BuzzFeed and digital media's next chapter
Eventually, everyone grows up
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In the early 2000s, Yahoo was commonly referred to as the online advertising sector’s “bellwether.” As Yahoo went, so did the entire industry. For digital publishers, BuzzFeed ended up emerging as its own bellwether, the leading example of a digital media media company born in late 2006, just as Facebook was opening its network beyond college students.
BuzzFeed quickly established itself as the most interesting and innovative of a new crop of digital publishers, including Vice Media, Vox Media and Group Nine. BuzzFeed was, in all possible ways, a child of the Facebook era. What Jonah Peretti understood is that media can serve as a form of connectivity between people, a way to express themselves. Back in 2011, Jonah told me publishing driven by Facebook algorithms was better than publishing driven by Google’s algorithms: “It’s more your reaction to content and how you interact with your friends around content than the informational value of the content.”
These were more benign times, when that meant 19 Things All Middle Children Know All Too Well, which is not to be confused with 22 Faces Every Middle Child Will Understand or 18 Experiences That Will Make All Middle Children Say, "Damn, That's Real." And of course, it led to far worse as these mechanisms were hijacked by propagandists to push divisiveness. This statement didn’t age well: “Our social selves are our better selves.” But through the years, Jonah has always been very thoughtful about the uneasy coexistence of media in an age of software.
Now, with a messy SPAC process behind it, BuzzFeed is again at the forefront of a new phase of digital media as it finds sustainable business models. Unsurprisingly, many critics have piled onto the fact that with SPACs out of favor — few have fared well in the market — 94% of backers of the SPAC BuzzFeed merged with to get listed chose to take their money back. And the grumpiness of some BuzzFeed employees. And signs that BuzzFeed’s commerce business, a key revenue stream for a digital media company without a subscriptions business, is seeing slower-than-expected growth. The New York Times, noting a volatile first day of trading that left BuzzFeed’s shares down 11%, proclaimed the entire affair “a warning to other digital media firms.” NYT was less snotty back in 2015 when it was in hock to Carlos Slim.
The bottom line is BuzzFeed has made it to the public markets, with a market capitalization of over $1 billion (not far from what Disney would have bought it for in 2014) and, most importantly, the chance at developing a new digital media holding company model that marries a shared tech, operational and business infrastructure with distinct brands that cater to specific audiences. As Jonah said to Peter Kafka, the deal might not leave them with as much cash on the balance sheet as once hoped but it will still give them the ammunition needed to do more acquisitions. The test will be if BuzzFeed has developed the systems, infrastructure and discipline to run those acquired companies better and more profitably. (BuzzFeed claims it is currently profitable although that’s on an adjusted basis. Under standard accounting rules, the company is still unprofitable.) “There’s a great path for profitability in this space,” Jonah promised on CNBC, citing “operational leverage” as the rationale for a publicly traded BuzzFeed rolling up other digital media firms.
Along with Gawker, BuzzFeed defined a generation of digital publishing. Its successes and travails mirrored those of the industry itself. From the misplaced hype that led to big venture capital bets to the extreme pessimism of ad-dependent content businesses, BuzzFeed has been a Rorschach test for the current state of play in digital media. It’s fitting that BuzzFeed went public through a SPAC, a financing vehicle that itself emerged with a ton of hype only to fade in popularity just as quickly.
Such boom and bust has been life in digital media the past 15 years since BuzzFeed emerged from that loft in Chinatown. I came to recognize a condition at many legacy publishers and peers: BuzzFeed envy. BuzzFeed scared many in traditional media. They were jealous of its constant experimentation, smart use of data and ability to attract millennials (and fawning press coverage). I recall in 2014 visiting the Hearst Tower, surrounded by oil paintings of Hearst luminaries, to meet with David Carey, then president of Hearst Magazines. I asked him if he thought BuzzFeed was building “a real brand,” and he said without a doubt. The question was whether legacy brands could catch up on distribution and systems before BuzzFeed could make progress on brand. That’s why, for a long time, BuzzFeed was seemingly the R&D lab of the industry. What BuzzFeed started, others followed. The New York Times’ Innovation Report in 2014 was fittingly first widely distributed by BuzzFeed since it was filled with references to BuzzFeed. And with good reason. Consider these industry changes BuzzFeed either set in motion or accelerated.
Data-led viral growth. Competitors marveled at BuzzFeed’s ability to engineer large audiences by using analytics to help produce viral content that was designed to make people feel something. Those growth hacks were inevitably reverse engineered, giving the world fly-by-night outfits like ViralNova, Upworthy and Little Things. It was fitting that “The Dress” made it to BuzzFeed’s ringing of the bell at Nasdaq. (It’s blue and black, by the way.)
News ambitions. With Ben Smith joining in 2012, BuzzFeed signaled its ambitions to become more than just a listicle LOL factory. It built an impressive newsroom that broke stories, developed great talent and had impact. That set in motion moves to expand like Refinery29 and Mashable going beyond their roots to build bigger news operations. That gave us the weird experience of Mashable covering Russia’s invasion of Ukraine.
Brand publishing. BuzzFeed didn’t invent content marketing or native advertising, of course, but it popularized the modern notion of the marketer as publisher. I can recall going to a Virgin Mobile “newsroom” that was built and operated under BuzzFeed’s guidance. Jonah and Jon Steinberg’s rejection of the display ad business didn’t last, but BuzzFeed’s embrace of brand publishing was ahead of the curve and led to the creation of publisher content studios throughout the industry – and showed the way to brands truly thinking and acting like publishers.
Programmatic’s inevitability. BuzzFeed executives spent years decrying the lowly web banner ad, only to change course in 2017, when it capitulated to the power of efficiency by adoption programmatic advertising to complement its content studio business. That move, while eliciting snickers from journalists on the hunt for any hint of hypocrisy, probably saved the company. Programmatic is now the backbone of BuzzFeed’s ad business, which grew 79% in the second quarter.
Distributed media. As the largest social publisher, BuzzFeed’s fate was inextricably linked to Facebook’s. That was good as the rising tide lifted all boats, not so good when Facebook’s priorities went in different directions. But again, the shift to distributed media models by digital media companies was led by BuzzFeed.
Video dreams. It was a big deal with BuzzFeed recruited Ze Frank in 2012 to lead its video efforts. Ze was a pioneer in the early use of web video, tapping into audience participation in his videos that challenged people to do things like dress up their vacuum cleaners. On April 6, 2016, the world was given its symbol of the mostly disastrous pivot to video when BuzzFeed exploded a watermelon in a Facebook Live broadcast that attracted nearly a million people.
Creator economy. BuzzFeed was very early to the creator economy, having started with community-created content at the core of its model. Over the years, BuzzFeed backed its own creator stars, even being at the forefront of the struggles over intellectual property ownership.
Commerce. BuzzFeed saw relatively early how content can drive commercial transactions, starting with selling cookware and cookbooks. Now, commerce is a growth driver across digital media. BuzzFeed’s commerce business, accounting for $31 million in revenue in the first half of the year with an 80% year-over-year growth rate.
Flight to niche. With Tasty, BuzzFeed was relatively early to the push to create specialty brands as opposed to the Yahoo approach of a monolithic brand. It ended up with several verticals, although few have broken through to the degree Tasty did. The next BuzzFeed will likely be a collection of creator-led vertical brands. With HuffPost and now Complex, BuzzFeed is on its way to being a collection of publishing assets that down the line could end up looking a lot like Hearst or Condé Nast.
A publicly traded BuzzFeed is an important moment for digital media as it matures and the companies that were once thought of as the cool kids and the hot new things start to preach the gospel of “operational efficiency” and profit margins. Jonah now peppers “sustainability” liberally in his answers to questions about BuzzFeed’s future, and is backing that talk up by slow walking negotiations with BuzzFeed News’s union while noting it is 4.5% of BuzzFeed employees and is “the only content team that doesn’t contribute profit.” The message is clear: BuzzFeed isn’t about viral experiments anymore.
Through all the ups and downs, BuzzFeed has built a meaningful business with over $500 million in revenue this year that’s well positioned to be among the handful of scaled digital content companies. That likely means leaving behind the days of wacky experimentation in favor of operational and financial rigor, but getting older and more mature sure beats the alternative.
Coming up on Monday, Silverblade Partners CEO Bernard Urban joins The Rebooting Show to discuss how Silverblade is helping to solve a major pain point for advertising media: Managing cash flow in a business with payment cycles that can last 60 days or longer. Bernard and I will discuss the unique challenges this places on publishers, agencies and all other companies in advertising media. Silverblade has built a cashflow solution that will finance accounts receivable and accounts payable on more flexible and favorable terms than typical options like factoring and lines of credit. We’ll go into the details about why liquidity challenges are impediments to growth in many companies, and how Silverblade makes trade finance into a strategic advantage. Learn more about how Silverblade helps its partners achieve greater liquidity, better payment terms and higher credit limits.
Things to check out
Web3 needs more real-world examples, and they’re starting to slowly emerge. Dirt is a niche publication that’s been at the forefront of experimenting with new models. Its year-end recap notes that it raised $65,000 through an NFT collection of drawings. Of course, some of that is simply timing as the market for NFT was quite frothy when Dirt sold its collection in October. Kyle Chayka’s recap touches on some thorny issues that remain, such as how decentralized groups handle governance.
But if you’re still confused on the potential of all this, check out the new end-of-year mega presentation from Benedict Evans. He breaks down the major shift web3 represents as “new models for building software, internet businesses and networks.” This “dream of a next version of the internet” hinges on power going from centralized platforms to individuals, a compelling narrative that, even if it only partially comes to pass, will result in dramatic changes to many sectors, in particular the media business.
The Financial Times is touting an “exceptional” year. The Nikkei-owned business publication said it came in ahead of its forecasts, although it didn’t give specific numbers. As a result, employees are being given $7,700 bonuses. The biggest unexpected trend of 2021 is how well many publications have done, not just in comparison to a moribund 2020.
It’s not just subscriptions that are doing well. The ad business is cyclical, which pinches in down economies but the opposite happens in hot economies like the one we’re in right now. GroupM, the biggest ad buyer in the world, revised its ad spending outlook to be more optimistic, with the expectation that digital advertising will rise 31%.
The Great Resignation isn’t a temporary phenomenon. The sharp break necessitated by the pandemic has opened many people’s eyes to new ways of living, and there’s no chance of reversing that. My bet is we will only appreciate how profound this shift is a couple decades down the line. Ed Zitron has a good counter that this is all privileged pablum.
Thanks for reading. Get in touch with any feedback. My email is bmorrissey@gmail.com.