Can BuzzFeed afford to keep funding BuzzFeed News?

The newsroom of the Los Angeles headquarters of the website Buzzfeed.com, photographed Oct. 7, 2013. (Photo by Jay L. Clendenin/Los Angeles Times via Getty Images)

BuzzFeed appears to be wrestling with the same issue as many other media companies these days: Namely, how do you justify continuing to invest in news when it doesn’t make any money?

Becoming a global news player might have seemed like a worthwhile investment when BuzzFeed was a rapidly-growing digital superstar, but in the past few months the company has reportedly missed its revenue growth targets for 2017 by a significant amount, put its plans for an initial public offering on hold and laid off more than 100 people—including a number of editorial staffers in its UK office.

ICYMI: An ongoing feud between two media goliaths

The news last week that BuzzFeed News Editor Ben Smith had discussions with billionaire philanthropist Laurene Powell Jobs about investing in the company’s news operation seems to confirm that BuzzFeed is at least considering a possible spinoff of the unit.

BuzzFeed’s overall financial results are private, but the news operation is said to be unprofitable. The British unit certainly is, or at least was before the recent cuts: The company filed a financial statement with UK regulators that said revenues in 2016 doubled to almost $30 million, but costs also ballooned and the unit reported a pre-tax loss of more than $4 million.

Ironically, the fate of BuzzFeed’s news operation seems to be up in the air at a time when many believe it is doing some of its best work, including reporting on Trump’s Russia connections and the proliferation of misinformation and “fake news” driven by trolls and Macedonian teenagers.

Sign up for CJR's daily email

Mega-brands like The New York Times or The Guardian have shown that they can convince their audiences to help subsidize reporting through subscriptions and memberships or donations. But BuzzFeed is still almost entirely reliant on digital advertising revenue, and the chances of it putting up a paywall around its news seem fairly remote.

Selling a stake in BuzzFeed proper to Powell Jobs or having her back the news unit as a standalone company makes a certain amount of sense, as Peter Kafka noted at Recode. After all, she is a billionaire, and a spinoff would get costs off BuzzFeed’s balance sheet at a time when the company’s finances are under increasing scrutiny.

Powell Jobs has already funded a number of media companies through the Emerson Collective: She acquired a majority stake in The Atlantic last year, and also has investments in Axios , ProPublica, podcast startup Gimlet Media, and the non-profit Marshall Project.

ICYMI: The story BuzzFeed, The New York Times and more didn’t want to publish

It’s not clear who initiated the recent discussions, or whether CEO Jonah Peretti is in favor of getting an investment from Powell Jobs or spinning off the news business. The board was reportedly not informed of the talks, and a BuzzFeed spokesman told CNN the company is not looking for outside investment.

BuzzFeed wouldn’t be the first company to decide that having a news operation is more trouble than it’s worth. Time Warner sold off its publishing arm—which consisted primarily of news magazines like Time, Fortune, and Sports Illustrated—in 2013 because it was losing money (it was just acquired by Meredith Corporation).

“BuzzFeed News had really tremendous year, with lots of scoops and high-impact stories [but] there’s always a question of, over time, what is the rate of growth of news vs. entertainment,” Peretti said.

Rupert Murdoch’s News Corp. also split off its publishing unit—which includes The Wall Street Journal and The New York Post—in 2013, although that move was at least in part to distance the company from charges that the Murdoch-owned News of the World newspaper hacked into the cell phones of celebrities and politicians. British giant Pearson PLC sold off its stakes in both The Financial Times and The Economist in 2015 to concentrate on its education business.  

In 2016, BuzzFeed split the news operation off from the rest of the company, a move that was seen as an attempt to de-emphasize news and focus more on entertainment products produced by BuzzFeed’s video unit (which was later downsized). Some observers suggested news wasn’t generating enough revenue to make it worthwhile as an investment, but that BuzzFeed wanted to keep the operation going in order to enhance its reputation as a serious media entity.

For the record, Peretti said in an exclusive interview with CJR he is committed to news, and that it’s an important part of what BuzzFeed does. He called BuzzFeed News a “strong brand” and said it ranked highly with millennials and other web users in terms of trust, so he thought it would probably not be as affected by the recent News Feed changes announced by Facebook.

“We haven’t de-emphasized news at all,” Peretti said. “BuzzFeed News had really tremendous year, with lots of scoops and high-impact stories [but] there’s always a question of, over time, what is the rate of growth of news vs. entertainment.” He said news “has been part of some great businesses throughout history,” and that recent experiments like the Twitter-based morning TV-style show AM2DM have brought in valuable sponsors.

ICYMI: “One of the most elaborate undercover stings in American journalism history”

“Once you build a great news-gathering operation, there are a lot of things you can do with it,” said Peretti. “There are reputational benefits [for the company] but there are also benefits to the world. And it’s important to the platforms, to the Snapchats and so on, to have a source of digitally native news that is global the way we are.”

But even the good will of those platforms isn’t translating into enough money to make news worthwhile, it seems. Peretti said he is happier than most media companies with Facebook efforts such as Instant Articles (which many publishers have stopped using, according to some recent Tow Center research), but that so far the company still isn’t providing enough advertising revenue.

“Of all the partners, we’re one of the most happy with Instant Articles,” Peretti said. “It’s meaningful for us—in fact it’s the thing that’s working the best out of everything. But it’s still not a good enough product to support news; they’re still not paying enough to fund journalism.”

The larger problem for BuzzFeed, by extension, is that if news isn’t making enough money to fund itself despite the company’s best efforts to integrate with Facebook and other platforms, and if Facebook intends to further decrease the presence of news in the streams of users, how does BuzzFeed justify continuing to invest in it? An acquisition by Laurene Powell Jobs no doubt looks like an attractive way out of the dilemma.

ICYMI: What you need to know about the escalating crisis at BBC

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Mathew Ingram is CJR's chief digital writer. Previously, he was a senior writer with Fortune magazine. He has written about the intersection between media and technology since the earliest days of the commercial internet. His writing has been published in The Washington Post and the Financial Times as well as Reuters and Bloomberg.