This is the year we find out whether new media can scale or not

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Historically, new-media ventures haven’t triggered the same kind of frenzied stampede of venture investors as other online businesses, in part because their profitability and scalability remains very much in question, but the last six months have seen an almost unheard-of amount of money pouring into media companies. It’s not like anyone is buying them for $22 billion, the way Facebook did with WhatsApp, but there’s no question that some very large — and potentially risky — bets are being placed.

The latest deals were announced on Wednesday by Mashable, which said it has closed a new round of financing worth $17 million — bringing the total amount it has raised so far to $31 million — and Business Insider, which has pulled in $25 million from a group of venture investors, putting its total investment backing to date at almost $60 million. Both companies say their readership and revenues are growing at a rapid pace.

Traditional media buys in

One interesting thing about these announcements is that the lead investor is both cases is a traditional media entity: at Mashable, it’s the venture-capital arm of Time Warner, the media conglomerate which spun off its magazine unit last year, and in Business Insider’s case it’s German media giant Axel Springer, which owns a number of leading German newspapers and magazines. Existing media also play a role in some of the other major deals that have closed in the past six months or so, which include:

Vice: Raised $250 million from A&E Networks for 10 percent of the company in August of last year, plus another $250 million from the VC fund Technology Crossover Ventures, both of which valued the company at about $2.5 billion. Vice is expanding its foreign reporting as well as its video operation, and is also one of the leaders in the “native advertising” market, with a custom-content unit that creates branded content for advertisers.

BuzzFeed

BuzzFeed: Closed a $50-million round led by Andreessen Horowitz in August last year, theoretically valuing the company at close to $1 billion. BuzzFeed now has almost 1,000 employees — including its L.A.-based video unit, known as BuzzFeed Motion Pictures, run by Ze Frank — and plans to invest in opening more foreign bureaus. Like Vice, it also has a large unit creating custom-content for advertising partners.

New players on the field

Vox: Closed a round of $46 million from a venture-capital group led by a fund called General Atlantic, which values the company at close to $400 million. Until it invested in Vox, General Atlantic — which invests on behalf of Chuck Feeney, the reclusive co-founder of the Duty Free Shopping empire — had never made a media investment. At the time, a partner in the fund said:

Business Insider: Just closed a $25 million funding round led by Axel Springer, which owns popular daily newspapers such as Bild and Die Welt. Business Insider, which has about 200 staff, says it plans to hire about 100 more and expand into video, and a source also told the Wall Street Journal that the company was profitable last year. Business Insider says it has the highest traffic of any business site in the U.S., with 35 million visitors per month.

business-insider-group-shot

Mashable: Just closed a $17 million financing round led by Time Warner Investments. Mashable says it will hire 100 new employees and is expanding into video. The Time Warner connection is particularly interesting because there was a widespread rumor in 2012 that Mashable was going to be acquired by CNN. Whether this investment is a stalking horse for a full acquisition remains to be seen. Mashable told the Wall Street Journal that its revenue in the past year grew by 45 percent.

Gawker: Although it isn’t an equity financing — since founder Nick Denton clearly wants to retain control — Gawker is in the process of raising $15 million in debt financing to pay for its planned expansion, including further investment in its Kinja discussion platform and mobile, as well as a new office planned for the Flatiron district in New York. Unlike most of its competitors, Gawker makes a substantial amount of revenue from affiliate links, which Denton says pulled in $10 million last year.

But can they scale?

As I tried to point out in a post late last year after the BuzzFeed and Vice financings were announced, there is still a rather large unanswered question about this influx of venture-capital funding into new media: Can these ventures scale to a point where they can justify all that investment? Both Vox and Business Insider make a point of talking about their content-management systems (which Vox calls Chorus and BI calls Viking) but having a CMS doesn’t make you a tech company.

When it comes to showing that they can scale to a size that would make them a competitor for existing major-media brands, only Vice has arguably achieved that, with a business that covers news on a global level, produces entertainment and drives a lot of advertising revenue, all based on a valuable millennial audience.

At the same time, however, advertising is also part of the problem. For the most part, these companies are still fundamentally identical to old-media companies in some crucial ways: for example, while they may have lower distribution costs because they are online, they still have to employ the most inefficient value-creation engines ever invented — namely, human beings. And their businesses are still driven primarily by advertising, which is going through almost as much upheaval and disruption as the media business itself. And the stakes have just gotten exponentially higher.

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Jess Bahr

In addition Elite Daily just got acquired for $47M. In all that’s a lot of money in play for new media.

I’d be interested to hear what you think new media companies need to do to scale, and remain/become more agile than traditional media companies.

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