How Vice Media Will Make $500 Million This Year

shane smithEarlier this month, Sky News reported that Vice Media was in talks to sell a major stake to Time Warner in a deal that would value the youth-focused digital media company at $2.2 billion.

Though Vice CEO and co-founder Shane Smith has said in the past that Vice could be worth as much as $30 billion on the stock market if it were to go public, the Time Warner deal would peg the 20-year-old company as being worth nearly as much as the 163-year-old New York Times Company and exponentially more than most of its competitors in the digital media space.

It has been speculated - though not confirmed - that the deal will put Vice in control of a 24-hour cable news network, which would occupy the cable station that is currently home to the Time Warner-owned HLN. Vice declined to comment on the reported investment talks.

The Time Warner news might surprise those who know Vice primarily for its "hipster" magazine, distributed free-of-charge in American Apparel stores and other venues.

But the company has spent the past decade building a robust advertising and licensing machine, the strength of which lies in a prescient early bet on the viability of online video and a creative approach to monetizing its content.

In a world where publications born in print have struggled to make money on the web, Vice's business is only getting bigger, Smith has said.

Vice generated more revenues in the first quarter of 2014 than it did in all of 2013, Smith told Business Insider at the end of May, affirming an earlier statement that the company would bring in $500 million this year and $1 billion by 2016.

By comparison, Buzzfeed, a notable competitor in the digital youth media market, is aiming to make $120 million this year.

'We shoot it, we cut it, it's up the next day'

Today, online video fetches some of the internet's highest advertising rates, and the numbers have spurred increased video production from The New York Times, AOL, and everyone in between.

But when Vice first began to wade into internet video in 2006, the medium was still in its infancy.

Its first experiments were published on DVDs, but the company was frustrated by the time it took to bring programming to market. It took a year for its newsmagazine DVD, "The Vice Guide to Travel," to be made into physical disks and shipped to stores. Smith said that by the time customers were able to get their hands on the DVD, a sort of R-rated National Geographic, the stories were no longer relevant.

In partnership with Viacom, Vice launched an online video network called VBS.tv, back when the technology was known not as "streaming video" but by its technical name, TV over IP (television over internet protocol).

At VBS.tv, Vice translated its unique style of print journalism to video, supervised by the well-known director Spike Jonze. Viewers could enjoy dispatches from Vice staffers, including Smith himself, as they shopped for black-market weapons in Bulgaria and hunted for mutated animals at the site of the Chernobyl disaster in Ukraine - and they could do it in a timely way.

"We said 'We just want to shoot stuff that people can see right away,'" Smith said. "We shoot it, we cut it, it's up the next day. That was the idea behind VBS.tv."

Shane Smith Vice Bulgaria

Vice ultimately bought out Viacom's stake in its online video operations and expanded its content offerings to touch a range of what Vice chief strategic officer Spencer Baim calls "passion points," topics like music, fashion, and travel that young people care deeply about.

Vice now has its own Emmy-nominated documentary series on HBO, and plans to produce upwards of 2,000 hours of video content in 2014. The Brooklyn-based company employs more than 1,000 people at offices in 36 countries.

"We understood early on that the most engaging way, the most emotional way to connect to someone is through video," Baim said. "The video we make is artful, it's poetic, and it looks really beautiful whether you see it on a small screen or on a movie screen."

If nothing else, the videos are certainly popular. The company's main YouTube account has more than 4.7 million subscribers, and Smith boasts that Vice videos have been viewed more than 1 billion times on the platform.

Selling to the highest bidder

Despite the success of VBS.tv, Vice has lately embraced a platform-neutral strategy. If Vice's content is worth watching, the theory goes, it doesn't matter whether people see it on television, YouTube, or the company's own website.

Smith said that with demand for original television content rising and production budgets on the decline, Vice has been able to dramatically increase its profit margins by licensing content it has already created to the highest bidders around the world - be they state television stations in China, cable networks in Europe, or film distributors in the U.S.

Vice currently has a news show in Italy made up of content from its U.S. HBO show coupled with pieces of original, Italy-focused reporting, and it plans to launch similar programs in other countries across Europe.

Smith said that these licensing fees were the primary reason his company earned more revenues in the first quarter of 2014 than it did during all of 2013.

"We used to believe much more in owned and operated content, we felt we had to own every eyeball, but now it doesn't matter," he explained to me last month. "As long as you're growing an audience that's branded, and you're making money, then who the fuck cares? It's actually very restricting to keep everything on your own platform."Vice Italia

The Vice guide to brands

When Vice does run its content on its own web properties, advertising partners like Intel, 7 Up, and North Face are more than happy to help foot the bill in exchange for access to Vice's valuable youth audience.

According to the company's media kit, given to prospective advertisers, Vice visitors are primarily affluent young males.

And Vice has a multitude of ways to help brands looking to bask in the company's youthful cool, selling everything from typical banner ads to custom-made, in-house advertising solutions. As a result, a single program can bring in several different streams of revenue.

Take this video about a woman's life lived in isolation in the wilderness of Siberia. Not all of Vice's content carries this much branding - some carries none at all - but it's a good example of how many different ways Vice makes money off its video:Vice skitch 2.jpg

The film in question is an episode of "Far Out," a video series about people living in remote locations sponsored by the outdoor apparel company The North Face. According to a 2013 article in The New Yorker, a brand can sponsor 12 episodes of one of Vice's 70 original video series for anywhere between $1 million and $5 million.

When I watched the video earlier this month, I was first shown a pre-roll ad for "Captivated by Her," a documentary made by Vice's technology site, Motherboard, about a design and technology workshop inspired by the film "Her."

The documentary is sponsored by Warner Brothers and Microsoft, and is accompanied by a link to purchase "Her" on DVD. Conveniently, the 2013 film was directed by the aforementioned Spike Jonze, Vice's longtime friend and collaborator.

There's more.

On top of the "Far Out" page is a banner ad for Ray-Ban, created by Vice's in-house advertising and creative services studio, Virtue. It features a link to a YouTube video Virtue made for Ray-Ban that follows the electronic music duo Chromeo on a trip to the studio.

On this one solitary web-page, Vice made money from four different brands, five different ways - and promoted the work of an old friend.

And another thing: Although Chromeo, the group featured in the Ray-Ban ad, is currently signed to Atlantic Records, the duo has previously released music on Vice's record label and maintains a close relationship with the company.

The drawbacks of synergy

While Vice's marketing mojo is the envy of its peers, its aggressive synergies have brought accusations that Vice is blurring the longstanding line between editorial content and advertising.

In May, Gawker published a story in which current and former Vice employees, all of them anonymous, accused the company of regularly editing content to appease sponsors and said Vice sometimes conceived entire shows for the purpose of luring in advertisers.

The claims directly contradict Smith's statement, reported by The Guardian in March, that "no programming has ever been edited for a sponsor," as well as Baim's statement to Business Insider that programs are conceived as stand-alone editorial shows before being shopped to brands that might want to sponsor them.

When asked for comment on Gawker's claims, a Vice spokesperson offered a terse response: "It's laughable."

The next battle

While competitors like Buzzfeed and the New York Times are investing heavily in video production, Vice's early bet on the market has allowed it to build a degree of scale that makes its online video empire difficult to replicate, especially given how expensive it is to create quality content.

"Buzzfeed is doing content, which, by the way, is great," Shane Smith told me after making a presentation to prospective YouTube advertisers at the end of April. But to be really successful, he added, that's not sufficient. "The problem is that it can't be one hour, it can't be two hours, it can't be 20 hours. It has to be 2,000 hours," he explained.

"Everyone's talking about premium content. Great, you can have five hours of premium content, that's a TV show. How do you get to 5,000 hours of premium content, which is a network? That's going to be the next battle."

Vice News Ukraine

To that end, Vice is ramping up its efforts with the recent roll-out of channels centered around food and sports.

Its online news channel, launched in March, has earned plaudits for on-the-ground reporting from Ukraine and will begin running advertising with select partners this month.

From there, Smith hopes to take his brand of gonzo journalism wherever news is consumed.

"I remember when Vice first started, people would say, 'Oh, I was in Germany and I saw a Vice thing, or 'I was in London, and I went to a Vice party,' or 'I was in Barcelona, and I ran into Vice guys,' and that sort of built and now it's like 'Oh fuck, they're everywhere,'" Smith told me in May.

"And I think the next stage of that is you're in a hotel in Barcelona, and you're going to turn on the news, and it's going to be Vice. You're going to be in France, you're going to be in Ireland. It's going to be Vice."