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How new media firms such as Vice and BuzzFeed are losing their gloss

Digital media is not, and will likely never be, anywhere near as lucrative as technology.

The disruptive influence of the internet on legacy print media companies is well established. But recent reports demonstrate that it won’t be straightforward for the supposedly nimbler digital upstarts that were meant to replace them.

Take BuzzFeed, which has evolved from a producer of light-hearted listicles and quirky social media round-ups into a global news and entertainment publisher. The company is expected to miss its revenue target of $350m by 15 to 20 per cent. This is the second time it will have fallen short in three years.

Another case is Vice, the one-time hipster magazine that transformed itself into an online video giant by promising advertisers access to a cool millennial audience. Like BuzzFeed, the company is expected to miss its 2017 revenue target of $800m.

These firms were hailed not just for their digital savvy, but also for their investment in quality journalism. BuzzFeed has broken stories on everything from corruption in professional tennis to the dossier on Donald Trump’s alleged connections to Russia. Vice has made documentaries exposing the abnormal worlds of Isis and the US far right.

However, while their journalism won them plaudits and imitators, it was their supposed innovative approach to digital advertising that delivered huge valuations: $1.7bn for BuzzFeed and $5.7bn for Vice.

The third case study helps explain why these numbers now appear so dubious. Mashable began as a small tech blog, written from the Aberdeen bedroom of its founder, Pete Cashmore. It grew into a more general news organisation before “pivoting” to feed Facebook’s voracious appetite for entertainment stories and video. In 2016, after Time Warner invested $15m, it was valued at $250m. It is now expected to sell for around $50m, just a fifth of last year’s valuation.

There is a clear explanation for such struggles: digital media companies are even more reliant on the big tech platforms of Facebook and Google to reach their audience than their traditional counterparts. And the advertising money they compete for is dominated by the same companies.

“It’s a really tangible example of the downside of focusing so much of your business on Facebook,” says the long-time media watcher Mathew Ingram, a senior writer at the Columbia Journalism Review in New York. He warned of the danger of “building things that Facebook wants or says it wants” that prove to be less beneficial than hoped.

Yet beyond the difficulties posed by these powerful “frenemies”, the lesson of new media’s current travails is that building a business on journalism, whether light entertainment, in-depth reporting or hard news, is very difficult.

“Media involves investment, risk and liability, which you don’t have with tech platforms,” says Jason Kint, the head of the US media trade association Digital Content Next. “The richer long-term sustainable business of creating great media, covering news and storytelling is a good business, but the multiples and returns may not line up with venture capital expectations.”

It’s those expectations – which treat media companies more like tech companies – that take the gloss off relatively successful outfits.

“What you are seeing is just a correction in the valuation expectations,” says Justin B Smith, the chief executive of Bloomberg Media. “We’re definitely seeing a slowdown in growth for the digital ad model, but they [the firms] are still growing.”

Strong relationships, built on good journalism, are the cornerstone of all media companies in print, digital or any other medium. Yet new firms simply do not scale up in the manner of tech platforms such as Facebook. There are fewer shortcuts to growth, fewer quick innovations that turn into licences to print money.

That means BuzzFeed, Vice, Mashable and many others will have to face the reality that digital media is not, and will likely never be, anywhere near as lucrative as technology.

Jasper Jackson is the New Statesman's digital editor. He was formerly assistant editor of Media Guardian, and editor of TheMediaBriefing.

This article first appeared in the 22 November 2017 issue of the New Statesman, Europe: the new disorder

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Labour’s renationalisation plans look nothing like the 1970s

The Corbynistas are examining models such as Robin Hood Energy in Nottingham, Oldham credit union and John Lewis. 

A community energy company in Nottingham, a credit union in Oldham and, yes, Britain's most popular purveyor of wine coolers. No, this is not another diatribe about about consumer rip-offs. Quite the opposite – this esoteric range of innovative companies represent just a few of those which have come to the attention of the Labour leadership as they plot how to turn the abstract of one of their most popular ideas into a living, neo-liberal-shattering reality.

I am talking about nationalisation – or, more broadly, public ownership, which was the subject of a special conference this month staged by a Labour Party which has pledged to take back control of energy, water, rail and mail.

The form of nationalisation being talked about today at the top of the Labour Party looks very different to the model of state-owned and state-run services that existed in the 1970s, and the accompanying memories of delayed trains, leaves on the line and British rail fruitcake that was as hard as stone.

In John McDonnell and Jeremy Corbyn’s conference on "alternative models of ownership", the three firms mentioned were Robin Hood Energy in Nottingham, Oldham credit union and, of course, John Lewis. Each represents a different model of public ownership – as, of course, does the straightforward takeover of the East Coast rail line by the Labour government when National Express handed back the franchise in 2009.

Robin Hood is the first not-for-profit energy company set up a by a local authority in 70 years. It was created by Nottingham city council and counts Corbyn himself among its customers. It embodies the "municipal socialism" which innovative local politicians are delivering in an age of austerity and its tariffs delivers annual bills of £1,000 or slightly less for a typical household.

Credit unions share many of the values of community companies, even though they operate in a different manner, and are owned entirely by their customers, who are all members. The credit union model has been championed by Labour MPs for decades. 

Since the financial crisis, credit unions have worked with local authorities, and their supporters see them as ethical alternatives to the scourge of payday loans. The Oldham credit union, highlighted by McDonnell in a speech to councillors in 2016, offers loans from £50 upwards, no set-up costs and typically charges interest of around £75 on a £250 loan repaid over 18 months.

Credit unions have been transformed from what was once seen as a "poor man's bank" to serious and tech-savvy lenders where profits are still returned to customers as dividends.

Then there is John Lewis. The "never-knowingly undersold" department store is owned by its 84,000 staff, or "partners". The Tories have long cooed over its pledge to be a "successful business powered by its people and principles" while Labour approves of its policy of doling out bonuses to ordinary staff, rather than just those at the top. Last year John Lewis awarded a partnership bonus of £89.4m to its staff, which trade website Employee Benefits judged as worth more than three weeks' pay per person (although still less than previous top-ups).

To those of us on the left, it is a painful irony that when John Lewis finally made an entry into politics himself – in the shape of former managing director Andy Street – it was to seize the Birmingham mayoralty ahead of Labour's Sion Simon last year. (John Lewis the company remains apolitical.)

Another model attracting interest is Transport for London, currently controlled by Labour mayor Sadiq Khan. TfL may be a unique structure, but nevertheless trains feature heavily in the thinking of shadow ministers, whether Corbynista or soft left. They know that rail represents their best chance of quick nationalisation with public support, and have begun to spell out how it could be delivered.

Yes, the rhetoric is blunt, promising to take back control of our lines, but the plan is far more gradual. Rather than risk the cost and litigation of passing a law to cancel existing franchises, Labour would ask the Department for Transport to simply bring routes back in-house as each of the private sector deals expires over the next decade.

If Corbyn were to be a single-term prime minister, then a public-owned rail system would be one of the legacies he craves.

His scathing verdict on the health of privatised industries is well known but this month he put the case for the opposite when he addressed the Conference on Alternative Models of Ownership. Profits extracted from public services have been used to "line the pockets of shareholders" he declared. Services are better run when they are controlled by customers and workers, he added. "It is those people not share price speculators who are the real experts."

It is telling, however, that Labour's radical election manifesto did not mention nationalisation once. The phrase "public ownership" is used 10 times though. Perhaps it is a sign that while the leadership may have dumped New Labour "spin", it is not averse to softening its rhetoric when necessary.

So don't look to the past when considering what nationalisation and taking back control of public services might mean if Corbyn made it to Downing Street. The economic models of the 1970s are no more likely to make a comeback then the culinary trends for Blue Nun and creme brûlée.

Instead, if you want to know what public ownership might look like, then cast your gaze to Nottingham, Oldham and dozens more community companies around our country.

Peter Edwards was press secretary to a shadow chancellor, editor of LabourList and a parliamentary candidate in 2015 and 2017.