There is a sudden shakeout in digital media. Companies like Buzzfeed and Vice are likely to report revenue shortfalls when the 2017 numbers finally come in. Is it a glitch on the road to glory, or a major correction?

One thing’s for sure: Life is tough in the Age of Duopoly. Alphabet (owner of Google and YouTube) and Facebook make a ton of money through the simple act of imposing a distribution chokehold on digital media companies. When the final tallies are in for 2017, they will together account for almost 63% of the U.S. digital advertising market. While digital publishers still bear the high cost of reporting and commentating, Alphabet and Facebook do little but leverage the vast reach of their platforms and their role as digital gatekeepers. It’s grand larceny. But it’s also reality, so learning how to survive and grow in this unique media environment is essential. The key is to establish clear differentiation, of content and of advertising value.

The role of media gatekeeper has always been a profitable one. Owning an expensive iron press downtown, securing an FCC broadcast license, or winning a local cable franchise meant years of monopoly margins that grew and grew as each sector consolidated and competition withdrew, leaving behind a limited number of dominant players. In the case of cable television, the last great media revolution before the Internet, Comcast and Time-Warner eventually traded their way to the lion’s share of subscribing households, clustered conveniently in major markets to maximize efficiencies, business leverage and marketing value. It was a duopoly sure enough, but a very different duopoly to that of Alphabet and Facebook.

“Whenever most people are surprised it is because of something that never happened in their lifetime. But it happened before. The same things happen over and over again. We live in business cycles that repeat themselves.” Ray Dalio, founder and co-chief investment officer, Bridgewater Associates

It used to be that the balance of power in the central transactional relationship between content programmers and distributors fluctuated over time. At first, cable operators needed television programming to entice subscribers – and they had to pay an arm and a leg for it. But as their subscriber numbers grew, their leverage increased. In one renewal negotiation, ESPN told cable company chief executive John Malone that they wanted their per-subscriber payment to double in the following year. Malone refused outright. “Your 11 million subscribers love us,” said ESPN. “You have until midnight tonight to agree or we’ll turn off our programming feed to your systems.” “Let’s test that proposition,” replied Malone. “I’m happy to take you dark at midnight.”

He did too. They soon settled. ESPN got a small rate increase, nowhere near what they wanted. And Malone simply passed it on to his subscribers.

Those days are gone of course. They went with the failure of New Century Network, the only attempt by newspaper-owning media companies to band together and exert collective bargaining muscle against digital distributors before it was too late. Today there is no negotiation with Alphabet and Facebook, no battle between content purveyor and distributor. The duopoly pays nothing for content. And they reserve the right to slice and dice that content into search results pages and newsfeeds shaped just as they like, all the while collecting a treasure trove of fungible information about the behavior, interests, purchase habits and aspirations of billions of users – data that they then use to underpin hugely profitable lines of business, including of course, advertising sales.

While they take a healthy cut of ads sold by publishers themselves, they also get advertisers to bypass digital publishers and spend directly on their platforms. Such is the demand, the ad research company AdStage reckons ad prices on Facebook nearly tripled in the first eight months of 2017, to $11.17 per 1,000 impressions. Alphabet’s share of the U.S. digital advertising market will be up about 19% in 2017, Facebook’s will grow an astonishing 40%.

Alphabet’s average quarterly gross margin in 2017 was around 60%. Facebook’s was over 80%.

So it’s not surprising that the digital media business is going through a shakeout. While publicly-traded newspaper companies were again expecting quarterly year-over-year revenue declines of as much as 17-20%, digital media companies that only yesterday were commentators’ darlings began to look wobbly too. Nobody had a banner (excuse me) year.

  • Verizon’s Oath, an inelegant kludge of the Huffington Post, AOL, Yahoo and some ad tech products, announced it was laying off 560 staffers
  • Late in Q4 Buzzfeed was on track to miss its revenue target of $350 million by about 20%. It too announced layoffs, about 100 of its 1,700 staff
  • It also looked likely that Vice Media was going to miss its $800 million revenue target
  • Mashable was bought by Ziff-Davis for $50 million, 20% of its 2016 valuation
  • IAC was trying to offload the Daily Beast

Hold on. Outfits like Buzzfeed and Vice were supposed to be in the vanguard of the new media age. Is this market correction really just a function of The Duopoly’s dominance? Well, sure – but they compound the problem. In their core business of media publishing and advertising sales, they’re breaking some cardinal rules of media. If they can fix them, this revenue shortfall will be a mere bump in the road.

Two years ago, right here, in You Gotta Pick Your Shots we warned of an impending shakeout. And we think it’s going to get worse before it gets better. A lot worse. Aside from The Duopoly, the reason is simple: In the world of digital media, there is a glut of undifferentiated content and a glut of undifferentiated advertising, all chasing one unqualified and over-saturated market. The fabled holy grail. The Millennials market.

The market opportunity was an obvious one. Millennials spend more than $200 billion annually, according to Advertising Age, and the market was there for the taking, for it had been abandoned by traditional media. Not one newspaper company developed a digital product that spoke successfully to Millennial audiences.



Fundamentally, what doomed newspapers was their failure to replenish their aging audience with a younger one.

That failure means they are dying as a matter of actuarial certainty. The only issue is how long the process will take.

Into the market vacuum left by newspapers came a host of new digital media products, born on the web. Several, like Buzzfeed and Vice Media, serve multiple segments of the entire Millennials marketplace. Others, like Cheddar and Refinery29, are chasing a specific segment of it.

“Trust us, we know millennials.” That’s their pitch, to venture funds and marketers alike.


Buzzfeed snip

Buzzfeed ad



Vice ad

But Millennials are difficult consumers to convert into profitable audiences. They curate their own news , drawing from multiple platforms like Twitter, Facebook, Tumblr or even just the particular news apps they select on their phones. A crude segmentation of the feeds they look at every day might comprise national and international news brands, trusted or favored personalities, politicians and activists, work-related stuff and personal interests. Once a product makes that self-curated list, metrics like frequency and engagement improve dramatically.

To win selection, any digital media product must offer content that is highly differentiated and perceived to be of consistent high value. Most don’t. Seems like they haven’t asked themselves the obvious question: What does my product do that no other product does? In other words, to use a phrase from 1940s marketing, what is my Unique Selling Proposition, my USP? Here we are 75 years later, in a  different business cycle, and it’s still the most fundamental product question of all. Business cycles repeat themselves, just like Dalio says.

Do I offer special utility? Do I save time? Do I save money? Do I inform in a different way, do I entertain in a different way, or is it simply the frictionless economies of digital distribution that set my product apart from archetypes of a previous media age, like any old print magazine?

It’s that word “unique” that poses the problems. The other day I took a look at several hot digital media products chasing segments of the Millennial market and in each case I tried to identify and assess their USP. I looked at Cheddar Refinery 29 Genius and Geekwire in Seattle. I came away thinking that not one of them has a prayer of reaching the kind of scale in their markets that translates to competitive insulation, high subscription rates or high-margin advertising sales – and, in the end, durable franchises.

There’s no new ground-breaking product ground here,  little that is indispensable. This is why there’s cyclical  turnover in these markets, like a roiling, rolling shake-out.

In the late 90s and early aughts I served on the board of i-Village, the first digital product to target young females. To me Refinery29 feels like an updated version of i-Village, So I went into the basement and poked around until I found an i-Village board book. “Our goal,” it read, “is to humanize cyberspace by building targeted communities online that help people with the real issues of their real lives.” I then went to About Us at Refinery29, and there I discovered the product is apparently “…for young women seeking out the full potential in every aspect of their lives.” You see? Different day, same tune.

Maybe I’m full of it. Maybe i-Village, which never once had a profitable quarter in its 10 years of life, was just too early. Maybe its management – and its board – was unusually inept. Maybe the technology back then could not fulfill the founders’ vision or the needs of advertisers. Who knows, Refinery29 may turn out to be one of the successful digital magazines of this media era. We’ll see. But unless these things are just hobbies, the only long term liquidity strategy for the founders that I can see is the age-old ‘sell-and-run.’ Let’s hope the impending Trump equity market collapse doesn’t strike first.

In the meantime, if you want to read the tawdry tale of what happened to i-Village, here you are: i-Village history

Then I started to think about the big Millennial networks like Buzzfeed and Vice Media. And I started to wonder just how many products with a snarky voice and an ironic, irreverent tone can a millennial consume on any day?

I mean, does anyone really miss Gawker?

Built by cheap clickbait, can Buzzfeed now change how it is perceived? And the same for Vice, a company still true to its alternative magazine roots, a digital tabloid – no surprise that Rupert Murdoch owns 5% of it. Nothing wrong with that product voice of course, in fact the idea of taking the model of the alternative local weekly and applying it nationally, even globally, is a great one. But does it lend itself to product credibility in the news business?

While these brand perception issues are important, the central problem these networks face – and the primary driver of the current shakeout – is the way in which they sell.  They told themselves and their investors that they could build massive scale within the millennial market. They had to, they didn’t know that much about the media business – some actually thought they were re-inventing it – and so they assumed that only through a constantly expanding audience could they get to the fabled revenue milestone of $100 million and beyond, to infinite revenue growth. They’re wrong. Revenue does not grow in linear proportion to scale. Network television audiences have been declining forever but amazingly, actual network ad rates have held steady. The way to grow advertising revenue in media is not by madly chasing scale but by packaging and selling your existing audience at the highest rate possible.

Chasing raw scale is what got digital media companies into the mess they’re in. How did they get here?

Say the average ad buy for Buzzfeed is $100,000. That means they had to win 3,500 buys in 2017 to make it to $350 million in annual revenue. To bring in 3,500 deals a year means they would have to pitch three or four times that number. 10,000 pitches! That’s an impossible amount of work for a sales team at their level, and prohibitively expensive.

So, trapped in the Age of the Duopoly and feeling the squeeze, digital media companies have spent the last five years in a hype bubble as they frantically searched for a revenue silver bullet. Native Advertising –- there’s nothing new in sponsored edit, and it’s costly to produce. Video Advertising –- even more time-consuming and costly to produce. Conferences –- how many can you manage? e-Commerce –- T-shirts, anybody? Switching the model from advertising to paid subscription –- what you’ve got is that good, huh? All of the above.

At each stage interviews are given. Pronouncements are made. Breathless articles are written. Doesn’t matter. Revenue targets still look and sound a lot like an ever-receding bonanza.

It was inevitable then that like everyone else, both Buzzfeed and Vice turned to top-down, bot-driven, automatic placement of commodity banners – “programmatic advertising” – to augment their own sales pitches. When you think of programmatic, think of that ad for something you’ve already purchased following you around the internet like that annoying fly you cannot get out of the damn kitchen.

Middlemen specializing in programmatic got between the publisher, the marketer and the user. They took excess inventory –- and they dumped it for nickels and dimes.

But any old newspaper ad guy could have told digital publishers that the cardinal sin in any advertising business is to cede your pricing to a third-party rep. Programmatic is an efficient way to place dead inventory across the Internet and make a dime or two, but it reduced the value of advertising impressions to a low-price commodity and worse, it undermined the perceived promotional value of digital advertising.

Having undercut the value of their own inventory, it became more and more difficult to grow revenue. So then they thought the only option left was to increase the average size of the ad order by scaling the audience even more – so they didn’t have to close so many deals. That’s why you saw so many of them expanding overseas in their search for Millennials, any Millennials, anywhere, as if raw audience no matter where it is located is all an advertiser wants. Trouble is, the bar for raw scale keeps going up. And up.

Even with the Duopoly’s menacing presence, it doesn’t have to be this way. The revenue problem can be fixed. Let’s start with a question: What makes a good ad?

Three things: It needs of course to be creatively effective. But it also needs to find the right audience and for brand advertisers in particular, it needs to be situated within an appropriate environment.

First, finding the right audience. That’s got more complex than it used to be. Mass media died with the arrival of Netscape, 25 years ago. That means gross reach –- mass scale –- is dead.

Exposure for the sake of exposure, the primary motivation of legacy mass media and its ridiculous base metric, the CPM, is irrelevant. Continuing to sell broad-gauge CPM is rather like riding a horse to work rather than driving your car. You can of course,  but why would you? Few advertisers care any more about the gross reach of your product. Mass CPM is a game for the consumer packaged goods people, after all they run businesses built on tonnage and nickel margins. For everyone else, advertising efficiency is all that matters – and ad efficiency is derived from the ability to target an ad and measure response to it. So, forgive the marketing speak, but what matters now is the ability to sell deep penetration within a tightly-defined market segment that has a demonstrated high propensity to buy a particular product or service.

Marketing has moved from carpet-bombing to precision drones.  The market is no longer horizontal – it’s vertical. Like Boomers or any other generation lumped together by Madison Avenue into one seemingly coherent bundle for network television advertising purposes, Millennials are not one big homogeneous group. What determines a media company’s success today is the extent to which it can slice and dice that Millennials market to construct a segment which conforms to the characteristics of a particular advertiser’s customer profile. That’s the new bottom line.

Facebook knows all about that. It has more than 100 data points on each of its users. What Facebook Knows Its healthy CPM is not only due to its enormous scale. It’s primarily due to its ability to offer finer and more relevant market segments to advertisers, who can layer on their own data to reach the precise audience of most value to them.

You want to play in the Age of Duopoly? This is what you must do. It starts with recognizing that it’s not mass scale that matters. It’s relevant scale. Premium scale.

That brings me to my second point. For any ad to be successful, either in reinforcing a brand or in selling a product, it not only has to find the right audience, it has to find that audience within the best content environment. 

I learned this lesson many years ago. I learned it from one of the best advertising luminaries I’ve ever met, a business colleague of mine by the name of Ray Gaulke. He’s famous for converting prospects to clients, which he does by asking them his favorite question:  What drives you nuts? He once asked it of Roberto Goizueta, for nearly 20 years the chairman and chief executive of Coca-Cola. ” I can’t find an appropriate vehicle to advertise Coke to teenagers,” replied Goizueta. “What about MTV?” asked Gaulke. “I don’t want my brand alongside many of those videos,” was the response. So Gaulke and his partner came back with a proposal for Coke to fund a new educational television network for high schools around the country. Channel One reaches 5 million high school students today.

That’s why fixing programmatic advertising is so important. Programmatic is not of itself a problem. The technology works, and through it ads are placed with super cost-efficiency. In fact, eMarketer estimates that by 2019, 84% of digital display advertising spend will go toward automated ads. It’s just that the automatic placement of advertising is currently erratic, and results in ads that are intrusive, irrelevant, counter-productive and even annoying,  just like the fly in the kitchen.

Over on Vice I just saw a banner ad for DirecTV sitting right next to an article featuring a headline with the word “fuck” in it. I don’t know if anyone at AT&T / DirecTV cares, but to me the incongruity of the placement was obvious.

Right now programmatic is still deployed simply to chase cheap dollars around the internet. The process urgently needs fixing, so that brand advertisers can efficiently place their ads in quality media environments.

There is no need to sacrifice quality for scale. With the right sales leadership that has the discipline to hold rate, an understanding of the value of advertising efficiency and the tools to apply it, and a fix to programmatic, any digital media company can sell at a higher rate without relying on constantly expanding scale to justify it.

This explains why we’re so high on Vox Media. It has anchored its programming mix and its approach to advertising sales on the strategic understanding that it’s not scale in general but scale in particular that matters now.

The company publishes eight vertical brands that provide advertisers with the ability to do a deep-dive into eight key segments of the Millennial market

Vox offering

Two years ago, Vox Media got a $200 million investment from NBC Universal, enabling it to double its revenue to $100 million and almost double its headcount, to more than 800. Its traffic has grown 37.5% to over 71 million monthly unique users since then.  According to the latest comScore multiplatform report, it is ranked at #38 – by comparison,, which was founded some 150 years ago,  came in at #32, with 76.4 million uniques.

In March of 2017, Vox Media announced a deal that would enable advertisers to buy Condé Nast’s digital audience along with the audience of both Vox Media and NBCU. Condé Nast is ranked at #19 by comScore, with 93 million unique visitors a month. For Vox Media, the deal is a way for advertisers to get brand-safe inventory in complementary vertical markets while Condé Nast’s set of vertical magazine brands gain access to Vox Media’s younger, digital audience. Both companies profit by generating the kind of quality content that keeps users on their sites and coming back for more.

The engine behind Vox Media is the company’s own technology platform, Concert. It’s not just a publishing and marketing database tool. It can also manage programmatic placement of advertising across a combined audience of 200 million users in a way that ensures that an ad appears only in appropriate and relevant content environments.

This is how to fight back against the Duopoly. By providing a credible network advertising alternative that delivers deep access into targeted segments of the Millennial market, Vox is leading the charge to win back advertising share lost to Alphabet and Facebook. Let me stick my neck out. When the results for 2017 are finally in, I bet that Vox makes its number.

We’re not the only ones to see it. Vox Media’s valuation to revenue is the highest in the digital media category.

Digital media shakeout or not, they’ll be just fine.

UPDATE: March 20, 2018

Since I published this post a month ago, venture capital firms don’t seem to be shying away from investments in digital media companies. They’re relatively small investments, but you have to ask –- are they really looking hard enough?

• Cheddar raised $22 million in its fourth round, led by Raine Ventures, an early-stage media-and-technology investment firm, The Wall Street Journal reports. Other investors include Liberty Global, Goldman Sachs, Antenna Group, 7 Global Capital, Dentsu Ventures, New York Stock Exchange owner Jeffrey Sprecher and Kelly Loeffler of Intercontinental Exchange
• TheSkimm, another site targeting young professional women, raised $12 million in a round led by Google Ventures, along with Spanx founder Sara Blakely, Recode reports. Earlier investors, including 21st Century Fox, RRE and Homebrew, are in this round as well. The company has raised $28 million since 2012

Other digital media startups with recent VC-backing include The Athletic ($20 million), NewsGuard ($6 million), Barstool Sports ($15 million), and Girlboss ($2 million)

Oh, and I hear that Vox Media did make its number for 2017.

Posted by Peter M. Winter

Peter is a traditional media veteran and a digital media pioneer. He is an active angel investor and occasional consultant. He advises established companies on cultural regeneration and also consults to digital start-ups, helping them incorporate management process without sacrificing speed. He holds five technology patents. Peter is an award-winning public speaker and writer. His new book, "The Cannibal in the Room," will be published soon — it is the ultimate insider account of the battle to find a digital future for newspapers when the Internet came to town. He blogs on media and leadership here at and publishes his unconventional ideas about management on his LinkedIn page: His collection of short stories can be found at


  1. […] wrote about this challenge a year or so ago: Shakeout? I understand the magnitude of the task but it is the essential first-step in the battle to claw […]



  2. […] I’ve written about that before, here, and here, so instead let’s focus on that other dream-weaver, the one that goes newspapers are […]



  3. […] 3. Differentiate or die. Consumers will pay for news, particularly well distilled news directly relevant to them and their particular interests. They will even pay for general news despite the fact that through the 70s, 80s and 90s newspapers cost them just 50 cents a day and a couple of bucks on Sundays. In this way, consumers were trained in the understanding that such news wasn’t worth much at all. To compound the problem, when the Internet arrived, most newspaper digital editions were made available for free. This was to achieve what back then we called “scale.” If you could scale up your audience, the thinking went, the sheer size of it would make it indispensable to advertisers. But this thinking was inimical to what most advertisers now wanted – they wanted access to relevant segmented audiences, not merely the biggest gross audience in town. Like I just said, mass tonnage is a fool’s game. In a closed newspaper monopoly market, you can get away with publishing general commodity crap. Once the monopoly is broken, and everything is just one click away, you had better offer differentiated value to cherry-picked audiences – in the unremitting battle for the user’s attention, plain-vanilla, newspaper-like, mass reach news simply doesn’t cut it. That’s why McClatchy and its 30 daily newspapers is on the block, and why the new Gannett, now the largest owner of dailies in the country with 260 papers, is planning another set of deep job cuts. You can read more about the need for differentiation in this earlier BoW post: […]



  4. […] This is why we here like Vox Media’s strategic position, too. We’ve examined the Vox Media strategy before: […]



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