The fact that BuzzFeed News head Ben Smith has had discussions with billionaire philanthropist Laurene Powell Jobs about potentially investing in the company’s news operation suggests BuzzFeed is wrestling with the same issue that many other media companies are: Namely, how do you justify continuing to invest in news when it doesn’t make any money?
Becoming a global news player might have seemed like a worthwhile investment when BuzzFeed was a rapidly-growing digital superstar, but in the past few months the company has reportedly missed its revenue growth targets for 2017 by a significant amount, put its plans for an initial public offering on hold and laid off more than 100 people—including a number of staffers in its UK office.
BuzzFeed’s overall financial results are private, but the news operation is said to be unprofitable. The British unit certainly is, or at least was before the recent cuts: The company filed a financial statement with UK regulators that said revenues in 2016 doubled to almost $30 million, but costs also ballooned and the unit reported a pre-tax loss of more than $4 million.
On the one hand, selling a stake in BuzzFeed proper to Powell Jobs or having her back the news unit as a standalone company makes a certain amount of sense, as Peter Kafka noted at Recode. After all, Powell Jobs is a billionaire, and a spinoff would get costs off BuzzFeed’s balance sheet at a time when the company’s finances are under increasing scrutiny.
Powell Jobs has already funded a number of media companies through the Emerson Collective: She acquired a majority stake in The Atlantic last year, and also has investments in Axios (the new media venture from Politico founder Jim VandeHei) as well as ProPublica, podcast startup Gimlet Media and the non-profit investigative entity know as The Marshall Project.
BuzzFeed also wouldn’t be the first company to decide that having a news operation is more trouble than it’s worth. Time Warner sold off its publishing arm—which consisted primarily of news magazines like Time, Fortune and Sports Illustrated—in 2013 because it was losing money (it was just acquired by Meredith Corp.). Mashable laid off most of its news reporters as part of a pivot to video last year, but was ultimately forced to sell itself to Ziff Davis for a fraction of its previous value.
Rupert Murdoch’s News Corp. also split off its publishing unit—which includes The Wall Street Journal and The New York Post—in 2013, although that move was at least in part to distance the company from charges that the Murdoch-owned News of the World newspaper hacked into the cellphones of celebrities and politicians. British giant Pearson PLC sold off its stakes in both The Financial Times and The Economist in 2015 to concentrate on its educational publishing business.
In 2016, BuzzFeed split the news operation off from the rest of the company, a move that was seen as an attempt to de-emphasize news and focus more on entertainment products produced by BuzzFeed’s video unit (which was recently downsized). Some observers suggested news wasn’t generating enough revenue to make it worthwhile as an investment, but that BuzzFeed wanted to keep the operation going in order to enhance its reputation as a serious media entity.
Ironically, the fate of BuzzFeed’s news operation seems to be up in the air at a time when many believe it is doing some of its best work, including reporting on Trump’s Russia connections and the proliferation of misinformation and “fake news” driven by trolls and Macedonian teenagers.
Mega-brands like The New York Times or The Guardian have shown that they can convince their audiences to subsidize their reporting through subscriptions or memberships and donations, but where does that leave a company like BuzzFeed, which is entirely reliant on digital advertising revenue at a time when Google and Facebook are vacuuming up more of the industry every day?
For the record, Peretti said in an exclusive interview with CJR he is committed to news, and that it’s an important part of what BuzzFeed does. He called BuzzFeed News a “strong brand” and said it ranked highly with millennials and other younger web users in terms of trust, so he thought it would probably not be as affected by the recent News Feed changes announced by Facebook.
“We haven’t de-emphasized news at all,” Peretti said in his interview with CJR. “BuzzFeed News had really tremendous year, with lots of scoops and high-impact stories [but] there’s always a question of, over time, what is the rate of growth of news vs. entertainment.” He said news “has been part of some great businesses throughout history,” and that recent experiments like the Twitter-based morning TV-style show AM2DM have brought in valuable sponsors.
“Once you build a great news-gathering operation, there are a lot of things you can do with it,” said Peretti. “There are reputational benefits [for the company] but there are also benefits to the world. And it’s important to the platforms, to the Snapchats and so on, to have a source of digitally native news that is global the way we are.”
But even the goodwill of those platforms isn’t translating into enough money to make news worthwhile, it seems. Peretti said he is happier than most media companies with Facebook efforts such as Instant Articles (which many publishers have stopped using, according to some recent Tow Center research), but that so far the company still isn’t providing enough advertising revenue.
“Of all the partners, we’re one of the most happy with Instant Articles,” Peretti said. “It’s meaningful for us—in fact it’s the thing that’s working the best out of everything. But it’s still not a good enough product to support news; they’re still not paying enough to fund journalism.”
The larger problem for BuzzFeed, by extension, is that if news isn’t making enough money to fund itself despite the company’s best efforts to integrate with Facebook and other platforms, and if Facebook intends to further decrease the presence of news in the streams of users, how does BuzzFeed justify continuing to invest in it? An acquisition by Laurene Powell Jobs no doubt looks like an attractive way out of the dilemma.
CJR has confirmed from multiple sources that BuzzFeed News head Ben Smith had discussions recently with The Emerson Collective—a non-profit organization created and funded by billionaire Laurene Powell Jobs, the widow of Apple founder Steve Jobs—about the idea of making an investment in BuzzFeed’s news operation, possibly as a standalone entity.
It’s not clear who initiated the recent discussions, or whether CEO Jonah Peretti is in favor of getting an investment from Powell Jobs or spinning off the company’s news operation. The board was reportedly not informed of the talks, and a spokesman for BuzzFeed told CNN the company is not currently looking for outside investment. The Financial Times was the first to report the talks.