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How Do Digital Media Companies Stack Up?

If digital media companies were a basketball team, it would be a rebuilding year. The big names that include Mashable, BuzzFeed, Oath, Vice, and Vox media are not meeting their revenue goals and are now the targets of takeovers and buyouts. As startups, it is common for companies to be targets of buyouts and takeovers. However, this year, buyers are offering a lot less than the startup valuations last year.

Finding a Pivot

Traditional media companies have found a way to pivot from print, TV, and cable to digital media. Using multiple revenue streams, these companies have expanded their reach, created audiences, and expanded into digital media as well. The New York Times aims to double its digital sales to $800 million by 2020. The key to their success is the increase in online subscriptions. As of the first quarter of 2018, it has more than 2.6 million subscribers to its online services. Overall revenue from subscriptions exceeded $1 billion in 2017. This accounted for more than 60% of its total gross revenues. Other newspapers like The Financial Times and The Wall Street Journal are following suit and having the same level of success.

Traditionally, the bulk of print media’s earnings came from ad revenues. The more ads, the more pages they printed. The earnings from paper sales was nominal compared to the ad revenues. The earnings from ads started receding in the late 1990s to the 2000s. During this time, print media started offering an online version of their newspapers and competed with free services like Vox Media, Mashable, and BuzzFeed.

Digital Media Companies Changing Fortunes

The cause of traditional media’s pivot was the growth in number of digital media companies. These include social media companies that are indirect competitors to traditional media. As a whole, the valuation of a company is a guesstimate of how much it is worth using different methods of valuation. For most venture capitalists (VC), a startup’s potential grow in the next five years determines the valuation. VC view companies by how much they can earn from their investment when the startup goes public.

In recent years, successful capital fund raising has made the search for unicorns a viable activity for VCs. A unicorn is a startup with a valuation in excess of $1 billion. These companies have become scarce in recent years, but the search continues. A unicorn can lead to big earnings for early investors. Because of the nature of valuation both as a tool for evaluating a startup and as a gauge of potential earnings, it is not uncommon for a startup to have a valuation greater than those of established companies even if they have never had a profitable year.

With startups trying to jockey for visibility among VC, digital media companies are sometimes valued at a much higher earnings potential compared to traditional media companies. These turn out to be gambles for some VCs. For example, in 2016, Mashable had a valuation of $250 million but Ziff-Davis acquired it in 2017 for only $50 million.

how digital media companies stack up on revenue per employee
Digital media revenue on a per-employee basis

Even if startups had a wild ride in terms of profitability, revenues, and valuation, traditional media saw its ad revenue streams shrinking as advertisers expanded their presence to digital media. Sales volume determine the advertising rates. With more sales of print copies, the higher the rates charged. With shrinking circulation, print media saw its rates falling.

To keep its business, traditional media has found ways to leverage their brand. The NY Times expanded their subscription model to online subscribers. Most large print media names have also used online subscription. At the same time, they have also expanded their ad services to their online properties.

Leveraging Positions

Other big names like National Geographic found ways to be relevant outside of their print circulation. NatGeo has been aggressive in creating a presence via cable content. 21st Century Fox acquired it in 2016, after which it rapidly expanded its social media presence and video offerings. To date, it has 88.5 million followers on Instagram. It has also partnered with advertisers on original content which is viewable both on cable and on its YouTube channel, where it has 8.3 million subscribers.

Even as print media is finding ways to earn online, startups are on the retreat in recent years. Besides Mashable, Oath has been laying off personnel before and after the Verizon acquisition. The BuzzFeed planned an IPO for 2018. This has not pushed through because of its earnings shortfall in 2017. Vice was short by $100 million on its $800 million revenue target.

Large internet companies like Google and Facebook have been able to leverage on the volume of their subscribers in generating ad revenues. In short, they have a huge subscriber base that leads to their huge ad revenues.

There are several learnings from this comparison between established traditional media companies and new digital media companiess. Primarily, that traditional companies know how to leverage their content, expertise, and brand following. At the same time, the dangers of valuation can lead to bloated expectations. Startups have to find other revenue streams besides ad revenues.

T-Mobile to Power Polands First Smart City

Kazimierz Dolny is to become the first smart city in Poland, based on a contract signed by the CEO of T-Mobile Poland Andreas Maierhofer and the mayor of the city, Andrzej Pisula. According to Maierhofer, in 2019, T-Mobile will offer twelve smart city services, for which it will conduct nearly 700 installations.

Poland, More Than Tourists

Kazimierz Dolny is an attractive travel destination with only 4,000 inhabitants, but has one million visitors a year. The small town is in central eastern Poland, in Pulawy County, Lublin Voivodeship. For T-Mobile it is a great place to have the first smart city implementation. It is a medieval town with a small population and a large source of its income is tourism. For Kazimierz Dolny, it is an opportunity for the residents to benefit from digital services. The smart city project will also allow for integration with the municipal smart city application.

T-Mobile will offer twelve smart city services in Poland, for which it will conduct nearly 700 installations
T-Mobile will offer twelve smart city services in Poland

Among the services in the agreement are: smart street lighting, bus stops and benches, parking with more than 500 installations; city monitoring making use of 40 street cameras; electric vehicles, including more than 60 city bikes and other vehicles and three charging stations; public WiFi with 40 hotspots; and air quality monitoring with two stations.

The municipal smart city application features an administrative panel for local authorities; integrated statistical data for various operations; and access to local tourist attractions. Behind the information gathering, T-Mobile will carry Big Data analysis to help make decisions for the city’s promotional activities and areas of investment.

T-Mobile Smart City Offer

In 2017, T-Mobile launched smart city pilot projects in Nysa and Pionki, two other Polish cities. The tests centered around smart city lighting system, which introduced smart control of lighting with LED. This aimed to lower costs by 35% to 40%. The city posts were also used for installing additional sensors, surveillance cameras, WiFi hotspots as well as power points for advertising media and charging stations for EVs.

The successful testing of smart city components in 2017, led to T-Mobile Poland putting smart city installations on a permanent offering. The smart city offered plenty of benefits to cities. Video detection had an intelligent image analysis system which increase the threat detectability to 95% effectiveness. The LED lighting system not only lowered operating costs, it also allowed for remote control of each post and lantern with an embedded system of failure notification. The lighting also automatically adjusts intensity according to weather and traffic conditions.

The smart air quality monitoring is important for Poland due the high concentration of pollutants. It does not only measures air quality, it can also diagnose the cause of the smog in various parts of the city. The measuring stations can measure different parameters including PM10, PM2.5 and PM1 particulates, as well as the presence of other pollutants like sulphates and nitrates, and measure ozone levels.

WiFi hotspots are part of the T-Mobile offer to display messages on the login screen. Besides local events, companies and local shops can also buy advertisement which contributes to the city revenue. The WiFi network can also be used in conjunction with a modern passenger information system for buses and trams.

Smart Cities Worldwide

There have been several initiatives to transform urban centers to smart cities. The most famous and one of the biggest is Quayside, an 800-acre property in Toronto. Leading the development is Sidewalk Labs, an Alphabet company. The initial study will cost $50 million with the total cost at around $1 billion.

In the United States, the Smart City Challenge has been a yearly event since 2015. In 2017, this lead to the introduction of R.H. 4151, also called the “Smart Technology for Resilient, Efficient, Economic and Reliable Transportation in Cities and Communities Act” sponsored by Congresswoman Barbara Comstock (R-VA) and Congresswoman Elizabeth Esty (D-CT).