Amid widening concerns that another startup bubble has formed, digital media remains a white-hot market among the private-investment community.
Last year, venture capital poured at least $683 million into digital media companies worldwide -- more than twice the $277 million invested in 2013, according to Preqin, which tracks venture-capital investments.
That investment comes as traditional media companies like The New York Times and Condé Nast cut staff, trim costs and turn over every possible rock in search of new revenue streams. Meanwhile, digital media companies -- which have a fraction of old media's revenue and even less of their profits -- are awash in investor cash.
But unlike the old guard, new media has a growth story to tell, giving it sex appeal. And marketers like sexy. That's crucial as those companies seek to bolster sales because they are, for the most part, relying on old media's business model: attracting ad dollars.
"There's no other big pot of money out there," said Ken Doctor, media analyst for Newsonomics.
The pot is indeed brimming with cash. Marketers are expected to spend $58.6 billion on digital advertising in the U.S. this year, according to research firm eMarketer. But the digital ad market is a bare-knuckle brawl for money. Digital-ad buyers are beating up publishers on the amount they'll pay for an ad, causing the rates to spiral downward. And most of that money is flowing toward large players like Google, Facebook and Yahoo, leaving media companies old and new to fight over what's left.
"Some of these companies are not going to make it," Mr. Doctor said.
Here's a look at the prospects of six digital media firms with millions in private-equity backing that rely on ad revenue to some degree. (Note: All traffic numbers are from ComScore for December 2014.)
Monthly traffic: 35.3 million uniques, a 55% year-over-year increase Capital raised: $55 million
2014 revenue: $30 million
Profitability status: Profitable over the last six months of 2014
The model: Business Insider works hard for the money, churning out posts in pursuit of eyeballs and dollars. "They have mastered the ability to produce lots of content fairly cheaply compared with traditional news organizations," said Mr. Doctor, who described the site's approach as "business lite."
Ad buyers say Business Insider fetches $20 to $25 for 1,000 impressions, or CPMs, depending on the size of the ad and the targeted audience. That's roughly a third charged by Quartz, a much smaller business-news site aimed at a section of high earners.
The challenges: The site hosts live events, which is a bright spot. But the events market is crowded and typically has tight profit margins. An intriguing product is its subscription offering, Business Insider Intelligence, which started in 2012 to provide analysis and daily news briefs on various topics at an annual cost of $495. The service has "thousands of paid users," the company says. "The research model is a very good model," Mr. Doctor said, pointing to tech and media site Gigaom, which has carved out a lucrative niche selling a research product.
Monthly traffic: 4.9 million uniques, a 400% year-over-year increase
Capital raised: $25 million
2014 revenue: N/A
Profitability status: Not profitable
The model: Medium was started by Twitter co-founders Ev Williams and Biz Stone. It's part blogging platform, where individuals and organizations post, read, comment on and share articles. But Medium is also growing its own publishing company, poaching from magazines and websites. In 2013, it bought digital magazine Matter, which was nominated for a National Magazine Award this year. Last month, the White House posted the text of the State of the Union address to Medium before giving it to the press.
This hybrid of publisher and platform is often (unfortunately) called a "platisher," and its revenue model, so far, is advertising. Medium's first ad campaign came last summer in the form of a sponsored section for BMW. In December, the site rolled out a similar section for Marriott International.
Medium is echewing impressions and valuing ad campaigns based on the amount of time spent with the branded section.
The challenges: For now, Medium's primary concern is building a large audience, and its path to profitability is a big question. Mr. Williams recently told Ad Age its ad revenue remains an experiment.
Monthly traffic: 25.6 million uniques, up 198% from a year earlier
Capital raised: $30 million
2014 revenue: About $55-60 million
Profitability status: "Meaningful" profits in 2014, co-CEO Justin Stefano said.
The model: Ask a glossy magazine publisher which company it envies and the answer is often Refinery29. The site has developed a large and loyal following of young women who mention it in the same breath as Vogue or InStyle.
"They're continuing to see growth in terms of their audience and readers, where other more traditional style and beauty properties have not," said Adam Shlachter, chief investment officer at DigitasLBi. "It represents a new opportunity for brands."
It's also managed to attract digital-ad budgets from the same fashion and beauty companies buoying print media, partly by creating native ads and selling them at a relatively low cost of between $12 and $15 CPMs, ad buyers say. Refinery29 says CPMS fall around $16-$17.
The challenges: Refinery29 stands to benefit as beauty and fashion brands become more comfortable with digital media. It's also investing heavily in video and working with Relativity Media to develop TV shows. But Refinery29 relies heavily on advertising, which represents nearly 90% of the site's revenue. The market for millennial women is fierce.
Monthly traffic: 52.6 million uniques (no year-over-year comparison because Vox.com rolled out less than 12 months ago)
Capital raised: $110 million
2014 revenue: $55 million
Profitability status: About break-even in 2014
The model: Vox Media CEO Jim Bankoff says he's building the next generation Time Inc., with publications that cover a broad range of topics: sports (SB Nation), tech (The Verge), video games (Polygon), real estate (Curbed), food (Eater) and general news (Vox.com).
That lets Vox sell digital ads across multiple sites, and several media execs outside the company think it's better positioned than other publishers to thrive. Standard display ads on SB Nation, The Verge and Vox.com cost roughly $6 to $8 per thousand impressions, according to ad buyers. Bigger, prettier, high-impact ads typically carry a CPM of $18 to $20. (Vox says $8-$10 on standard, $20-$25 high impact.)
"From a content point of view, they're creating a new-age model for producing editorial content," said Mr. Shlachter. "Within that, they have a great opportunity to rethink the advertising model."
The challenges: Vox needs to ramp up its other revenue streams. "We think that our businesses need to have at least two forms of revenue," said Raju Narisetti, senior VP-strategy at News Corp., pointing to digital ad and subscription revenue at his company.
Vox, however, relies mostly on digital-ad sales and creative services. A nascent events business is contributing to revenue.
Monthly traffic: 76.8 million uniques, up 43% year over year
Capital raised: $96.3 million
2014 revenue: More than $100 million
Profitability status: Already profitable, according to a spokeswoman
The model: Nearly all of BuzzFeed's revenue comes from one source: native advertising, usually in the form of lists written for brands. "They've figured out how to make it funny, make it fast and make it heavily image driven," said Shenan Reed, president of digital at media agency MEC. BuzzFeed wants to be known as more than just a listicle factory, of course. It's investing in video production and poaching serious journalists from The New York Times, The Wall Street Journal and Politico.
Given its general-interest mass audience, the amount BuzzFeed is able to charge advertisers for 1,000 impressions is relatively low at $8 to $10, according to ad buyers. The site squeezes more dollars from marketers by pitching its in-house creative department, which marketers can access once they reach a certain spending threshold. And ad buyers say they're booking deals with BuzzFeed between $100,000 and $500,000.
The challenges: Leaning on native advertising helped BuzzFeed stand out, but it could also sink the company. "As long as advertisers are willing to try them out, it works," said News Corp.'s Mr. Narisetti. "But once they exhaust the initial curious brands that want to try BuzzFeed, can they scale their bespoke advertising model, is perhaps the larger question."
Thrillist Media Group
Monthly traffic: 9.6 million uniques, a 144% year-over-year increase
Capital raised: About $15 million
2014 revenue: Approximately $100 million
Profitability status: "Some months we're profitable and some months we aren't," a spokesman said.
The model: Thrillist relies on digital advertising far less than its new-media peers. The lifestyle site -- which tells men where to eat, drink and shop in dozens of cities -- generates between 70% and 80% of its revenue from e-commerce, with advertising sales making up the rest. But that wasn't always the case. It was entirely ad supported until 2009, when revenue hit $7 million. In 2010, Thrillist began selling products after buying e-commerce platform JackThreads.
Unlike other digital media companies, Thrillist has a business model that would be costly to replicate, according to Steven Kotok, former CEO of Dennis Publishing U.S., owner of The Week and Mental Floss. "They have email lists, which are valuable," he said. "They have local penetration, which is expensive and valuable. To be the next Thrillist takes a lot of effort."
The challenges: E-commerce is a tough business. Alexandra Lutz, VP-strategy at digital agency Huge, said the premise of e-commerce is attractive because media companies can step away from the crushing CPM game. But profits can be hard to come by, she added.
"E-commerce drives top-line revenue, but ad sales on a margin basis is a more profitable endeavor," said Ms. Lutz, who was president of media-commerce hybrid Food52.
That's likely why Thrillist is pushing its advertising business, which is focused on custom ad units. According to ad buyers, a thousand impressions on Thrillist costs about $12 to $15. It will also incorporate advertisers' products into e-commerce, whether that's samples or custom products for sale on JackThreads.