Inside Univision’s troubled acquisition of Gizmodo and The Onion

“But in stereotypical Univision fashion, no one consulted the leadership [at Fusion, Gizmodo or The Onion] on how it would be communicated,” the source continued. “The announcement did not even set them up as something worth buying, there were no stats of the size of the portfolio or the depth of engagement; you’d think they would use this opportunity to pitch why someone should buy these assets.”

Univision once had grand ambitions with its English-language assets. Under the umbrella of Fusion Media Group, which oversaw Gizmodo Media Group and The Onion’s stable of sites, the Spanish-language broadcaster was going to become a diversified media company with a fast-growing digital business. To accomplish this, Univision poured money into both building its own digital media assets under the Fusion brand and acquiring properties in the former Gawker Media properties and The Onion, spending roughly $200 million on the latter two companies, according to three sources familiar with the matter.

Yet the effort was troubled from the start, offering yet another example of a corporate shit show, repleted with competing management cliques, clashing company cultures, ballooning costs and impatient investors. Ultimately, Univision cut bait, reportedly selling off GMG and The Onion for less than $50 million — less than 25 percent of what Univision paid for the properties since 2016.

This story is based on conversations with six current and former executives across Univision and its former digital assets. Univision did not provide an official comment by press time, but representatives pointed to a recent interview from Sadusky during which the executive confirmed about focusing on Univision’s core assets and Hispanic audience, but pushed back against the idea that it’s all in service of a sale of the company.)

Diversifying ahead of a planned IPO
At a time when the drumbeat of bad news about digital media is commonplace, it’s worth remembering the headier times. Back in 2016, traditional media was in a panic, worried about losing share to digital upstarts. More than a few traditional media company had some form of “BuzzFeed envy.” That let stalwarts such as Disney and NBCUniversal to pour a billion dollars into companies such as Vice Media, BuzzFeed and Vox Media. Univision, with its Spanish-language roots, was little different.

Univision’s pivot to digital originally centered on building up Fusion. In 2012, Univision partnered with Disney’s ABC to create Fusion, a news brand originally aimed at English-speaking Hispanic millennials. Fusion’s portfolio includes a website and a cable network. By 2016, Fusion had racked up $60 million in losses, prompting Disney to exit the partnership with Univision buying out full ownership of the Fusion assets.

Then, in 2016, Univision made a splash by paying in the neighborhood of $200 million for GMG and The Onion, which includes the $135 million Univision spent for GMG in a bankruptcy auction and roughly $70 million for The Onion across two separate transactions, according to three sources familiar with the matter.

Now with full ownership of Fusion, Univision created Fusion Media Group, which oversaw the GMG and The Onion as part of a network of sites. This group was led by Isaac Lee, Univision’s chief content officer at the time, and included an executive group at the FMG level led by group CEO Felipe Holguin.

Sources did not question Univision’s strategy of buying and building a diversified portfolio that included websites that users go directly to, growing commerce and branded content businesses, a TV network and other areas such as TV production.

“Univision needed to show that there was a growing business — [former Univision CEO] Randy Falco was selling the promise of the future,” said a source. “Yes, the traditional business was struggling, but this was a way of saying that we have a path for growth with a younger generation — and second and third-generation Hispanics are watching more English-language stuff. With that in mind, the plan made sense.”

Initially, Fusion Media Group was given a long leash by Univision as the company sought to expand audience and revenue. By late 2017, FMG would claim an audience of 110 million across its portfolio. But the company wasn’t profitable, and as pressure mounted at Univision to reverse its own debt ahead of that public offering, tensions started to mount between different parts of the legacy and digital organizations.

An era of mismanagement and clashing cultures
By late 2017, Univision was shopping a minority stake in Fusion Media Group for as much as $200 million. But as the broadcaster swiftly learned, the market for digital media companies had cooled considerably as big publishers such as BuzzFeed and Vice missed their annual revenue targets and other digital publishers were rumored to be for sale.

The era of quick scale was reflected within Fusion Media Group, where there were tensions between different departments that wanted to focus on audience growth (often through distributed platforms such as Facebook) versus those that wanted to focus on revenue growth, particularly on FMG’s own websites, sources said. One employee recalled having meetings with Fusion management that focused on getting video views up; then, a couple of months later, having meetings with the sales organization — led by Onion CEO Mike McAvoy — that wanted to prioritize revenue coming from FMG’s sites. “Cool, but can you guys figure this out?” said the employee.

But there was also a larger issue of growing tension between the parent company and various parts of the new digital media upstart. Following the GMG acquisition, Univision did not give key GMG executives such as Heather Dietrick and Mia Libby “a seat at the table,” sources said. “These are people who were central to that business and knew the brands best but weren’t being brought in on strategy,” said a source. (Dietrick is now CEO of The Daily Beast, where Libby is CRO.)

Univision is an old-school media company, and many of the top FMG executives are classic media operators. Often, this involves a level of bureaucracy that doesn’t mesh with companies that often have only a couple of people in the finance department. GMG also has a famously and fiercely independent culture, which more than one source described as a “pirate ship.” For instance, one former employee recalls an event hosted by Jezebel in Brooklyn. FMG’s marketing team wanted to run some ads promoting the event. The offer was turned down by GMG staffers overseeing the event. “They just wanted to promote your event, why not let them?” said a former employee.

Univision also struggled to bundle its English-language digital assets in sales deals, partially because the broadcaster’s legacy was in bundling digital with TV ad sales for its Spanish-language programming, said another source. “It was a complicated thing to bundle,” this source said.

At the same time, losses were also mounting. With the Fusion Media Group layer, there were new departments and expenses. For instance, FMG had its own teams for marketing, finance and data analytics, sources said. These were also separate — but much nimbler — departments within GMG and The Onion, as well as independent of larger marketing, finance and other teams within the Univision parent company. Executives would also frequently run up expenses for consultants. And this does not even include the losses incurred over the years by Univison from its Fusion cable network.

Last year, GMG and The Onion combined generated roughly $80 to $85 million in overall revenue, according to three sources familiar with the matter. But with all expenses added up, the organization was tens of millions in the red, sources said.

“These two companies were profitable and had decent cultures, and they still ended up losing money because they’re saddled with unnecessary debt,” a source said. “The move by Univision was well-intentioned, but it was poorly executed by a company that did not understand digital media.”

A change in priority and leadership at Univision
Meanwhile, there were mounting tensions within Univision’s boardroom, which one source described as its own “telenovela.”

Investors wanted Univision to go public in a hope to recoup on their investments over the years. Univision has backers that include billionaire Haim Saban and Spanish TV company Televisa, which owns 40 percent of the broadcaster. But as the capital market for media dried up, so too did the prospects of Univision having a successful IPO. By the beginning of 2018, those plans were scrapped.

As all of this was happening in 2017, Univision also reportedly drew interest from potential suitors of its own. There was at least one double-digit billion dollar deal on the table that the board was split on, and ultimately walked away from, sources said.

“You had all of the private equity guys who wanted to get out and maximize profits,” said a source familiar with Univision’s investors. “Then there’s Televisa, which is getting a licensing fee for all of the content they provide to Univision, and doesn’t need Univision to be sold at a high price because it has convertible debt.”

Instead, the new plan was to cut costs across Univision and FMG, which received pushback from FMG executives who defended a business unit that they argued was growing revenues and served as a bright spot for Univision. Univision argued that FMG wasn’t being run efficiently and needed to make cuts. It was a battle that FMG executives lost, and the losses came swiftly as top executives including Holguin and then-GMG CEO Raju Narisetti left the company in the spring. Isaac Lee, who reportedly had become withdrawn from FMG as it became increasingly clear that cuts were coming to the company, soon also left.

Later, Univision wrote off its investments in FMG, GMG and The Onion, claiming a loss of $32.5 million in the fourth quarter of 2018. The company also started actively pursuing a sale of these assets.

A new CEO spells the beginning of the end
Vincent Sadusky was named CEO of Univision in May 2018. Two months later, Univision publicly confirmed that it was looking to sell GMG and The Onion.

“It was the clearest, most frank and honestly most strategic conversation I’ve ever had with anyone at Univision for years,” said a source who was present when Sadusky announced the plans to sell GMG and The Onion. “It was clear that Univision was putting in place a strategy that they thought could get them back on track.”

Almost ironically, once Univision wrote off its investments in the FMG, GMG and The Onion, the company let the GMG and The Onion organizations basically operate on their own, sources said. The focus was more on finding a buyer for the portfolio. “The last nine months were the only time we were left alone,” said a source.

That portfolio, meanwhile, has remained remarkably resilient. The GMG and The Onion sites combined to reach 80.2 million unique visitors in February, according to Comscore. There are questions on how the assets will be managed by its new ownership group and CEO. But there is also optimism that these assets, which were profitable once, can continue to be valuable after a dramatic three years.

For instance, even with all this turmoil, revenue is also on track to at least keep pace with last year’s total, sources said.

“I was always surprised by the Gizmodo assets,” said a source. “With all of the ups and downs they went through, it was still a very resilient property in terms of revenue. It did not grow a lot, but it did not decline either. It maintained, which is amazing.”