Vice Media Rides Lofty Expectations

In the current crop of new-media companies touting their ability to attract young audiences, perhaps none has generated as much buzz—or as much interest from traditional media firms—as Vice Media.

The company, known for its edgy reporting on everything from war zones to hallucinogens, has drawn investments from or forged partnerships with media giants including 21st Century Fox, Time Warner Inc. and A+E Networks, a joint venture of Walt Disney Co. and Hearst Corp. It is on the verge of getting its own TV channel in a deal with A+E that could be announced as early as Tuesday, according to people familiar with the matter.

Last month, Vice Media Chief Executive Shane Smith told CNBC that the company's revenue was on track to hit nearly $1 billion this year, and that it was in acquisition talks with "everybody" at a valuation of $5 billion.

But people familiar with the financial information Vice has been sharing with potential investors say that the company's revenue this year is on track to be less than $500 million under generally accepted accounting principles, or GAAP, up from about half of that in 2014.

A Vice spokesman said the company's projection of $1 billion in revenue could include business booked this year but which will produce revenue at a later date.

"We don't view any discrepancies," said a Vice spokesman. "We're on pace to book a billion dollars. That level of activity includes bookings and revenue that get delivered this year, and it would also include activity this year that results in near-term commitments going forward."

He added that by traditional accounting methods, the delay of the planned TV channel, which had been in the works for some time but hit roadblocks, resulted in less revenue than the company would have otherwise generated.

Many companies provide metrics about their businesses that don't hew to GAAP style. They often use terms like "bookings," "managed revenue," or "gross sales" to refer to the money generated by their products or services in a given year, even if that includes payments that won't actually be received until the following year, or cash they must share with partners.

Public companies are required to report metrics on a GAAP basis, but that rule doesn't apply to closely held companies like Vice.

By any measure, Vice's revenue is robust compared with other new-media companies like BuzzFeed and Huffington Post, which is part of Verizon Communications Inc.'s AOL unit. The company's ability to double its revenue in a year and to reach the hard-to-get young male audiences that are fleeing traditional TV underscore why it is the object of fascination by media behemoths that own TV channels.

Interest in the company has been strong: In addition to past investments by the likes of 21st Century Fox and A+E, Vice is now in talks to receive an additional investment of roughly $200 million from Disney and transfer another roughly 7% of its equity to A+E, according to people familiar with the matter. Wall Street Journal publisher News Corp and 21st Century Fox were part of the same company until mid-2013.

In August 2014, A+E agreed to buy about 10% of the company for $250 million, valuing it at $2.5 billion. At the time, the plan was for Vice to take over a channel in A+E's portfolio, say people familiar with the matter.

By the spring "upfront" season, when TV channels typically present their programing for the coming season to advertisers, five out of the top six pay-TV distributors—who have to sign off whenever a programmer wants to rebrand a channel—had given their approval. But DirecTV was a holdout, according to people familiar with the matter.

That made Vice feel confident enough to pull a bold stunt, even by the standards of a media company famous for sending Dennis Rodman to North Korea: it pitched a standing-room-only loft full of advertisers on a channel that had neither a launch date nor a place on the TV dial. The shows that were presented were said to be coming in the fall.

With fall now slipping toward winter, A+E and Vice are on the cusp of announcing the long-anticipated deal. A+E will turn its H2 channel into the Vice channel by next spring, the people familiar with the matter say. As part of the deal, Vice will get nearly half of H2 in exchange for giving A+E an additional Vice stake, bringing A+E's total ownership to more than 15%, according to the people said.

The valuations of Vice and the new TV channel in the latest transaction weren't clear. The average valuation of a stand-alone cable channel sold over the past two years was $446 million, according to research firm SNL Kagan. But industry executives say that H2, a profitable channel with a reach into 70 million households, is worth considerably more.

In addition to its many major media-company partnerships, Vice struck a deal with Verizon this summer to make video content for its coming mobile video service. Other partners include Snapchat, Live Nation, YouTube and Samsung. In the U.S., Web traffic to Vice's various online properties hit 61 million unique visits in September, up from 39 million a year earlier, according to comScore; globally it was 96 million in August.

In addition to the new U.S. channel, Vice plans to launch between 10 and 15 international channels next year, according to one Vice executive. It already operates in more than 30 countries.

Ben Fritz

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 02, 2015 20:45 ET (01:45 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.