The 80/20 View: The battle of BuzzFeed against media’s major players

In his regular column for Mumbrella, former Thinkerbell general manager Ben Shepherd looks at the emerging debate of content versus commerce as media companies tackle the heavyweights.

It came and went in a ‘blink and you’ll miss it’ moment last week, but the announcement that BuzzFeed would be going public via a reverse merger with special purpose acquisition company 890 5th Avenue Partners was an intriguing move.

What it provided, if you dug a little deeper, was a detailed look at what a future playbook may look like for media companies not attached to the handful of major players that dominate the space (think Disney, Netflix, Comcast, Warner, Google, Facebook).

BuzzFeed has always been an interesting company, as it was often portrayed as the model of building a future focused media company. It was valued at $1.5 billion over six years ago, and over its history it raised USD$496 million in funding.

After COVID emerged in early 2020, BuzzFeed dramatically scaled back its international operations, and then late in the same year it purchased Huffington Post at a highly discounted clip from a Verizon Media business looking to exit from its media experiment.

The 890 5th Avenue Partners deal is being positioned as a merger, and values the newly created entity at $1.5b. What’s important to note is $300 million of this is being used to fund the acquisition of Complex Networks.

Complex, which started life as a hip-hop flavoured media operation backed by Marc Ecko, has emerged over the past decade as a leader in fashion and culture. Based on Complex’s forecast FY22 $16 million EBIT, it’s selling at a multiple of 19x. Complex forecast $146 million in revenue for FY22.

What the Complex acquisition does is significant boost the forecast revenue of the new BuzzFeed entity. It adds 30% of topline forecast revenue (taking the forecast to around $650 million annually), and the belief will be there will be material operational savings to be made from consolidating operations, sales, marketing, back-end, systems and central management. In fact, the opex predicted savings are massive and the pitch suggests the new Buzzfeed can somehow, after 10+ years, move its opex ratio from around 50% to 29%.

Complex also allows the new BuzzFeed entity to get the jump on GroupNine, Vice and Vox in terms of volume and engagement of audience 40 and under.

It’s an interesting proposition in theory, but a lot of the optimism is based on the future and not the present/past.

For example, Complex went backwards 7% in revenue in 2020, and BuzzFeed only increased revenue 1%. To compare, the platforms of Google, Facebook, Snapchat and Twitter, all saw revenue increase 20%+ during the same period.

The 2021 projections are highly bullish. 25% revenue growth for BuzzFeed, 19% for Complex. And the same in 2022.

The growth is predicated on 24% CAGR for Advertising over the next four years, and a whopping 55% CAGR over the same period for Commerce. In fact, the new BuzzFeed sees Commerce as its second largest revenue source, delivering $330m in revenue (compared to $57m in 2020). Add all this together and the pitch is a billion dollars in revenue by 2024.

Can they pull it off? Maybe. It’s predicated on making the combined entity a lot easier to buy (BuzzFeed has historically been compelling for advertisers but incredibly difficult to buy), finding a way to scale ecommerce revenue at speed, and dramatic reductions in operating expenditure fat without cutting into product muscle and bone.

And what are the implications for other content led, advertising funded businesses?

Most importantly, it seems like there is still some money around to fund these entities. My belief was BuzzFeed with $500m in funding had probably exhausted its funding sources. Not so, the emergence of SPACs means there is still money sitting around looking to be invested.

The purchase of Complex at a reasonably hefty projected earnings multiple suggests that there is a belief that rolling up a bunch of mid-sized media assets is more compelling to the market than these businesses operating individually. Complex as part of this gets a $300m exit off the back of a 7% revenue decline in 2020 and two years of negative EBIT. Not bad.

Thirdly, media publishers are seeing commerce as a material revenue source and a way to diversify away from large enterprise advertising. Locally we are seeing businesses like news.com.au smartly exploring how it can grow in this space, and commerce revenue is appealing as it’s a high growth area with much lower operating expenses than just creating content and placing advertising around it. It’s also needed, especially when businesses like Adore Beauty are blurring the lines between retailer and media company.

Could we see a similar approach locally? Rolling up businesses like a MamaMia, Broadsheet, Urban List, Design Files, Shameless, Schwartz to create a scaled under 40’s offering? Maybe. Although Nine Entertainment Company have basically created this in Pedestrian – which over the last two years has transformed into a highly diversified content entity across culture, music, fashion, technology, business and finance.

Is content still king when it comes to advertising-based business? We’re about to see. In a few years we may be changing it to ‘commerce is king’.

Ben Shepherd is the former general manager of Thinkerbell. The 80/20 View is a regular column on Mumbrella.


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