- Media company's valuation more than doubled since HBO debut
- Vice traded 9 percent stake for 49.9 percent of H2 network
Nine years after Viacom Inc. gave him the money to create an online TV network, Vice Media Inc.Chief Executive Officer Shane Smith is trying to turn it into the next MTV.
On Monday, Smith flipped the switch on Viceland, a cable network formerly known as H2 that is co-owned and programmed by the New York-based media company. The network will air programs with names like “Weediquette” and “Gaycation” that burnish Vice’s reputation for brash, blunt cultural commentary.
As cable brands like MTV and A&E have surrendered viewers, Smith has convinced his investors -- including Walt Disney Co. and 21st Century Fox Inc. -- that Vice has a hold on the young viewers who have traded in cable for Netflix and Snapchat. Now Vice must convince those same people to put down their smartphones for an hour and tune into Viceland, the company’s first cable network.
If Vice succeeds, it will complete its evolution from a music magazine for punk rockers to a mainstream outlet that competes for dollars on media’s most lucrative platform. Failure will stoke doubts about Vice’s potential value, and that of other online publishers to whom Vice is often compared, like BuzzFeed, master of the listicle, and Vox Media, owner of food site Eater.
“This cable channel can support the equity valuation Vice is trying to protect; there is growth and upside,” said John Rose, a senior partner in the telecommunications and media practice of Boston Consulting Group. “There is also tremendous financial risk to the existing franchise.”
Vice has already proven it can produce television through a deal with Time Warner’s HBO. Now A&E Networks, co-owned by Disney and Hearst Corp., is giving Vice an entire channel. A&E traded 49.9 percent of H2 for a 9 percent stake in Vice, according to Disney’s annual report, hoping Smith could lift the ratings of one of A&E’s lesser cable channels and lower the average age of its viewer. A Vice executive wasn’t available for an interview in time for this story.
Young viewers are watching less and less TV, though they still watch a lot. Adults 25 to 34 spent an average of 21 hours and 10 minutes a week watching television, either live or recorded, in the third quarter of 2015, down two hours from a year earlier, according to Nielsen Holdings Plc. Viewers 18 to 24 watched even less, falling to 15 1/2 hours from 17 1/2. Much of that time is shifting to video on computers and smartphones.
So why start a cable channel now? Because TV advertising is still big business. BuzzFeed, Vox and Vice earned valuations north of $1 billion by amassing large audiences online. For those figures to keep growing, the companies need to do the same -- and TV, which will generate $66 billion in advertising sales next year, is the next frontier.
Cable channels also generate revenue in the form of fees charged to pay-TV providers. But companies like DirecTV and Verizon Communications Inc. are promoting smaller packages of TV channels as costs rise for programming, meaning smaller networks like Viceland will have to fight for space.
Vice was one of the first online publishers to realize video would be the best way to make money -- and the only way to justify lofty valuations. Vice’s video business began as VBS, the joint venture with Viacom, and slowly morphed into an online network with 11 channels producing short-form videos and long-form documentaries for YouTube, Snapchat, Facebook and Vice’s own websites.
“There are very few publishers that are set up to do the kinds of work Vice has done to prepare for a TV show and their network, but we’re all looking at it,” said Mike Dyer, president and publisher of the Daily Beast. “It’s very expensive to scale a solely digital advertising business. It’s logical to look at TV if for no other reason than TV dollars.”
Based on the popularity of Vice’s online shows and the magnetism of Smith, a former currency trader clad in all black, HBO asked Vice to make a weekly news show. That show, which began its fourth season this month, introduced Vice to HBO’s older, affluent audience -- and the media barons who respect it.
Disney and Fox both invested in Vice after the initial HBO deal, which has broadened to include a daily news show and documentaries. Meanwhile, Vice’s valuation has grown from $1.4 billion in 2013 -- when the show debuted -- to $4 billion by the end of 2015.
“Having that anchor in the HBO show allowed them to grow their valuation, grow awareness and be taken as a serious player,” said Jonathan Perelman, head of digital ventures at talent agency ICM Partners and a former executive at BuzzFeed.
None of the news programming for which Vice is best known will appear on Viceland. Vice had to start from scratch, airing shows dedicated to Vice’s other areas of interest, including sex, food and technology.
Rapper Action Bronson brings his fans on a gastronomical tour of the U.S. in “F---, That’s Delicious,” while actress Ellen Page explores LGBT culture around the world. Food and gay culture aren’t new topics on television, especially in the 1,000-channel era. Nor are they hard to find for free on the web, where Vice has posted many of the early episodes for no charge.
Vice has also turned Noisey, a music Web channel with almost 1.5 million subscribers on YouTube, into a series whose first episode travels to Compton, California, with rapper Kendrick Lamar.
The track record of web properties making it big on TV is checkered. For every Web series turned cult hit, like “Broad City” and “Children’s Hospital,” there is a YouTube star who lured young viewers -- but not enough of them.
“The question is whether Vice can transition successfully to television without damaging a brand that stands for really great content that is different and more engaging and fresh,” said Rose of Boston Consulting Group. “Can they do that within the constraints of programming a linear channel? If they make a bunch of bad TV, that would be a significant misstep.”