Digital Video Ads and the Viability of a Vice Media IPO

Vice co-founder Shane Smith in Pasadena, Calif. Photograph by Jeff Kravitz/FilmMagic via Getty Images

With any luck, on the day of its IPO, perhaps Vice will choose Dennis Rodman to ring the market’s opening bell.

In an interview with Bloomberg TV, Vice Media co-founder and Chief Executive Officer Shane Smith revealed that the Brooklyn-based alt-journalism factory—the same outfit that last year sent Rodman on an ill-fated diplomatic stunt mission to North Korea—is now weighing an initial public offering. Vice is poised to double revenue to $1 billion by 2016, Smith said, and currently enjoys 34 percent profit margins. Rupert Murdoch’s 21st Century Fox purchased a 5 percent stake last year, in a deal that valued the company at $1.4 billion.

By now, Vice’s metamorphosis from a scrappy, free magazine handed out on the streets of Montreal into “a kind of global MTV on steroids” is a well-known story. Where it will go from here remains an ongoing fascination in the media industry, in large part because Vice now serves as one of the leading bellwethers of the financial viability of news organizations investing heavily in original, nonfiction video on the Web.

In recent years, while traditional television has continued to rack up huge profits, big brands have been spending more and more on digital video advertising, potentially opening the door for a new wave of aspirants along the way. According to the Interactive Advertising Bureau, during the first six months of 2013 digital video ad revenue reached $1.3 billion, a 24 percent increase over the first half of 2012. And long-form digital video ads—that is, ads that play during videos that are 20 minutes or longer—experienced “tremendous growth” in the fourth quarter of last year, EMarketer noted. All of which would seem to be good omens for Vice.

While various other news organizations have begun dabbling in Web video in recent years, often by creating cheap, wan versions of traditional TV news, Vice prides itself on filleting the old model and stuffing it with firecrackers. These days it tends to create lots of expensively produced, long-form videos, such as Ukraine BurningSyria: The Long War, or Snake Island, the sort of features that rely on firsthand reporting from dangerous hotspots around the planet. The result certainly looks unlike anything you’ll find on the cable news networks. The question is whether Vice can continue to attract the kind of flush ad rates needed to sustain such far-flung ambitions over the long haul.

To be sure, Vice does a lot more than long-form Web video. It also publishes a print magazine, runs a music label, produces a nonfiction TV series for HBO, and operates an ad agency, among other things. Yet it was largely Vice’s early and aggressive move into digital video that led to the brand’s ascendency during a tumultuous time that spelled the doom of many other regional alt-weekly publications, and it’s Vice’s stepped-up investment in original Web video that will ultimately determine whether its potential IPO will be worth investing in.

“We’d be stupid not to test what the market would bear,” said Smith. “There’s a lot of money sloshing around in the system. Obviously, valuations are high.”

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