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Revenue shortfall, executive turmoil cloud picture for possible IPO or sale

By Keach Hagey 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 8, 2018).

Vice Media fell far short of its revenue target last year, as the privately held company works to stabilize its executive ranks and reassure shareholders pressing for an exit.

Vice, whose $5.7 billion valuation makes it the most valuable new media company in the U.S., missed its 2017 revenue goal of $805 million by more than $100 million, according to people familiar with the matter.

That setback, largely due to the struggling Viceland cable TV channel, comes as co-president Andrew Creighton, who was placed on leave after sexual-harassment allegations surfaced, is unlikely to return to his post, according to people familiar with the matter. Mr. Creighton led Vice's advertising business, but could be given other roles within the Brooklyn-based company among other possible outcomes, these people said.

Mr. Creighton, who has denied the harassment allegations reported by the New York Times in December, didn't respond to requests for comment. A Vice spokesman said the company's review of the matter is continuing.

Vice has been working to fill out its top executive ranks to give more support to co-founder and Chief Executive Shane Smith, who is focusing on long-term strategy and content creation, according to people familiar with the matter. The situation with Mr. Creighton is complicating that effort, one of the people said.

Vice has struggled to meet the expectations of its investors, which had bet the company could continue to quickly expand its digital audience and advertising sales while also translating its edgy, youthful brand to television in a financially efficient way. Those investors, which include private-equity firms TPG and TCV, Walt Disney Co., Hearst and 21st Century Fox, are now pushing for the company to turn a profit this year, which would require cost-cutting, the people said. Mr. Smith controls the company through supervoting shares.

While revenue at the digital publishing and television company failed to meet projections in 2017, it did grow.

"Across every key metric, 2017 was the best year in Vice's 23-year history," a company spokesman said. "We experienced record ratings and the highest traffic ever, posted double-digit revenue growth, and brought our award-winning programming to new audiences around the world."

The company's digital business continued to expand in the U.S., with web traffic rising 16% from a year earlier to 78 million monthly unique visitors in December, according to comScore.

The Vice spokesman said the company expects to record "strong financial growth across every line of business" this year.

The Viceland cable TV channel still has limited reach at home and abroad. In the U.S., it drew an average prime-time audience of 55,000 viewers among adults 18 to 49 in 2017, up 28% from the previous year when it launched, according to Nielsen. Well-established entertainment cable channels draw anywhere from a few hundred thousand prime-time viewers to upward of 1.5 million.

Vice's programming has fared better on premium channel HBO. Across all platforms, the total audience for the daily show "Vice News Tonight" grew 19% to 582,000 viewers in 2017.

In January, Vice lost a major international partnership when Canadian telecom giant Rogers Media Inc. cut ties on their $100 million joint venture. It had provided Viceland with Canadian distribution and served as the template for dozens of multiplatform partnerships that Vice has since struck around the world.

New leadership at Rogers pulled the plug on the partnership after a fiscal year in which Viceland lost $2.5 million in Canada through the end of August, according to the country's broadcasting regulator. "We tried something new and it didn't work," Rogers spokeswoman Andrea Goldstein wrote in an email.

Vice is in talks with other Canadian distributors including Bell Media, the media arm of BCE Inc., about carrying Viceland, according to people familiar with the matter.

Vice's capital raising has come with constraints. According to the terms of t he $450 million convertible-preferred equity investment it took from TPG last summer, the investment firm's 8% stake in the company can grow in the next few years. That would dilute other investors, giving them an incentive to find an exit sooner rather than later.

Vice isn't likely to be ready for an initial public offering this year, according to people familiar with the matter.

Selling the company in the current media environment would be tough. The expanding reach of Facebook and Google has made it hard for publishers to make money from online ads. Digital media startup BuzzFeed, valued at $1.7 billion in 2016, also missed its revenue target for 2017, while Mashable, valued at $250 million as recently as 2016, was sold at the end of last year for a paltry $50 million.

If Vice were sold for less than its valuation, TPG would be entitled to get all of its money out before the other investors get paid, people familiar with the TPG investment deal say.

Mr. Smith has been increasingly delegating his responsibilities, in an attempt to professionalize a company that began as a 1990s punk 'zine and grew into a business with 3,000 employees in 40 countries. Daily operations have lately been run by Mr. Creighton, a 16-year Vice veteran who handles advertising and agency clients, and the company's other co-president, James Schwab, a former lawyer with Paul, Weiss, Rifkind, Wharton & Garrison who oversees corporate strategy and mergers and acquisitions.

Last November, the company elevated one of Mr. Schwab's hires, Sarah Broderick, a General Electric Co. and William Morris Endeavor veteran, to the dual roles of chief operating officer and chief financial officer.

David George-Cosh and Lukas I. Alpert contributed to this article.

Write to Keach Hagey at keach.hagey@wsj.com

(END) Dow Jones Newswires

February 08, 2018 02:47 ET (07:47 GMT)

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