What's hurting digital media companies most right now
The continued dominance of Google (GOOG) and Facebook (FB) in the digital ad market and the growth of low-cost "programmatic ads" appear to be squeezing some of the once-hottest names in the world of internet media.
Multiple reports indicate tech news site Mashable is expected to sell itself to PC magazine parent Ziff-Davis for $50 million, a fraction of the $250 million valuation it commanded less than two years ago. The site failed to secure additional capital. BuzzFeed's plans for a 2018 initial public offerning are in jeopardy after the news site missed its 2017 revenue goal of $350 million by as much as 20 percent, according to The Wall Street Journal, which has also reported that Vice Media is likely to fall short of its revenue goals for the year.
Daily Beast parent company IAC is reportedly "entertaining offers" initiated by outside parties, though it hasn't yet launched a sale process. In an email recently sent to staff, Daily Best President Heather Dietrick insisted that the New York-based IAC (IAC), which is controlled by billionaire Barry Diller, often receives inquiries from outside parties about sales or investments in its businesses.
"It's no surprise there's been recent interest in us given how we've been absolutely killing it with scoops and great stories," she enthused. "In fact, I wouldn't be surprised if others come by and ask to take a peek because of the way we've been driving the conversation in news lately."
BuzzFeed declined to elaborate further. Ziff-Davis and Mashable didn't respond to requests for comment.
Programmatic ads are automated auctions whose popularity has surged in recent years because of the convenience they offer marketers. The research firm eMarketer estimates that by 2019, nearly 84 percent of spending on display ads, or $45.7 billion, will be done programmatically. Automated auctions will account for about 77 percent of spending on video ads, which tend to be more lucrative than banners, accounting for about $13.4 billion.
Media researchers expect other ad forms, including mobile and native ads, which are designed to blend seamlessly with a site's content, to also become increasingly programmatic.
"Marketers are putting more dollars into programmatic advertising and engaging less in the kind of custom advertising programs that Vice and Buzz Feed both specialize in," said Susan Bidel, an analyst with Forrester Research. "Typically, [those types of ads] are negotiated directly and don't go through an exchange. Directly negotiated ads are almost always more expensive that programmatic, which is geared toward getting the most advertising impact for the fewest dollars."
While the ongoing shift to programmatic ads is creating many problems for the industry, it's also sparking opportunities, said Jim VandeHei, CEO and co-founder of Axios Media and a former executive editor and co-founder of Politico.
"It is indisputable Facebook and Google have and will continue to gobble up most of new ad dollars, given their reach and technology," he said in an email to CBS MoneyWatch. "But media companies with distinct, desirable audiences and clean, crisp, uncluttered ads will do very well, too. The losers will be those who simply chase or chased scale -- and ended up with insufficient scale and undefined audiences rushing in and out of crappy sites/ad units."
According to eMarketer, Google and Facebook will account for 63.1 percent of all US digital media ad spending this year, an increase from an earlier prediction of 60.4 percent. Ad revenue at Alphabet's biggest business is expected to hit $35 billion, an increase of 18.9 percent on a year-over-year basis. Facebook's total digital revenue will jump 40.4 percent to $17.37 billion, fueled by surging demand for Instagram, according to eMarketer.
Growth for both companies' ad revenue shows no signs of slowing given their ability to precisely target ads at consumers. That's prompting publishers to try getting advertisers to deal with them directly rather than through Facebook's "walled garden," said Sarah Warner, digital investment lead for programmatic and video at WPP's GroupM.
The challenges don't stop there. One-time Wall Street darling Snap (SNAP) continues to post disappointing earnings amid fierce competition from former suitor Facebook. Shares of the social media company are currently trading below their $17 IPO level.
Univision also is interested in finding a minority investor for its Gawker Media business, which it acquired last year along with other millennial-focused sites, including The Onion, according to Recode. A Univision representative couldn't immediately be reached.