*This article is a paid service of DIGIDAY[Japanese version]a media for next-generation leaders who are responsible for branding.DIGIDAY+This is a reprint from “.
- BuzzFeed’s strategy to integrate large media companies such as Complex Networks and HuffPost has been disappointing, and there are now rumors of a sale of Complex in order to rebuild its financial position.
- CEO Jonah Peretti said this is because digital publishers’ share of marketing budgets has shrunk due to a weak economic outlook and rapid platform expansion.
- However, some say that BuzzFeed’s trends were inconsistent from beginning to end, including the timing of hiring executives with experience in going public, investment in vertical video, and treatment of employees transferred from Complex.
On November 9th, BuzzFeed’s company-wide meeting was held. CEO Jonah Peretti plans to combine large media companies such as BuzzFeed, Complex Networks and HuffPost into a large conglomerate, according to transcripts of the meeting provided to Digiday by a company spokesperson. He told employees that the company’s strategy to become a corporate entity “has not produced the results we expected.”
“That’s a huge understatement,” said one current and two former employees.
BuzzFeed’s movements in the two years since its SPAC (special acquisition purpose company) listing in December 2021 range from increasing debt to declining sales, multiple layoffs, the closure of BuzzFeed News, and the looming delisting deadline. , all of which have been exposed to the public eye. There are also reports that the company is considering selling Complex, which it acquired for $300 million (approximately 31.5 billion yen) as part of its SPAC listing in June 2021.
Is the sale of the complex the default route?
“This is happening because platforms like Facebook have moved away from publishers and towards content creators, valuing engagement over quality content,” Peretti said during an all-hands meeting.
Mr. Peretti laid out a new approach and spoke in vague terms about the company’s focus on each brand under the BuzzFeed umbrella. The management team will work with a centralized team to consider an organizational structure centered on individual brands, and such a structure is already in place in the systems and administration departments. He said this approach would help stabilize the company’s operations, and tried to reassure employees that “management is working to improve the company’s financial position and put it on a growth track.”
However, what was never mentioned here was the sale of the complex. The same was true for the company’s financial results announcement on November 2nd. Current and former employees and industry watchers in the media industry that Digiday spoke to agree that BuzzFeed is struggling and that the only way for both BuzzFeed and Complex to survive is to sell Complex. A spokesperson for BuzzFeed told Peretti that he was unavailable for an interview for this article.
BuzzFeed’s financial situation in the first week of November showed once again that it was in a weak position, with its third quarter revenue once again dropping 29% compared to the same period last year. Selling the complex, which is widely considered to be BuzzFeed’s most valuable asset among sources who provided information for this article, may be just what BuzzFeed needs to breathe some air.
Two BuzzFeed executives (one current and one former) confirmed to Digiday that the sale of the complex surfaced in 2023. A company spokesperson declined to comment on the possibility of a sale, but said the company plans to apply for an extension of the delisting deadline. Apparently there is “sufficient grounds to believe that the extension will be granted.”
changing valuation
Notably, BuzzFeed is selling the New York complex to e-commerce company NTWRK for about $140 million, less than half of what it paid for the acquisition two years ago.・This is a report from The New York Times.
There are various reasons why a complex may be sold at a bargain price. BuzzFeed’s need for capital, the current state of the M&A market in the media industry, and the fact that popular shows such as First We Feast’s “Hot Ones” will not be included in the sale. , etc.
“We’re in a media recession right now,” said Sam Thompson, senior managing director at M&A advisory firm Progress Partners. “I don’t think BuzzFeed has a choice. I think they see this as a way to get cash flow to support their core business.”
But “when you look at it in detail, is First We Feast worth $160 million?” asked a former BuzzFeed executive who left the company in 2023. . “I don’t know. But every client, if they asked me anything about the show, they always asked me about it (‘Hot Ones’).”
A media buyer who manages clients’ digital media budgets agreed, saying on condition of anonymity that many clients, particularly in the CPG space, wanted to be involved in “Hot Ones.” However, the company did not reveal the specific percentage of the budget that would go toward “Hot Ones.”
BuzzFeed’s finances
The reason BuzzFeed is selling off its most expensive assets is first and foremost because it needs cash.
BuzzFeed ended the quarter with approximately $42 million in cash and cash equivalents, and had a market capitalization of $44.07 million as of the market close on November 9, according to MarketWatch. 6,610.5 million yen). As a company that was once valued at $1.7 billion (approximately 255 billion yen),It’s gone down badly. The loss of $13.9 million (approximately 2.085 billion yen) in the third quarter was an improvement compared to the loss of $27 million (approximately 4.05 billion yen) in the third quarter of 2022, but total revenue was lower than the previous year. This is -29% compared to the previous year.
“BuzzFeed is in trouble, so they’re selling off expensive assets to get cash flow that they can use not only to run the business but also to pay down debt,” said another former BuzzFeed executive who left the company in 2023. talked. According to the financial results report, the company’s debt as of the end of the third quarter was $157 million (approximately 23.55 billion yen), an increase from $152 million (approximately 22.8 billion yen) at the end of the fourth quarter of 2022. 10,000,000 yen).
A complex sale may be the surest way for BuzzFeed to make up for its losses and pay off its remaining debt. The media buyer said Complex still has significant brand power in the race for ad dollars, and that the buyer’s company will devote a “substantial portion” of its time and attention when evaluating BuzzFeed’s portfolio of brands. Apparently it’s a target.
He added that the brand is primarily considered for campaigns related to street fashion and sneaker culture, which “could mean that the timing is right for BuzzFeed to find a new buyer for Complex.” Ta.
“Perhaps BuzzFeed doesn’t have the time or investment to shore up the complex, and sees an opportunity to extract value from it. The money they get from that can then be redirected to BuzzFeed’s core assets. ” said Thompson.
Defeated by major platforms
When it acquired Complex, its initial strategy was to compete with platforms’ economies of scale by capturing a larger, more holistic Gen Z and Millennial audience.
Peretti told a recent all-hands meeting that traditional media companies have merged into large conglomerates to give them an edge in negotiating advertising costs. But with a weak economic outlook and the rapid expansion of platforms, digital publishers’ share of marketing budgets will shrink, ultimately leading to “this disappointing development invalidating the premise of BuzzFeed’s strategy.” “Ta”.
“I know the idea was that by bringing it together, it would cover the entire ecosystem in terms of content and create much greater economies of scale than could be achieved individually. That was the basic theory, but… The reality was quite different,” said another media buyer, speaking on condition of anonymity.
The buyer said it had previously worked with Complex and BuzzFeed on niche campaigns to delve deeper into specific categories and reach targeted audiences, but after the merger, it has seen a shift away from those partner companies. It seems that there has been no news from him. What’s more, BuzzFeed executives say the consolidation of ad sales teams has cost them relationships with clients, at a time when the company was already struggling with cross-brand sales.
A second buyer said he felt there was a shift toward programmatic advertising after the merger, noting that “even though media buying is done on machines and platforms, sales still require real human interaction.” That’s what it means.
“It’s been a tough two years as a portfolio company,” said the first media buyer. “Given the inactivity of brands in categories like tech, retail, and finance, I think that’s exactly where BuzzFeed has had authority, an area where BuzzFeed’s portfolio was originally dominant. “So, there are a lot of different places that are emerging, like YouTube and TikTok, where brands can gather that category of audience.”
As a result, even if buyers and brands were interested in Hot Ones, Complex, and Tasty, they were not able to garner campaign budget for them when combined. At the same time, HuffPost, which was separately acquired by BuzzFeed, also appears to be losing interest from advertisers.
The first media buyer said: “The one that’s seen the biggest decline and has been swallowed up by the big media companies is the Huffington Post, and that’s where client interest has significantly decreased[general media]. I think so.”
The timing kept slipping
Current and former executives interviewed for this article believe that BuzzFeed does not have the right leadership team to lead a listed company, and for example, despite going public in December 2021, The decision by executives to hire Marcella Martin, who has executive experience, as president in May 2022 has drawn criticism.
“I thought that by finally hiring someone with experience in a publicly traded company six months after going public, it meant the company was just trying to fill a hole. That person had been hired six months earlier. should have been,” said a current BuzzFeed executive.
Budget cuts in rent (BuzzFeed moved its New York headquarters into an office complex in August 2022, effectively cutting its New York office space in half) and operational budget cuts came too late, current executives say. says a former executive.
Furthermore, in May 2022, in the company’s first earnings call since BuzzFeed, Complex, and HuffPost became one company, BuzzFeed executives cited investments in vertical video as a key area for growth. “That was the first red flag for me,” said a current BuzzFeed executive. “It’s not a strategy, it’s a shorthand tactic.”
In a recent earnings call, Peretti acknowledged that monetizing short-form video content has proven difficult. “There is still work to be done to scale these efforts. Moreover, the changes occurring in the market are impacting digital media companies like never before, and new efforts are needed to build and scale. “It will take time for us to address the traffic and monetization challenges reflected in our financial performance.”
There was also a matter regarding the treatment of complexes. Employees who came from Complex said they felt their ideas and responsibilities were prioritized by BuzzFeed leadership. The first former executive said it wasn’t a “true merger.” This is despite the fact that Complex’s former CEO Christian Baszler and former CRO Edgar Hernandez were appointed COO and CRO, respectively, of BuzzFeed after the merger. Both will retire in 2023, but no successors have been appointed yet.
“The idea that combining Complex and BuzzFeed because of scale or overlap in audience was going to make any sense in the market was completely wrong,” said the first former BuzzFeed executive.
[Original text]
(Text: Kayleigh Barber and Sara Guaglione, Translation: SI Japan, Editing: Ryohei Shimada)
Source: BusinessInsider
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