'Shrinkage Seems Inevitable' in BuzzFeed and HuffPost Deal

BuzzFeed’s acquisition of The Huffington Post is a well-timed, shrewd move by CEO Jonah Peretti, but it’s unlikely to lead to top-line growth, according to analysts and media onlookers. But in such tough prevailing advertising conditions, that’s actually OK. With the deal, BuzzFeed gets investment, scale and links to an older audience, as well as more news resources and access to Verizon Media’s ad platform. Telco Verizon has been writing down and selling off media assets like Flickr and Tumblr for the last few years. BuzzFeed gives HuffPost a relevant home. BuzzFeed, venture capital-funded and ad-supported, is a bellwether for the health of the digital media industry and a mild obsession for publishers and industry analysts. In buying HuffPost (which Peretti co-founded), the sum of their two parts won’t be much greater than the whole, but given the challenging ad market, their future is more optimistic together, said Alice Pickthall, senior media analyst at Enders Analysis. "Shrinkage seems inevitable," she said, "but at a far slower pace and with a more optimistic outlook than if BuzzFeed and HuffPost had remained separate entities." “This is a defensive horizontal merger; BuzzFeed is the kingpin,” said independent media analyst Alex DeGroote. “It’s about survival.” Here’s what the media market expects from the merger. Scale can be helpful With the deal, Peretti has advanced his pursuit of scale to combat the duopoly. Hockey-stick growth for both publishers has slowed since their heights. Combined, HuffPost and BuzzFeed News had over 108.5 million monthly visits in October, according to SimilarWeb, with HuffPost accounting for 85.5 million. “They are doing what the rest of the media industry was focusing on back in 2010 ... but now most of the rest of the industry has found other and better ways to monetize,” said independent media analyst Thomas Beakdal. That still doesn’t make it a challenger to Facebook and Google, but that’s OK, said Brian Wieser, global president of business intelligence at GroupM. “If you’re in a position to keep growing, then scale can be helpful," he said. "Cost can be reduced for every dollar; you can apply more tech for your business.” More cost-cutting Consolidation mean synergies, but 2020 has already been a year of deep cuts. Most analysts expect a decent ad recovery in the second half of 2021, as long as there’s a vaccine, which gives the new entity time to rightsize its enlarged cost base. Both edit teams have unionized. Peretti has already said that BuzzFeed staff are protected. With both publishers barely turning a profit, centralized content hubs and shared procurement operations should help. BuzzFeed is expected to break even this year, or slightly best it, after cutting costs by $30 million through furloughing staff, pay reductions and layoffs, according to The Wall Street Journal. At its height in 2016, BuzzFeed was valued at $1.7 billion, but since then growth has slowed and the company has worked itself into a much leaner state, retrenching its international operations especially within its high-profile but loss-leading news operation. “In March, we went from expecting to be profitable for the year to simply trying to limit the damage to under $20 million in losses,” Peretti wrote to staff earlier in November. Growth this year has come from its direct-sold business, affiliate deals and display revenue. At the end of 2019, Verizon valued its media assets at $16 million (AOL acquired HuffPost for $315 million in 2011). That was before the ravages of the coronavirus. "Investor expectations [of Verizon Media's value] would be low," said DeGroote. "Verizon Media is not really on the radar for the Verizon parent company." Bulk up the ad tech The deal has caused some bemusement that Verizon is paying BuzzFeed to use its tech stack, which Verizon Media has built up, unified, renamed and reshuffled. Verizon Media has been growing more demand focused, according to sources, closing its ad server in early 2019. One source told Adweek, on condition of anonymity due to their relations with Verizon, that the ad tech side of the business is good, while the content side is a “disaster.” Funding premium journalism is expensive, and Verizon supplies access to a lot of highly commoditized newswire content. Now it can add BuzzFeed to its supply, which will tap into Verizon Media’s ad platform, giving it access to data sets across audiences on all channels including mobile, addressable TV, connected TV and audio. Free, ad-funded media journalism gets a boost In an example of the state of the media industry, HuffPost senior reporter Christopher Mathias learned about the merger by skimming the WSJ, for which he doesn't have a subscription. Peretti has spoken about the power of ad-funded and freely accessible news and how subscription models obstruct that. Both publishers have played at both ends of the content scale, said Wieser: expensive, deeply reported, award-winning investigations as well as more quick-hit listicle content. The digital media conglomerate can try and find more sustainable business models through its four brands (BuzzFeed, BuzzFeed News, HuffPost and Tasty). Otherwise, as Emily Bell, director of the Tow Center for Digital Journalism at the Columbia Journalism School, pointed out, shrinking and leading to less investment is potentially bad for journalism and the spread of accurate information.