The end of the advertising model is now hitting global digital media and their Australian outposts are likely to suffer. So far, there are a handful of straws in the wind but, at internet speed, we know how quickly the wind can become a hurricane.

The firmest figure we have is the $50 million paid for once boiling hot tech culture publisher Mashable by former magazine owner Ziff Davis. Sure, $50 million is a lot of money for what is effectively an on-line masthead. But it’s a lot less than the $250 million valuation the title relied on in a funding round just last year.

Mashable has been one of the foreign operators that have tried to crack the Australian market since Guardian Australia opened in 2013, followed by, among others, Buzzfeed in 2014 and The New York Times earlier this year.

Funding round valuations are notoriously tricky beasts in the start-up world. Officially, any company valuation is based on expectations of future earnings, although in internet-land “expectations” can be a bit rubbery.

Practically, a start-up wants to be valued high enough that the investors don’t end up owning too much of the company for the money they put in but low enough that you don’t get burnt by “missing expectations”. (There’s an episode of the HBO comedy Silicon Valley that explains this better than I can.)

In this case, it looks like Mashable missed the sweet spot. The $250 million valuation brought in $15 million from Time Warner in 2016. And the $50 million Ziff Davis paid bought it a “fire sale” headline from Variety.

Still, $50 million is nothing to be sneezed at. Remember back in September, Tronc bought the New York tabloid The Daily News (with a similar circulation to Sydney’s Daily Telegraph).

[How much is a newspaper worth?]

On its own, yet another start up mucking up their valuation would be neither here nor there.

At the same time came news of substantial job cuts at Verizon’s content arm Oath, which owns, among other brands, the Huffington Post. Again, on its own, you could put this down to the continued savings that flow from Verizon’s merger of its AOL assets with Yahoo in the middle of the year. But it came with reports that here in Australia the Huffington Post-Fairfax Media joint venture is “under review” and followed the collapse of the HuffPo agreement with the Times of India last month.

Earlier this month, a handful of city-specific sites in New York and Chicago were closed or substantially cut back, although the financial news was lost in the debate over whether the closures were, in part at least, in response to a unionisation drive among the journalists.

And in the expectations game, The Wall Street Journal has reported that industry success stories Buzzfeed and Vice are falling short of their revenue targets. This will have a likely impact on their 2018 IPOs although from a consumer, point of view, so what?

The “so what” is that both these companies are innovators in advertising. Their advertising approach is kind of cross between engineered virality and content marketing. If this produces less revenue than they (and the industry) hoped, then it will be the unfunded content (or “journalism” as we call it) that will be the loser.

[Will enough people ever pay for journalism?]

Both Buzzfeed Australia and ViceLand have contributed significantly to the Australian media eco-system. Buzzfeed has dominated the online 20s demographic, despite the (all too common) starting stumble when they assumed Crocodile Dundee was a prototype, not a satire.

Put together, start-up digital media is facing the same problems as traditional media: digital advertising is maturing (and plateauing as a result) and major advertisers are questioning its effectiveness.

For Australia, this shake-out suggests that the days of US and British companies throwing money at our market to test drive the potential of global growth may be coming to an end. As companies cut back content, they are likely to look at their global reach for savings.

Perhaps the Australian market is harder than it looks. Or maybe it’s a market that’s smaller (and less viable) than we like to think it is.

Peter Fray

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