to fulfill the aforementioned restructuring plans. Record filings show that Vice has an outstanding debt of $834 million, and that, as part of the deal, the consortium lent $20 million to be used for the implementation of the plan.
In early 2023, Vice closed its flagship television program VICE News Tonight and VICE World News, resulting in more than 100 layoffs, and now the option of selling the company by its parts seems not to be feasible anymore, as some of the initial buyers’ interest (for example, from Group Black) has disappeared. The two Co-CEOs Bruce Dixon and Hozefa Lokhandwala stated that:
”This accelerated court-supervised sale process will strengthen the Company and position VICE for long-term growth, thereby safeguarding the kind of authentic journalism and content creation that makes VICE such a trusted brand for young people.”
Vice is not the first digital media company that has been struggling in recent months. BuzzFeed went public for a fraction of its earlier valuation and later shut down its news division, and Vox Media’s last funding round halved its earlier valuation. Advertiser-based digital media companies have a business model that is based on continuous growth of audience and the subsequent sale of the resulting data to advertisers. But the number of clicks on the articles are feeble and unpredictable, as there are many factors contributing to the instability of the business model: search engines’ algorithm, sponsorship, changing audience taste, rapid rise of new news outlets to cite a few. Therefore, a mere decrease in traffic, brought by these many factors, sets the companies up for failure. And even though the $225 million deal would effectively save Vice from liquidation - and maybe save the brand - it also virtually reduces every shareholder’s possession to almost zero.
