For anyone who has been watching digital media, the fact that millennial news site Mic is effectively shutting down—laying off most of its 100-plus journalists and selling what remains of the company to Bustle, according to multiple reports on Thursday—should come as no surprise. CJR ran a story in September, “Mic looking for investors amid cash woes,” based on reports from multiple sources connected to the company, including current and former employees. It was clear at that time that Mic was running out of cash, a result of flat or declining revenues and high costs (including an estimated $200,000 a month in rent for two floors of the new World Trade Center building).
Our story was loudly denied at the time by Mic co-founder Chris Altchek, who said it was “categorically false and irresponsible.” Stories written by other outlets were much more positive, suggesting the company was working on multiple potential acquisition offers. But even before most of the staff were laid off, the math didn’t seem to add up. What would an acquirer be buying? A site whose traffic had plummeted from an estimated 17 million uniques to just 5 million in April, according to comScore, and one whose revenues were at best flat and at worst in decline, primarily as a result of an all-in bet on Facebook video.
Even the acquisition by Bustle—whose founder, Bryan Goldberg, sits on Mic’s board of advisors—would almost certainly be for pennies on the dollar compared to Mic’s previous theoretical valuation of over $100 million, which was based on multiple rounds of financing that raised a total of $60 million (according to a report from The Wall Street Journal, the Bustle deal carries a price tag of about $5 million). Bustle is said to be hiring only the two founders of Mic, Chris Altchek and Jake Horowitz, with all the other staff being laid off.
Some former staffers who worked on content strategy, including senior editors, say Mic at one point had what could have been a promising business model, focusing on serving younger readers through a variety of verticals aimed at interest areas that were also relatively easy to monetize—fashion, health and wellness, etc. But last year, Mic chose to switch strategies, and let go a number of staff who worked on the news team, including many of those who were writing for the news verticals. Instead, it decided to focus on creating original video content, primarily for Facebook but also for Netflix and Amazon’s streaming platforms.
During the meeting, Chris Altchek said the cancellation of Mic's Facebook video series meant "funding has dried up and dramatically reduced interest from potential acquirers and investors."
— Max Tani (@maxwelltani) November 29, 2018
This created two problems, both of which likely drove a couple nails into the company’s coffin: one was a reliance on platforms that, particularly in Facebook’s case, are almost complete black boxes, sharing little or no information about—or revenue from—projects such as Facebook Watch (a project with Mic was recently cancelled, sources said). And the second was the fact that creating original video content is an extremely expensive undertaking, and one that is difficult to execute well. This bet and others that cost Mic its life were almost certainly driven by inflated expectations based on the amount of venture capital the company had raised. Venture investors, even friendly ones, don’t just hand over $60 million without expecting some kind of massive payday at some point down the road, whether it’s an IPO or a sale.
Eventually, the pressure to produce outsized returns in order to justify a big payday acquisition become almost overwhelming. And a platform like Facebook no doubt looks like the route to riches, since even a sliver of its $12 billion in annual revenues would mean a windfall for a company like Mic, or any of the other digital native companies that are struggling for revenues in a world controlled by Facebook and Google, including Vox, BuzzFeed, and Refinery29. In that sense, what has happened to Mic is another example of the downsides of raising too much venture capital, as CJR pointed out after BuzzFeed was forced to lay off staff when its 2017 revenues came in more than 20 percent lower than targets, and Mashable was acquired for a fraction of its previous theoretical market value.
So what is the cause of death in Mic’s case? Is it Facebook’s fault for making them shift to video and then not coming through with the money? Was it over-inflated expectations driven by VCs and the hubris of its founders? Probably some of column A and a little of column B. Did Facebook pull a bait-and-switch on video to some extent? No doubt. But no one forced Mic, or any other company suffering as a result of the same strategy, to shift so much of their spending to Facebook video, or to get their hopes up about a huge payoff. You could argue that they were driven to do so by desperation, fueled by declining ad revenues that are primarily being hoovered up by Google and Facebook.
But ultimately a company is responsible for its own decisions. And there were clear signs of impending doom—including when Upworthy, a once-viral superstar, had to lay off staff and then sell the company in 2017 due to changes in the Facebook news-feed algorithm. “I don’t know how anyone could look at what happened to Upworthy and think that bearing down on a platform you didn’t own with a business plan it will never share was going to be a permanent money-maker,” says one former Mic editor. Veteran editor and former Guardian journalist Heidi Moore wrote for CJR in September of 2017 about the false hope behind the media’s vision of Facebook-based video riches, and used Mic’s dropping website traffic as the lede of her piece. Even then, the term “pivot to video” had already become a dark joke in media circles.
Mic and its funders, like so many others, got swept up in a dream of building a digital media giant, a dream that eventually became a waking nightmare. In that sense, their denial of CJR’s story about an impending closure is understandable—the only way to keep everyone dreaming, and to hopefully make it to the finish line, is to deny reality. The minute people start waking up is when the dream begins to crumble. And the only things we can be sure of are: there will be plenty of blame to go around, and there are more of these stories to come.