Nation & World

BuzzFeed, Vice slash jobs in a challenging market for digital media

The market has turned more challenging for digital media

Los Angeles Times/TNS

Website Buzzfeed.com was among other online outlets that fired staff last week.
Los Angeles Times/TNS Website Buzzfeed.com was among other online outlets that fired staff last week.

When it debuted in 2006, BuzzFeed quickly became a social media sensation. Its listicles, quizzes and funny videos went viral and created a huge audience online.

The New York-based start-up later hired hundreds of journalists to do serious journalism, creating a platform that many saw as the future of the industry.

But the digital media trailblazer confronted some harsh realities in the past week when as many as 250 workers lost their jobs.

Shedding 15 percent of its staff was a bruising moment for BuzzFeed and the latest sign of distress in the once-booming digital media sector, where many outlets have struggled to capture enough ads and digital subscriptions to cover rising expenses.

Some analysts and former employees say BuzzFeed was hurt by its large ambitions, staffing up too quickly and becoming overly reliant on growing its audience through publishing platforms such as Facebook.

But the problems also reflect deeper challenges that have squeezed many other digital media sites that pursued a similar business model — one based on building a large following on Facebook and YouTube and selling that viewership to advertisers, analysts said.

“They’re all built on the ... principle that we can amass a great multiplying audience and we can sell those eyeballs to advertisers,” media analyst Ken Doctor said. The model is “broken at this point.”

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Last year, digital media companies including Vox Media, Refinery29 and Mic slashed payrolls. Vice Media last week confirmed it will eliminate about 250 jobs, or 10 percent of its workforce.

Verizon Media Group, which includes properties such as the HuffPost and TechCrunch, also recently announced it would cut 7 percent of its workforce.

The underlying problem is that these companies are heavily reliant on distribution platforms they don’t control.

Digital media companies typically generate ad revenue based on the size of their audiences, and consumers discover many of those videos and articles through sites such as Facebook and YouTube.

As a result, they’ve had to follow the tech giants’ rules on how revenue is shared and adapt to any algorithm changes Facebook and Google introduced.

Many of these digital media sites have enjoyed substantial financial backing, but investors have grown impatient with losses.

BuzzFeed, for example, is owned by media giant NBCUniversal and other well-heeled investors. It has raised $497 million and has a valuation of $1.7 billion, according to research firm CB Insights.

But pressure has been mounting on BuzzFeed to generate more revenue after missing its sales goal in 2017.

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Although the company had more than $300 million in revenue last year and claims an audience of more than 650 million people, BuzzFeed still was unprofitable, according to two people familiar with the company’s finances who were not authorized to comment.

“It’s a very expensive company to keep afloat,” said Eunice Shin, a partner at Prophet, a brand and marketing consultancy.

BuzzFeed CEO Jonah Peretti said in a note to employees that “the restructuring we are undertaking will reduce our costs and improve our operating model so we can thrive and control our own destiny, without ever needing to raise funding again.”

The company made changes to its business, including merging its commerce and marketing team, cutting its newsroom staff and reducing its teams abroad.

Google and Facebook own and control many of the world’s most popular platforms, including YouTube, Facebook and Instagram. To obtain access to those audiences, publishers on those platforms need to share a large chunk of their digital ad revenue with Facebook and Google.

Facebook, for example, takes about 45 percent of the ad revenue generated by commercials on videos distributed through its platform Facebook Watch.

“The devil’s bargain there is you get a bigger audience, but you are giving up a lot of revenue and you don’t control the experience,” said Paul Verna, a principal analyst at eMarketer.

The amount of money that publishers are earning in digital ads through Facebook and Google is disproportionate to the amount of traffic they receive from those sites, said Jason Kint, CEO of Digital Content Next, a trade group.

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In 2017, premium publishers received less than 5 percent of their digital revenue through Facebook or Google platforms, even though 30 percent of their search traffic was coming from Google, Kint said. Publishers “were not receiving the fair value,” he added.

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