Comcast's (NASDAQ:CMCSA) NBCUniversal recently invested $200 million in Vox Media, the online publisher of The Verge, Re/code, and Eater, in a deal which valued the "new media" company at $1 billion. Prior to that deal, Comcast invested another $200 million in BuzzFeed, which valued the social news site at $1.5 billion.
Why is Comcast -- which already owns cable services, cable networks, a movie studio, and theme parks -- investing so heavily in social news sites? Let's take a look at the logic behind these two deals.
Times are changing in cable TV
To understand Comcast's new media investments, we should first understand the challenges it faces in its core businesses of selling cable subscriptions and TV ads. Many pay-TV providers and TV networks have recently struggled with "cord-cutters" who are switching from traditional pay-TV services to streaming services like Netflix.
As a result, Comcast lost 69,000 cable video subscribers last quarter. Comcast offset that loss of viewers by raising prices, which caused video revenue to rise 4% annually. However, raising prices failed to stem a decline in Comcast's cable advertising business, which lets marketers run ads for specific regions and audiences. Revenue at that unit dipped 1% annually last quarter.
Meanwhile, revenue from NBCUniversal's cable and broadcast TV divisions fell 5% and 4% respectively on a year-over-year basis last quarter, due to weak ad revenue growth at its core channels. This was caused by lower viewership of its networks across traditional pay-TV platforms. To counter that trend, Comcast introduced Stream, a light cable package for Internet-only customers. Like Netflix, Stream lets users view content across multiple computers and mobile devices.
Expanding the boundaries of advertising
By investing in Internet-based "new media" companies like Vox and BuzzFeed, Comcast can diversify its advertising business beyond traditional TV ads and into digital ads across the Internet.
Over 50 million unique visitors visit Vox's eight websites every month, while BuzzFeed has around 80 million. Vox generated $55 million in revenue last year, while BuzzFeed generated over $100 million.
BuzzFeed claims to be profitable (although it hasn't disclosed exact figures), while Vox reportedly broke even last year. Comcast's investments in Vox and BuzzFeed won't offset Comcast's declines in cable TV anytime soon, but they give the cable giant a foothold in the growing social news industry.
Comcast and NBCUniversal will likely tap Vox's branded content for advertisers to launch better ad campaigns for their cable businesses. The two companies will also focus on integrating Vox's Chorus content management and analytics system into other parts of NBC's TV business. It's unclear if NBCUniversal will collaborate with BuzzFeed on a similar level, but it wouldn't be surprising.
Comcast's not alone
Comcast isn't the only media giant to invest in social news websites. Disney, which saw cord-cutters reduce viewership of ESPN last quarter, teamed up with media giant Hearst last year to invest $250 million in multimedia website Vice Media.
Viacom recently introduced new ad services for in-show product placements, social media campaigns, and started mining customer data for ads to counter declines in traditional TV ratings. Comcast's pay-TV rival Verizon also bought AOL for $4.4 billion earlier this year, which gave it access to social news sites like the Huffington Post, TechCrunch, and Engadget.
In addition to capturing new sources of digital media revenue, investing in "new media" helps cable and pay-TV giants reach younger customers. According to comScore's June figures, about 41% of Vox's and 54% of BuzzFeed's regular readers fall in the coveted demographic of 18- to 34-year-olds.
Why investors should care
Comcast's new media investments probably won't generate much meaningful revenue in the near future, but they reveal potential ways to diversify its top line away from pay-TV subscriptions and TV ads. That's also why Comcast/NBCUniversal recently invested billions more into its Universal Studios theme parks.
Investors in all media companies should pay attention to this shifting trend in the advertising world. As more customers flock to streaming services, media companies must counter that decline by diversifying into other forms of advertising, like digital display ads on social news sites.
Leo Sun owns shares of Verizon Communications and Walt Disney. The Motley Fool recommends Netflix, Verizon Communications, and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.