With news that Time Warner is in talks join WPP and Twentieth Century Fox in investing in Vice Media, potentially valuing the company at $2.2 billion (£1.3bn), it is clear that Vice’s commercial model has gone beyond handing out free magazines to hipsters.
Whilst Vice has always been known for its ability to reach those demographics that are traditionally difficult for advertisers to connect with; the 18-34 year old influencers, this valuation indicates more – that the buyers believe in Vice’s stated ambitious growth plans in video, and that Vice has really cracked the free content model supported by advertising.
It is my view that Vice has created a unique ecosystem and business model that has enabled it to charge comparatively much higher prices. This will be difficult for others to replicate in the medium term. The result is a company with a new media operating model, but high prices – leading to massive profitability.
So what are Vice’s key differentiators that work together to create this difficult to replicate premium offering?
Demographics and reach. Vice has clearly hit the advertisers holy grail, 18-24 year olds, and aggressively grown reach in this space globally and across platforms. Crucially, they do not dilute their pricing by offering cut-price rates to fill out inventory. If advertisers want to reach these audiences, they pay premium rates – and Vice has the confidence that they will, because no one else can reach them quite like they can.
Integrity and a hyper engaged audience. Not everyone can advertise with Vice, and Vice claim that advertisers that sponsor content do not have copy approval. Vice’s tone of voice is also closely aligned with its audience, and thus has a very strong brand affinity. The result is that audiences are more receptive to advertiser campaigns due to this level of trust and affinity with the brand. Outcome? Higher prices of course.
Innovation and variety. Vice offers unique and varied ways for brands to reach their audience, with a clear product upgrade path between the two, from basic display to full network takeover. When audiences are increasingly able to switch off from advertising, this ability to grab their attention in different ways is highly valued, and naturally, allows a premium to be charged.
Value added services. Vice’s key value added service is its in-house video content creation and advertising agency capabilities that is available for brands to ‘hire’. Vice can create bespoke advertising features that don’t seem like advertising to the audiences they reach, and audiences actually want to watch. Few others have built such an effective capability, and this ‘one stop shop’ for advertisers helps Vice capture much more of the advertising budget. In addition, due to the integrity point above, brands often have to use Vice’s in house capabilities to be considered, further cementing Vice’s grip on those budgets.
Individually, each of these unique selling points has value – but together, they are more than the sum of their parts, and mean Vice will, for a long time, be difficult to replicate and compete with. Expect Vice to continue to be very profitable as long as it’s able to keep its finger on the youth pulse and maintain these premium prices.
Nick Zarb is director at Simon-Kucher and Partners