The $100 million wall: Digital media’s scale struggles

Author: Lucia Moses / Source: Digiday Earlier this month, Genius, which started as a rap annotation platform, decided that now it would b

Author: Lucia Moses / Source: Digiday

Earlier this month, Genius, which started as a rap annotation platform, decided that now it would become a video-focused company. It’s a familiar story: A VC-backed company turns to what it hopes will be a lucrative revenue stream in a dash to satisfy growth-hungry investors.

There’s been a flood of venture capital into media — an estimated $15.6 billion in venture capital funding was put into digital media deals for the past three years, up from $4.5 billion the three years prior, according to research firm Preqin. The expectation is that at least some of these companies will make it to the $100-plus million revenue threshold that’s the arbitrary mark of a “scaled” media company.

Getting to that mark is hard. Business Insider didn’t get there before its Axel Springer deal. Of big digital media companies, the $100 million club is small by informed estimates: BuzzFeed, Vice Media, Refinery29, Huffington Post and Bleacher Report.

For men’s lifestyle player Complex Media, reaching $100 million was always a goal, said Rich Antoniello, CEO and founder. Verizon and Hearst teamed up to buy Complex in a deal valued at $250 million to $300 million in April. “Many look at it as a ‘proof point’ that the business can scale further and have significant longevity/viability because of foundational importance to the advertising community,” Antoniello said.

But only a few will get there. Many will get stuck at $50 million or lower. The stumbling comes because there are so many requirements. They have to have a unique audience, grow audience and engagement consistently, be differentiated, be meaningful on multiple platforms and improve margins, Antoniello said.

“Most can’t figure out one, let alone all of those challenges — which are all necessary to get to $100 million,” Antoniello said. The result is that lately there have been fewer outright acquisitions of publishing companies than investments, which are lower-risk and less “all-in.”