The pros and cons of BuzzFeed's 'duopoly-challenging' digital media merger proposal
After BuzzFeed chief executive Jonah Peretti floated the notion that a merger with digital media peers like Vice, Vox Media, Group Nine and Refinery could reduce the heat on publishers, former BuzzFeed UK senior editor Luke Bailey bleakly likened digital media companies to polar bears stranded on a melting iceberg.
He says that mergers reduce the number of polar bears jostling on the iceberg, but they fail to address why the habitat is melting.
Earlier this month, in discussion with The New York Times, Peretti suggested that a potential merger of BuzzFeed and five major media companies could levy better ad rates from digital platforms like Facebook and Google. His logic was that by coming together at scale, publishers could deliver an ultimatum to the duopoly.
It is clear the balance of power is not currently evenly distributed between the companies.
At the close of 2017, GroupM reported Google and Facebook accounted for 84% of global digital investment (excluding China). Meanwhile, BuzzFeed reportedly missed revenue targets by as much as 20% in the same period. In 2018, BuzzFeed seeks roughly $300m in revenue, with a diverse income spread across e-commerce, display ads, branded partnerships and even donations.
Bailey was one of the third of the UK team chopped to cut costs almost one year ago. Now senior editor of iNews tells The Drum that consolidation in the digital media space is “inevitable, but won't solve the core problem” facing the industry.
He says that while companies like BuzzFeed, Vice and Vox Media may benefit in the short to midterm, and may even secure better terms with the ad giants, the influence can be eroded if major players like MailOnline, The LadBible Group and Fox News are not singing from the same hymn sheet. “It isn’t a bad idea, but there are long-term challenges that aren’t addressed by consolidation.”
The notion that media brands are only competing like-for-like is similarly outdated in Bailey's opinion. “They also stand against user-generated content as simple as your little cousin’s Fortnite updates.”
He paints a bleak picture of the wider scene. “They’re all trying to be the last polar bear on the melting iceberg, one polar bear will last longer than three – but the ice is still melting.”
The benefits of consolidation
Joshua Benton, founder and director of Nieman Journalism Lab, believes consolidation is more likely to lead to cost-saving layoffs than a stronger negotiating position with Google and Facebook. Not least because news content only makes up 4% of the Facebook newsfeed. “It has very little interest in negotiating a special deal with a BuzzVoxViceCorp," Benton says.
If negotiation was really the crux of the problem, Benton suggests the formation of an association that also includes “huge news players” like CNN, The New York Times, The Washington Post and The Guardian would have more success. “If negotiating power was really the interest, you'd see a much broader-based group of media companies forming a trade association.”
Drawing doubt on the effectiveness of the merger floated by Peretti, Benton adds: “No merger could create a media company that would be remotely competitive in scale with Facebook or Google. They're just too small, even combined together.”
Although Facebook is now funding 80 trainee local news journalists in the UK, and Google has its Digital News Initiative and is one of the web's biggest referrers to news, to them “a news story is just a page on the internet, just like every other page," according to Benton.
“They're interested in better filtering out the bad stuff — not providing any special money to fund the good stuff.”
Preaching to the wrong crowd
Susan Budel, a senior analyst at Forrester, believes that media companies would be better spending their time impressing marketers and media buyers rather than convincing the duopoly that quality content matters.
“The core of the problem for digital media publishers is that marketers, the agencies that represent them, and the buying platforms that act on their behalf don't currently place value on context, quality content or user engagement," she says. "They should, but they don't, even in light of the constant revelations about fraud in the digital ecosystem.
“Until marketers change, there is no incentive for Facebook and other distribution platforms to share a greater portion of revenue with publishers. The platforms are intent on paying the least amount possible to deliver to advertisers; the widest reach of any given target audience regardless of content, context, environment'. You can see that there is an inherent conflict between the platforms and quality publishers."
Furthering the point, Dino Myers-Lamptey, managing director at MullenLowe Mediahub, explains that Google and Facebook’s mass-market ad solutions are not always the most “effective”. He cites research from Lumen that showed that a mid-page unit (MPU) on The Times had a 54% chance of being viewed, compared with a 45% average on YouTube. “Context and attention matter greatly,” he says.
Myers-Lamptey cites The Guardian, The Telegraph and The Times’ joint advertising effort, the Ozone Project, as a good example of how distinct legacy media brands can join the dots to deliver greater audience scale and buying ease to brands. “If their ads are getting more attention, then you can expect brands to pay attention and, more importantly, pay for this attention.”
With consolidation, media companies can benefit from “single source data, multi-platform buying and attribution understanding, speed and ease of buying, executing and supplying the creative," he says. "Global scale efficiently and centrally bought.”
The hunger for quality content
Unlike Budel, Myers-Lamptey thinks the platforms have identified that quality content will stand them above rivals. YouTube, Amazon and Facebook, he says, are all snapping up sports rights at great cost. He believes the platforms do ultimately care about quality content – but they define it as material that is engaged with.
“This, by the nature of the platforms, can often inflate the value of short, attention-grabbing clips, which may not be the most researched or considered. The algorithms that they put their faith into need to become a little more human in their interpretation of quality.”
Barney Farmer, UK commercial director of Nielsen, insists that the platforms need audience and advertising to drive their businesses.
He sees opportunities for large scale, or niche titles, to flourish but issued a warning to those on the fence. He says that they face rising costs and not enough budget to compete with the platforms. “Consolidation may mean that there’s some levelling of the playing field.”
“I’ve been working in the media industry for 25 years and there’s always been change, evolution and M&A – I don’t think its necessarily happening now more than ever,” Farmer adds.
“The difficulty is in doing it well. There is usually an initial short-term gain of efficiency and it means organisations can pull in more resources which leads to better content. Done well, consolidation makes for better propositions, better content and better audiences – and ultimately means being more attractive to advertisers.”
Creative coalitions, not media mergers
Jamie Bolding, chief executive of Jungle Creations, one of Facebook’s largest publishers, posits an alternative view, that digital media businesses should leverage the scale afforded by social media to deliver bespoke content from brands to mass audiences.
The title, which was rumored to have made a bid for viral rival Unilad, is currently looking to minimise its reliance on ad revenue, working to build out income from branded content, production, creative strategy and planning and ecommerce.
It is not alone in positioning itself as a creative consultancy weighted on audience insight, in-house talent and niche brands. Other examples include Vice, Conde Nast, The Washington Post, New York Times and Refinery29 which are all developing their own commercial content studios.
“Our objective in the short-term is less about overcoming the likes of Google and Facebook via media mergers but activating more of our ideas and creating stronger relationships with clients in order to really understand their needs and deliver unrivalled branded content campaigns in this platform-led always on world," Bolding says.
For Bolding the next year will be about “creative coalitions”, not “media mergers”, rolling out campaigns beyond social into experiential, out of home, and even TV, print and cinema.
He outlines: “It's becoming more and more important to partner with other agencies in order to get deals over the line and generate the best results for clients, that don't just focus on one type of media."
Rowly Bourne, founder of media monetisation firm Rezonence, is of the belief that the “editorial media industry cannot survive on a CPM advertising business model” alone and that by floating a merger, the disruptors of traditional media are now “following in their footsteps”.
He doubts the sincerity of Peretti’s reasoning for his proposed BuzzFeed consolidation. “I can’t believe the main benefit is for better rates, as this seems to be a lot of trouble for as yet confirmed improved rates.”
He concludes: “Consolidation is a reflection of the declining opportunity for companies and investors, and we will see a lot of it. Venture capitalists have lost interest in the space, with too much capital now tied up in one of the 6,000 adtech companies competing for the 20% budget left behind by Google and Facebook.”
A source that once worked closely with Peretti at BuzzFeed believes the merger announcement was a calculated statement of intent from the media mogul.
“Around this time of year, he goes away to figure out how BuzzFeed fits into the media landscape," they said. "I wouldn't be surprised if this was actually a tactical message as opposed to something that was blurted out.”
Almost a full year ago, Peretti made the bold claim that ‘the media is in crisis’ and circulated a memo to staff outlining that the duopoly “puts high-quality creators at a financial disadvantage, and favours publishers of cheap media”.
One year later and his tune has changed, but the lyrics remain the same.
The savings from any consolidation, paired with the ability to lobby the duopoly for preferential treatment on new product and feature launches, could make sense in the coming years, the source says.
Another BuzzFeed source acknowledged that talks are underway but adds: “this isn't something we need to do, rather only something we would do if it makes sense”.
For now, the polar bears are content to size up the situation. A merger will make sense if the iceberg continues to melt... And if it does, there will probably be more urgent things to worry about.