Update#1: In less than six days Ozy Media has imploded. I read Ben Smith’s article from the New York Times “Goldman Sachs, Ozy Media and a $40 Million Conference Call Gone Wrong” on Sunday, September 26. I wrote this story on Wednesday, September 29, and updated it on Thursday with the news that Marc Lasry had resigned from Ozy’s board, three weeks after being appointed its Chairman. Mark is the CEO of Avenue Capital and owner of the Milwaukee Bucks. He led Ozy’s last round of $35 million in funding. On Friday, October 2, Ozy’s CEO Carlos Watson informed employees that the board had voted to shut down the company. I have updated this story with some new insights that have appeared overnight. I wonder what other shoes are going to drop in the next week.

Update #2: The Ozy Media story may have finally jumped the shark. The UK’s Daily News published a 2,600 word story on Sunday entitled Stylist on Ozy’s The Carlos Watson Show says saw ‘questionable marketing spin

Update #3. Ozy CEO Carlos Watson on The Today Show announced “We are going to open for business,” Watson said in an appearance on NBC News’ “Today” show. “This is our Lazarus moment if you will.”

Update #4. The first investor lawsuit was filed. LifeLine Legacy Holdings of Beverly Hills, Calif., which put more than $2 million into the company co-founded and led by Carlos Watson, claimed in a lawsuit that Ozy had “engaged in fraudulent, deceptive and illegal conduct” when the firm was considering early this year whether or not to invest.

Original Story (With Updates)

On Sunday, September 26th, Ben Smith from the New York Times published an article entitled “Goldman Sachs, Ozy Media and a $40 Million Conference Call Gone Wrong”.  The subtitle was “The digital media company has raised eyebrows for its claims about its audience size for years. Then came the strange voice on the phone.” 

What followed was a bizarre tale of how the COO of Ozy Media started a Zoom due diligence call with Goldman Sachs, then switched to a conference call.  On that call, Samir Rao, the co-founder and chief operating officer of Ozy, used a voice changer and impersonated Alex Piper, the head of unscripted programming for YouTube Originals.  After the call, Goldman figured out what had happened and the proverbial shit hit the fan.  How were sophisticated investors like Ron Conway, Axel Springer, Marc Lasry, Interlock Partners, LionTree, Atinum Investment, iHeart Media, Venture Souq Clayton, Dubilier & Rice, and GSV Capital, deceived by Oxy Media?

What is Ozy Media?

Ozy is an American media and entertainment company launched in September 2013 by Carlos Watson and Samir Rao. Its headquarters is in Mountain View, California, and it also has an office in New York City. Ozy produces podcasts, television series and events. It was founded in 2012 and has about 120 employees. It did about $50 million in revenue in 2020 and is profitable.  Since 2012 it has raised over $70 million in funding:

  • Seed Round. November 2012. $5 million. Investors included Laurene Powell Jobs’ Emerson collective, Ron Conway of SV Angels, Vivi Nevo, David Drummond of Google, and Chegg CEO Dan Rosensweig
  • Series A. October 2014. $20 million.  Led by German publisher Axel Springer.
  • Series B January 2917. $10 million. Led by GSV Capital with participation from existing investors Axel Springer, Emerson Collective 
  • Series C. November 2019. $35 million.  Led by Marc Lasry, a businessman and the co-owner of the Milwaukee Bucks,  The round also included participation from Interlock Partners, LionTree, Atinum Investment, iHeart Media, Venture Souq and Clayton, Dubilier & Rice partners Tom Franco, Don Gogel and Roberto Quarta. All key existing major investors, including GSV Capital, Axel Springer and Emerson Collective returned for the round,

Ozy’s promises:

  • We will never tell a story that another national or international publication has already covered;
  • We will always tackle issues with a diverse and global perspective;
  • We will always be smart, rigorous and truthful in our reporting and storytelling;
  • We will embrace a multi-partisan approach to the issues of the day, bringing multiple voices to every conversation, even though we won’t always agree with them; and
  • We will always surprise you and never, ever be boring or predictable.

Ozy Media

As you’ll see Ozy was not exactly “smart, rigorous and truthful” but they did deliver on their promise you “always surprise you and never, ever be boring or predictable.”

The Goldman Sachs’ Zoom Due Diligence Call

Ozy embarked on another round of fundraising this spring.  Supposedly they were looking to raise another $40 million.  Goldman Sachs was one of their targets.  Earlier this year there was a call between Goldman and Ozy. Ben Smith from the New York Times provides a good summary:

“This past winter, Goldman Sachs was closing in on a $40 million investment in Ozy, a digital media company founded in 2013, and there seemed to be a lot of reasons to do the deal. Ozy boasted of a large audience for its general interest website, its newsletters and its videos, and the company had a charismatic CEO, Carlos Watson, a onetime cable news anchor who had worked at Goldman Sachs early in his career. And, crucially, Ozy said it had a great relationship with YouTube, where many of its videos attracted more than 1 million views.

That’s what the Zoom videoconference on Feb. 2 that Ozy arranged between the Goldman Sachs asset management division and YouTube was supposed to be about. The scheduled participants included Alex Piper, the head of unscripted programming for YouTube Originals. He was running late and apologized to the Goldman Sachs team, saying he’d had trouble logging onto Zoom, and he suggested that the meeting be moved to a conference call, according to four people who were briefed on the meeting, all of whom spoke on the condition of anonymity to reveal details of a private discussion.

Once everyone had made the switch to an old-fashioned conference call, the guest told the bankers what they had been wanting to hear: that Ozy was a great success on YouTube, racking up significant views and ad dollars, and that Watson was as good a leader as he seemed to be. As he spoke, however, the man’s voice began to sound strange to the Goldman Sachs team, as though it might have been digitally altered, the four people said.

After the meeting, someone on the Goldman Sachs side reached out to Piper, not through the Gmail address that Watson had provided before the meeting, but through Piper’s assistant at YouTube. That’s when things got weird.

A confused Piper told the Goldman Sachs investor that he had never spoken with her before. Someone else, it seemed, had been playing the part of Piper on the call with Ozy.

When YouTube learned that someone had apparently impersonated one of their executives at a business meeting, its security team started an investigation, the company confirmed to me. The inquiry didn’t get far before a name emerged: Within days, Watson had apologized profusely to Goldman Sachs, saying the voice on the call belonged to Samir Rao, the co-founder and chief operating officer of Ozy, according to the four people.

Ben Smith, the New York Times

The Fall Out

At the time, there was limited fallout from the event.  Earlier this week Ben Smith published his article in the New York Times and all hell broke loose.  Ozy’s CEO Carlos Watson originally attributed the event to:

“In his apology to Goldman Sachs and in an email to me Friday, Watson attributed the incident to a mental health crisis and shared what he said were details of Rao’s diagnosis.

“Samir is a valued colleague and a close friend,” Watson said. “I’m proud that we stood by him while he struggled, and we’re all glad to see him now thriving again.”

He added that Rao took time off from work after the call and is now back at Ozy. Rao did not reply to requests for comment.,”

Ben Smith, the New York Times

On Wednesday, September 29th, David Folkenflik from NPR reported on Twitter:

David Folkenflik from NPR
Twitter

This week there has been a parade of stories about why this event was not a surprise:

December 2017. Buzzfeed.A Bunch Of Digital Publishers Bought Cheap Traffic And Later Found Out It Was Fraudulent:

“This summer, Ozy.com, a news site that’s raised more than $35 million in funding from high-profile investors, published a group of articles in an ongoing series about how companies and entrepreneurs are trying to be a positive force in their communities. The content was created as part of a partnership with JPMorgan Chase, whose logo appears on each article.

The stories appeared to be a big hit: Between May and October, the sponsored content ranked among Ozy’s most-viewed articles, according to traffic data from analytics service SimilarWeb.

It’s the kind of success a publisher and brand would celebrate — except that the vast majority of traffic to the articles was in fact fraudulent, according to ad industry standards. Those stories, as well as other Ozy articles that carried ads from Amazon and Visa, received traffic that was purchased and delivered via a system that automatically loads specific webpages and redirects traffic between participating websites to quickly rack up views without any human action.

JPMorgan told BuzzFeed News it had no idea its sponsored content was receiving paid traffic from the source in question, and Ozy said it believed the audience was valid when it purchased it. Ozy has since told the bank that the resulting traffic was not counted as part of the campaign.”

September 29.  Axios. Scoop: OZY Media loses an early investor. Ron Conway, the legendary Silicon Valley angel investor has returned his Ozy shares:

“Driving the news: SV Angel, led by legendary Silicon Valley venture capitalist Ron Conway, informed OZY yesterday that it no longer wants the stock it acquired back in 2012, per multiple sources. Conway declined comment.

Why it matters: It is extremely rare for a VC firm to surrender shares; a rebuke several levels above choosing not to invest further.

What OZY is saying: Nothing. At least not to Axios.”

Axios

September 29.  BBC News.  Katty Kay: Former BBC journalist quits US media firmFormer BBC News presenter Katty Kay has quit her role at the US media company Ozy Media after just three months.

Katty Kay: Former BBC journalist quits US media firm
Twitter

September 30. CNN Business News. 18-hour days and panic attacks: Former Ozy staffers allege an abusive environment:

“Around midnight one Saturday late last year, Eva Rodriguez, 24, had trouble breathing. She lost her vision, started sweating and felt a sharp pain in her stomach. She worried she was having a heart attack.

For two weeks leading up to that night, Rodriguez said recently, she had been working roughly 18 hours a day every day to create the branding for “The Carlos Watson Show,” a talk show named for and hosted by the CEO of Ozy Media. As a creative director at Ozy, for which she’d worked since 2017, she was used to working long hours to accomplish difficult tasks with little lead time. But this was worse.

The good news was that it was not a heart attack; ER doctors in Chula Vista, California told her later that Sunday morning it was a panic attack. But it had been bad enough that she needed to take a couple days off work.

“I felt so helpless because I desperately needed to sleep and take time off, but Carlos had expressed how critical my role is to the show,” Rodriguez told CNN Business. “And if I didn’t do this, the show cannot go on.”

“I really didn’t want to let him down,” she continued. “I never want to let him down. If you met him you know he’s a very charismatic leader and he’s not someone you want to let down.”

CNN Business News

September 29. Gawker. EVEN BY SCAMMY DIGITAL MEDIA COMPANY STANDARDS, OZY IS A DOOZY. “It is generally safe to assume that most once-buzzy digital media upstarts are houses of cards built on shaky valuations and inflated audience numbers that no one should invest in expecting huge returns (not us, though, we’re different). But the trials and tribulations of Ozy — the media and entertainment company dedicated to “the New and the Next” most famous for its annual OZY Fest featuring New and Next keynote speakers such as Hillary Clinton — are so outrageous they simply must be applauded”

“A recent piece by Ben Smith in the New York Times suggests that Ozy — which had reportedly raised more than $83 million in funding from investors like Laurene Powell Jobs and valued itself at $159 million by April 2020 — is, at best, extremely skilled at massaging the truth, and at worst, built on outright lies.

Let us list some of the ways, as detailed in the story:

On a call with would-be investor Goldman Sachs, Ozy’s co-founder and chief operating officer Samir Rao impersonated a YouTube exec in order to wax poetic about Ozy’s CEO Carlos Watson and extol the company’s performance on YouTube. When Goldman Sachs and YouTube realized what had happened, Ozy said that Rao had been experiencing a mental health crisis. Fair enough.

Ozy touts an audience of 50 million monthly unique users, but Comscore, the industry standard for measuring website traffic, has numbers closer to the 230,000 to 2.5 million range. Ozy said that its self-reported stats include impressions on social media platforms, newsletters (“more than 20 million subscribers”), TV, and podcasts. At Gawker, we also count scrolling right past our content on social media — you still looked.

A show Watson hosts for Ozy has been promoted by the company as “Amazon Prime’s First Talk Show,” despite being uploaded directly to the Amazon platform by Ozy itself, so it’s sort of like if I uploaded videos of myself performing spoken word while eating and called it “Amazon Prime’s First Poetry Mukbang Show.” Amazon recently made Ozy take down billboards promoting Watson’s show as such.”

Gawker

October 1.  CNBC. Marc Lasry resigns as chair of Ozy Media after 3 weeks, following reports of alleged misconduct at firm. Lasry, who is also owner of NBA champions the Milwaukee Bucks and CEO of Avenue Capital Group, was named chairman of Ozy Media exactly three weeks ago. A company spokesperson published this statement:

Mark Lasry

Twitter

October 1. NPR. Ozy’s Carlos Watson resigns from NPR corporate board after week of scandal.  Carlos Watson had been appointed to NPR’s Board in 2016, had just been reelected to a second three-year term, which had been set to begin next month.

“Earlier today, Carlos Watson submitted his resignation from the NPR Board of Directors. I have accepted his resignation on behalf of the Board. Mr. Watson’s resignation is effective as of today,” Oliver said in a statement. LaFontaine Oliver, who is the Chairman of NPR’s Board and the president of NPR Baltimore member station, WYPR.

October 2. Ben Smith, The New York Times writer who originally broke the story, tweeted about the board’s decision to shut down:

Twitter

From the New York Times New York Times Ozy Media, Once a Darling of Investors, Shuts Down in a Swift Unraveling:

“While the Times article was being reported, Emerson Collective distanced itself from the company, saying it “did not participate in Ozy’s latest investment round and has not served on its board since 2019.” (Emerson Collective added in a statement on Friday morning that it was “troubled” by the allegations concerning Ozy.

Also this week: Advertisers including Chevrolet, Walmart, Facebook, Target and Goldman Sachs itself — many of which had been paying for placement on “The Carlos Watson Show” — hit the brakes on their spending with Ozy.”

The Sharon Osbourne Connection from the UK Daily News: Daily News, ‘You are playing a dangerous game with the truth’: How Emmy-winning producer resigned from troubled Ozy Media after CEO AND COO lied to him about which network their show would air on

“An Emmy Award-winning television producer resigned from beleaguered Ozy Media this summer, after he discovered he was producing a show for the embattled company without there being a network on which to air it.

Brad Bessey joined Ozy Media in June 2020, to work on The Carlos Watson Show – a daily, half-hour talk show presented by Watson, who is also Ozy’s CEO.

He was told repeatedly that the show would be broadcast on the cable channel A&E.

But this summer he discovered that there was no agreement with A&E, and that the show would just appear on Ozy’s YouTube channel. 

Bessey and his team had told guests that they were appearing on a show to be broadcast on A&E, and said he was deeply troubled by the duplicity. 

‘You are playing a dangerous game with the truth,’ he wrote in his resignation email, obtained by The New York Times on Thursday. 

‘The consequences of offering an A&E show to guests when we don’t have one to offer are catastrophic for Ozy and for me.’

CNBC also reported on Thursday that Ozy Media founder Carlos Watson lied when he claimed Sharon and Ozzy Osbourne invested in his company. The Osbournes filed a trademark lawsuit in 2017 over the company’s name Ozy Fest, which is the firm’s annual concert and festival. Osbourne told CNBC Watson leveraged his connections with billionaire Ozy Media investor Laurene Powell Jobs to threaten lawsuits. “This guy is the biggest shyster I have ever seen in my life,” Osbourne said.”

The Steve Jobs Connection.  The Emerson Collective was an early investor in Ozy. The Emerson Collective is funded by Laurene Powell Jobs, Steve Jobs Widow.  Puck. Laurene Powell Jobs’ Bizarre Week in the Headlines

“They Know He’s Not Good Business”

Powell Jobs has been a largely peripheral player in the media firestorm that has enveloped Ozy since Sunday night, when Ben Smith published a column suggesting that the media company has misled investors about the size of its audience. Emerson is an investor in Ozy, and Powell Jobs has been close with Ozy C.E.O. Carlos Watson for decades—the two co-founded College Track, her first philanthropic initiative, back in East Palo Alto in 1997. Now, her old friend and fellow tutor has become a liability: On Tuesday, the Ozy board announced it had hired the law firm Paul, Weiss to investigate its “business activities” under Watson’s watch, including an incident in which Ozy’s C.O.O. impersonated a YouTube executive during a conference call with Goldman Sachs.

None of this should be surprising to Emerson. In fact, in recent days I have learned that Emerson had grown alarmed with Ozy for some time, so much so that around 2018, the firm encouraged Watson to sell the company. Emerson tried various tactics to impose discipline, I am told, such as pairing new funding with requirements to hire a C.F.O., hit revenue targets, or pursue other course corrections. “[Emerson] has been trying to extricate [itself] from Carlos for a long time,” said one person familiar with their relationship. “They know he’s not good business.”

But Emerson had limited leverage and couldn’t get Watson to sell, nor could it get him to whip the company into shape. “My reading of the tea leaves is that Laurene [was] torn,” the source opined, referring to Powell Jobs’ thinking at the time. “She [wanted] to support her friend Carlos but … Ozy’s brand sucks and the business guys are all telling her to dump him.”

By late 2018, it was clear that the Emerson-Ozy relationship was frayed. A small, but telling example: Emerson Collective and Ozy used to co-host a Christmas Party together until the 2018 season, when Ozy was subbed out for the celebrity chef Jose Andres, I’m told. Emerson continued to participate in fundraising through 2019, but has said that it stopped after that.”

AdAge. The Bonkers Ozy Media Scandal is all About Data 

Ozy Media calls itself “a modern media company,” and it insists that old-school metrics, such as Comscore web-traffic stats, don’t properly reflect its reach across platforms, including social media and video.

OK, sure. But Datacenter Weekly, for starters, checked in with social video analytics firm Tubular Labs about Ozy Media’s video performance across YouTube and Facebook. Bottom line: It’s … underwhelming. Some key stats:

• Ozy Media ranks 84th in the U.S. against other digital-first media companies on YouTube and Facebook, with just 2.7 million unique viewers in August, according to Tubular Audience Ratings (TAR), which tally de-duplicated viewers. To put that in context, Ben Smith’s former employer, BuzzFeed—which, as Smith revealed in his column, once engaged in ill-fated acquisition talks with Ozy Media—had 122.2 million unique views in August.

• Digging deeper into Ozy Media’s performance on YouTube, Tubular has a stat it calls ER30, which is a measure of user engagements per view during the first 30 days. “Engagements” tallies likes, comments and shares. According to Tubular, ER30 for Ozy Media content on YouTube “is less than 0.1x compared to a baseline average” of 1.0x on YouTube. That’s a data-driven way of saying that Ozy Media has remarkably low engagement for its YouTube video content, which is a red flag that can be indicative of “paid boosting,” according to Tubular.

Jeff Wise The Intelligencer. October 1 It Was Weird and Culty’: Carlos Watson’s Mismanagement of Ozy

“It’s an incredible dereliction that speaks to a great tragedy,” says Ozy’s former editor-at-large Eugene Robinson. “It was a really diverse newsroom, there were a lot of really good people, and they were doing really good work. The failures were not journalistic at Ozy. The failures were process-based. Carlos treated people badly, and he bullshitted the investors. And then he got his hand caught in the cookie jar. And that’s why we’re fucking talking about it.”

“Inside the company, there was a sense among employees that Ozy’s top leadership didn’t trust them. “You had to be near that phone and laptop in case Carlos and Samir wanted to contact you,” says Crane. “They had put us through this meticulous vetting, and then immediately they treated us with total paranoia.” During one all-hands meeting, one employee complained: “You treat all of us like your girlfriend who cheated on you.”

Employees saw a different side of Carlos Watson once they’d come aboard. He was volatile, switching abruptly from solicitous charm to screaming rage. “The ritual humiliation begins with the lull. He’s like, ‘How’s your family?’ As soon as you’re comfortable, he comes in with a  hammer,” says Robinson. “You’re completely fucking shocked.” One time, Robinson miscalculated when a flight would land and was late coming to work. Watson became so enraged that he docked $5,000 from his paycheck, Robinson says.”

“The reason those stories weren’t reported by the big outfits is that they weren’t that significant,” says the former Ozy editor. “You have to be a real social-justice trooper to read article after article about, you know, the fight for women’s rights in some province in Nigeria. It’s great that Carlos wanted to cover stuff like that, but it turns out there’s no audience for it.”

Even as Watson was running around telling advertisers and investors that Ozy had tens of millions of readers, staffers knew the truth. Each story had a counter at the bottom showing how many people had read it. “You work your ass off on a thing, and then it gets like 60 readers, you know?” says the former editor. “There was just no one there. It’s crickets.”

Ozy removed the counters.

In the days following the publication of Smith’s column, Ozy’s situation deteriorated rapidly.

On Monday, A&E announced it had canceled plans to air a show that Watson hosted; on Wednesday, the Emmy Awards said that Watson would longer be hosting its news and documentary category. Marc Lasry, the chairman of Ozy’s board, stepped down on Thursday. On Friday, Watson announced that he would step down from the board of directors of National Public Radio. Hours later came word that the company was folding.”

October 3. UK Daily News. ‘.Stylist on Ozy’s The Carlos Watson Show says saw ‘questionable marketing spin

“Kimmy Erin Kertes, who styled Ozy’ Media co-founder Carlos Watson when he appeared on The Carlos Watson show posted an Instagram after it shut down

She noted Watson’s charm, charisma and easy-to-follow vision, ‘especially in light of the racial injustice,’ but noticed a ‘questionable marketing spin’ 

‘It’s a bummer that I can’t be proud of some thing I was a part of for 17 months… It’s a bummer I can’t be proud of Carlos Watson,’ Kertes added

‘I’m not going to let one dude’s greed and drive erase my hard work’ Kertes included in the post, and later posted a story that ‘everything is gonna be alright’

Emotional CEO Carlos Watson told staffers on Friday that the company is done

Ozy’s downfall came swiftly amid snowballing allegations of fraud and deception when COO Samir Rao was accused of impersonating an exec on an investor call

October 4. VarietyOzy Media Is Not Shutting Down After All, CEO Carlos Watson Says

“We are going to open for business,” Watson said in an appearance on NBC News’ “Today” show. “This is our Lazarus moment, if you will.”

The about-face comes after New York-based Ozy announced Friday, Oct. 1, that it would wind down the business, following a series of damaging reports about the company falsifying audience metrics and the revelation that its COO impersonated a YouTube executive on a call with prospective investor Goldman Sachs. Ozy’s questionable practices were first reported by the New York Times on Sept. 26, leading to an avalanche of other disclosures including allegations of a toxic workplace culture.

Over the weekend, Watson said, the company spoke with advertising partners, readers and viewers, and investors — and concluded that Ozy’s business is worth saving.

“The last couple of days gave a lot of people a chance to take cheap shots,” Watson said Monday on “Today.” “That’s not to say that there aren’t things that we can do better. We need to do better on data, we need to do better on marketing, I think there’s some things we can do better on leadership and culture.”

October 5 DeadlineEmbattled Ozy Media Hit With First Investor Lawsuit Over Faked Fundraising Call.

“LifeLine Legacy Holdings of Beverly Hills, Calif., which put more than $2 million into the company co-founded and led by Carlos Watson, claimed in a lawsuit that Ozy had “engaged in fraudulent, deceptive and illegal conduct” when the firm was considering early this year whether or not to invest.

LifeLine said that if it “had known the foregoing facts [of the call it would never have invested in Ozy Media.”

“In 2021, based upon direct assurances concerning Ozy Media’s strong business performance, investments by high profile institutional investors, high viewer metrics, and competent and honest company management, LifeLine agreed to invest in Ozy Media. At the time that LifeLine’s investments were solicited and made, Ozy Media and, more specifically, Samir Rao knew that, in fact, the representations made to LifeLine regarding Ozy Media were untrue and that Rao had fail to disclose material information about Ozy Media to LifeLine,” the suit says.

“More particularly, Ozy Media knew, but failed to disclose to LifeLine that on February 2, 2021 the company, through Samir Rao, engaged in fraudulent, deceptive and illegal conduct when Mr. Rao, while participating in a call with a potential high profile institutional investor, impersonated an executive of YouTube and misrepresented viewership of Ozy Media programming shown on YouTube. Ozy Media also failed to disclose that said high profile institutional investor refused to invest in Ozy Media after learning of said fraudulent conduct and that the company, as a result, was under investigation by various government agencies.”

Summary

It’s amazing how a failed Zoom due diligence call can lead to a crisis for a company that had raised over $70 million in VC funding.  How were sophisticated investors like Ron Conway, Axel Springer, Marc Lasry, Interlock Partners, LionTree, Atinum Investment, iHeart Media, Venture Souq Clayton, Dubilier & Rice, and GSV Capital, deceived by Oxy Media? It is reminiscent of what is going on in the Elizabeth Holmes Theranos trial. It’s almost like a story in Zara Stone’s ongoing series The Weirdest Shit to Come Out of Silicon Valley.  In any case, it is an object lesson for today’s and the future’s entrepreneurs.


Also published on Medium.