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How bright is future for ambitious BuzzFeed?

August 17, 2014

@MichaelWolffNYC, Michael@burnrate.com, USA TODAY



The Huffington Post was sold to AOL almost four years ago for $315 million. BuzzFeed, comprising key members of AOL's management group, just took a venture capital investment valuing the company at a maximum of $850 million and, given venture preferences, likely quite a bit less.

There are many ways to look at BuzzFeed's progress, but one way would be to see this investment as, compared with the HuffPo sale, reflecting slow growth and a lack of enthusiasm about the business.

But let me back up. The Huffington Post management team included -- along with Arianna Huffington -- Ken Lerer, Jonah Peretti and Greg Coleman. Huffington went with AOL. Lerer and Peretti went off on their own. Lerer started a diversified investment group, and backed Peretti in starting BuzzFeed, to which Coleman not long ago returned.

In a sense, HuffPo and BuzzFeed represent a curious experiment in which you can see the course of the same company both having been sold and of having not been sold.

As it happens, there are not that many differences, except that HuffPo seems old hat and struggling for profits, and BuzzFeed seems, to some, like the bright future as it, too, struggles for profits.

The proposition of both companies is to maximize a digital publishing model within the clear limitations of digital publishing: that is, ad rates remain low and continue to drop, so eyeballs need to go up.

When it was sold, The Huffington Post had 30 million unique visitors, derived from Peretti's legendary traffic-generating strategies, and was taking in about $30 million a year. It now is reported to have about 50 million uniques and to have about $60 million to $80 million in sales. BuzzFeed, continuing with Peretti's hyper-traffic approach, is up to nearly 150 million unique monthly visitors, and it is reported to have brought in $50 million last year. It's projecting $120 million this year (approximately the revenue of a million-circulation monthly magazine). Neither company has much, if any, profit.

Obviously, all Internet numbers should be taken with large doses of salt, but in both cases, you have very large audiences (BuzzFeed's exceeds the Super Bowl), costly to gather and maintain, with very low returns.

Still you have values that far exceed what media properties with similar revenues would be worth, but far less than what a technology company with similar growth metrics might be worth. Looking at the AOL share price, The Huffington Post'svalue now seems to reflect something closer to a heavily staffed media company.

BuzzFeed apparently attempted an exit of its own this past year, floating reports that Disney might buy it for a billion dollars. Failing that, it has now taken new money to prove that it has tech rather than media value.

It's a precarious predicament at a time when, judging by transactions of recent years, the market has become ever less keen on digital publishing. The Huffington Post was pretty much the last strong sale of a digital publisher. Forbes, one of the few old-line brands to turn itself into a HuffPo-BuzzFeed-like high-traffic site, was sold recently below expectations (its value buoyed by its print property).

BuzzFeed, with its new money, finds itself the standard bearer for Internet media. Felix Salmon, an Internet-based journalist with a rooting interest in digital-media success, last week blasted the traditional press for its general ridicule of BuzzFeed's listicle format, and for misunderstanding the nature of BuzzFeed's ambitions.

Certainly, the stakes seem high, demanding special fortitude and a magical business plan. If it can't keep projecting the promise of a scalable tech company (higher and higher revenues against stable or declining costs), then it will only be seen as an advertising-driven business, one that advertisers remain skeptical about. That is, a struggling publisher -- which, in some sense, almost every ad-driven content site is.

Salmon is right: BuzzFeed has been as aggressive as any site in trying to turn this struggle for ad dollars from merely the old publishing model into something much more inventive and hopeful. It doesn't run advertising, per se, but rather a new hybrid form, teaching advertisers how to speak in its native, listicles language and, in Salmon's interpretation, making the company something more like an ad agency than a conventional publisher. In that, says Salmon, it is like Vice, a maker of videos that fall somewhere between journalism and advertising, that's also trying to upend investor prejudices against digital media. Vice reportedly has been valued at $2 billion -- although its numbers remain urban myth rather than cash.

BuzzFeedhas also earmarked its new investment money for more video development, joining the Internet-wide phenomenon of publishing sites trying to migrate into the television business.

It is offering, again Vice-like, a new idea about distributed content, so that you won't have to come to BuzzFeed; rather, BuzzFeed will be wherever you are, or some such.

It is even talking about upgrading its content, of becoming, at least intellectually, more valuable.

The Huffington Post-- that is, BuzzFeed before BuzzFeed -- has surely carved out a place for itself in new media. But it no long offers much illusion that it is a technology enterprise. BuzzFeed, taking up where the HuffPo left off, will try, in something of a last stand, to show that digital media can become something far greater than an ad-supported content site, and, perhaps, even greater than old media when it was king. Based on the success of BuzzFeed's ambitions, Internet media may turn into an exciting business, or continue on its path to a hardscrabble one.


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Source: USA Today


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