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InContext / An inside look at the business of digital content

A correction for digital natives? Yes, and that’s fine

April 21, 2016 | By Mark Glaser, Founder and Publisher – MediaShift @mediatwit
is industry cratering?

Days after nearly a million people watched a watermelon explode on Facebook Live, the Financial Times reported a gloomy outlook for the digital company behind the endeavor: BuzzFeed missed its 2015 revenue target by 32 percent and was cutting its revenue projections for 2016 in half.

Coupled with ongoing layoffs and reorganizations at top digital media companies, these shaky performances have left some people wondering whether these once-touted darlings — like the watermelon before it —are ready to burst.

BuzzFeed Falling Short?

BuzzFeed anticipated about $250 million in revenue for 2015 yet brought in less than $170 million, according to the FT’s Matthew Garrahan and Henry Mance, and slashed its 2016 revenue goals from $500 million to $250 million. BuzzFeed chairman Ken Lerer quickly dismissed the 2016 projections (though he wouldn’t discuss last year’s performace), and said the company was on track to exceed its revenue targets in Q2 and for the rest of the year.

“There’s nothing cratering in the industry. It’s better than ever,” he told Recode’s Peter Kafka. “It’s just different.

What may be different for BuzzFeed, according to Kafka, is the theory that BuzzFeed’s core ad product, native advertising written on behalf of marketers, might not scale as well as video advertising, which is generating big bucks. Another theory for the unexpected revenue shortage is that while BuzzFeed is a leader in distributing content directly onto social platforms — for example, video uploaded directly to Facebook — it hasn’t yet been able to earn money from that content because the platforms are still developing their ad strategies.

One advertising model that is certain, though, is video. “Video ad rates continue to hold up far better than for ads placed alongside all those tiresome words,” Ken Doctor wrote in Nieman Lab.

Video was also the secret word behind recent layoffs and restructuring at Mashable, which, along with Gawker, Al Jazeera America, Salon, International Business Times and Huffington Post, suffered from cutbacks in staffing. In an especially shocking blow, Mashable announced that Jim Roberts, who came to Mashable from Reuters, and before that, the New York Times, would be leaving. He is widely credited with helping Mashable grow up and hired editors to oversee political and world news alongside tech information and reporting. About 30 Mashable staff were laid off to refocus more on video and core Mashable content — namely, tech and entertainment — and away from news and politics.

Sky-High Valuations

The valuations that Mashable and other digital companies had, though, led to a lot more pressure to perform. Mashable’s announcement came not too long after it raised $15 million from Turner Broadcasting and others — a move some dubbed as “new media chasing old media” — bringing its total funding to $46 million. Comcast’s NBCUniversal, meanwhile, invested $200 million in BuzzFeed last summer at a $1.5 billion valuation, and invested $200 million in Vox Media. Adding to the repertoire of huge digital media investments is German media giant Axel Springer, which has invested  in 15 digital media companies (including Mic) in addition to buying Business Insider last year for about $450 million.

Do these investors have reason to worry about owning potential “unicorpses”? Probably not. But in any new field of media experimentation, there will be highs and lows. With the proliferation of so many native-digital players, it was predictable that there would be a correction, and eventually consolidation. For Mashable, BuzzFeed and the like, their content strategies are moving faster than the monetization strategies — which, while disappointing on the financial end, is certainly not a bad thing when building an engaged audience. While it doesn’t bode well for the value of text, it makes sense that these companies are turning to video if that’s where the money is. Other legacy media outlets like the New York Times and Washington Post are doing the same.

If anything, these recent shake-ups in the digital media business serve as a reminder that anticipating the future of the business is no easy task. “If people expect these companies to have figured out how to replace the legacy news companies and navigate this new world, they’ve got to think again,” Doctor wrote. “There is no secret sauce in news publishing.”

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