BuzzFeed cannot bulk up enough to take on Facebook

If there were any doubts that the once red hot world of digital publishing has caught a chill, they were dispelled this week by BuzzFeed’s founder Jonah Peretti.

Mr Peretti, who co-founded the Huffington Post web site in 2005 before starting BuzzFeed, has been immersed in digital media long enough to know that it faces pressure from multiple angles. Yet it was still a surprise when he casually told The New York Times that it made sense for five or six of the largest players in the space to merge.

Mr Peretti is not one to panic and is generally so laid back he is practically horizontal. But his comments confirm that a sector which only a couple of years ago was attracting investment dollars from traditional media companies, frothy valuations and plenty of, er, buzz, is in big trouble.

An effective duopoly in the form of Google and Facebook is sucking up most digital marketing dollars, while the revenues that do flow to BuzzFeed and its competitors have yet to reach the heights of television or print advertising at their peak.

Media companies such as Comcast’s NBCUniversal, Walt Disney and Discovery that threw money at digital upstarts must be wondering where it all went wrong and why a once-promising sector declined so quickly. As recently as the summer of 2017, TPG injected $450m into Vice at a $5.7bn valuation. But the good times are clearly over, with Disney, which bought a 10 per cent stake for about $400m in 2015, this month writing down the value of its investment by $157m.

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Mr Peretti told the New York Times there would be safety in scale, mentioning Vice Media, Vox Media, Group Nine and Refinery29 as companies that are doing “interesting work”.

Coming together would give the combined entity more muscle and the ability to negotiate a larger share of ad dollars that Facebook and Google share with publishers, according to Mr Peretti. “If BuzzFeed and five of the other biggest companies were combined into a bigger digital media company, you would probably be able to get paid more money,” he told the paper.

Across the media landscape, companies are looking for scale. That was the driver in Disney’s purchase this year of Rupert Murdoch’s entertainment assets, the idea being that the more content Disney has the more attractive the streaming service it is developing will be. International scale was also a driver in Comcast’s autumn purchase of Sky.

Scale remains elusive in advertising — Facebook and Google aside — despite the best efforts of broadcasters and newspapers. The Ozone Project was launched this summer by the Guardian, Telegraph and News UK titles as a response to the size and power of Facebook and Google. It allows advertisers to buy inventory across the companies’ respective titles — the logic being that brands chasing particular consumer demographics will be better served if they have larger audiences to choose from.

In television, Channel 4 last year formed a joint venture with three of Europe’s largest commercial broadcasters to compete for pan-European ad campaigns, taking a 25 per cent stake in EBX, a new digital sales group alongside ProSiebenSat.1 of Germany, TF1 of France and Italy’s Mediaset. Each of the companies will provide ad inventory from their video-on-demand platforms, allowing it be sold as one block to media buyers looking for audience scale and reach.

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BuzzFeed and Vox have a common shareholder in NBCUniversal and digital businesses that would fit neatly alongside each other should a merger be on the cards. A roll-up of the two companies and other online businesses would create more scale in advertising but still pale in comparison to Facebook and Google. When advertisers buy inventory on Facebook they know there is a potential audience of 2bn to play with, while individual consumer groups can be easily targeted thanks to the reams of data it has on its users.

To be fair to Mr Peretti, BuzzFeed is exploring other options to drive revenues. It has launched a membership scheme, offering exclusive content to members similar to what Quartz, the business website, announced last week. But in legacy media and new media alike, publishers are struggling with the conundrum of how to turn their audiences into profits in a global marketplace where deep-pocketed players from Silicon Valley reign supreme. Few look like finding a viable way forward.


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