BuzzFeed acquired HuffPost at a time when digital media companies reliant on scale and advertising revenue are struggling. But founder and CEO Jonah Peretti still believes there’s a sustainable future for free media.
The takeaways:
- The past decade has been dominated by nimble digital media companies, from Vox and Vice to Group Nine, BuzzFeed and HuffPost. But as the ad market has declined and publishers have struggled to compete with the scale offered by Facebook and Google, reader revenue is now being seen as the new saviour.
- Verizon formed its media division from the merger of HuffPost owners AOL, which it bought for $4.4bn in 2015, and Yahoo, which it bought for $4.5bn in 2017. However, HuffPost struggled to meet sky-high expectations, and Verizon has been looking for a buyer since 2019.
- BuzzFeed’s acquisition of HuffPost comes at a particularly surprising time, with BuzzFeed closing news operations in the UK and Australia this year, and over $80 million of cost reductions over the past two years, as well as other pandemic-related measures like layoffs.
Background check:
As the internet grew in popularity, a vast number of new digital publishing sites sprung up. With none of the costs of legacy print to hamper them, and digital-first staff, they grew rapidly, amassing vast audiences and ad revenue to follow.
- AOL bought HuffPost for $315 million back in 2011. This made the sale of HuffPost one of the most successful venture capital exits in media. It also prompted a new wave of VC-backed media ventures, leading to grossly overinflated expectations.
- The success of these digital media pureplays was so pronounced that publishers like the New York Times were afraid that they would threaten their future, even going as far as to produce a 96-page ‘innovation report’ to help it fight back.
- The NYT has since refined its subscription business model to become an industry leader. It also pays top salaries to secure the best reporters in the business. They hit 7 million paid subscribers in November, with revenue from digital subscribers overtaking the revenue from print subscribers for the first time.
Yes, but:
However, alongside the digital publishers, Facebook and Google were also seeing rapid growth. As they began to invest in their own ad solutions, publishers found themselves unable to compete with the billions of users that each tech giant could offer advertisers.
- It’s now estimated that more than a third of total global ad spend goes to Alphabet (including Google and YouTube) and Facebook (including Instagram and WhatsApp).
A huge wave of consolidation and M&A activity in 2018 and 2019 across the digital pureplays led many to hypothesise that scale was dead, and that free, ad-supported media doesn’t have a sustainable future. But is the future for free media as bleak as analysts make out?
- Peretti argued that the cross section of society interested in paying for news is elite, and that the vast majority of people still get their news for free or as part of a bundle. “The NYT has a great business model,” he said. “That is only possible because you have a wealthy subscriber base and write stories they like. Not really the paper of record, more the record for elites.”
Good timing?
BuzzFeed had reportedly just achieved profitability for the first time since 2014. This acquisition will now put them firmly back in the red for at least another year.
- Peretti has emphasised his focus will be to keep the two brands separate, not to try and merge HuffPost with BuzzFeed. However, they will share resources on fronts including advertising and content syndication.
- While HuffPost brings in between $45-$50 million a year, its annual expenses are between $60-$70 million, according to sources. That’s before the impact of the pandemic has been taken into account.
- Verizon Media has said HuffPost will still be a content syndication partner for its distribution brands like Yahoo, and that BuzzFeed will be able to syndicate content across Verizon’s Media brands.
Did you know? Jonah Peretti was one of HuffPost’s original founders in 2005, alongside Arianna Huffington, Kenneth Lerer, and Andrew Breitbart – the man who went on to found far-right news side Breitbart.
“I have vivid memories of growing Huffpost into a major news outlet in its early years, but Buzzfeed is making this acquisition because we believe in the future of Huffpost and the potential it has to continue to define the media landscape for years to come,” Peretti said about the acquisition. “With the addition of Huffpost, our media network will have more users, spending significantly more time with our content than any of our peers.”
A final thought: Given the layoffs and cuts on the BuzzFeed News side of the business over the past year, HuffPost could be a great opportunity for Peretti to realise his news ambitions, and rehouse some of the talent that has made BuzzFeed News’ coverage stand out.
