BuzzFeed and other digital sites say they're well positioned to acquire in 2019 despite a tough ad market and a chorus of doomsayers

Getty Images/Michael Kovac

• 2019 looks to be a punishing year for venture capital-backed media companies whose advertising growth has slowed.
• But the heads of BuzzFeed, Refinery29, and Group Nine Media say they're bullish on their futures.
• The execs say they're well positioned because they've been diversifying beyond advertising and see themselves as acquirers.

VC-backed media outlets have become associated with stalled growth, layoffs, and fire sales. BuzzFeed CEO Jonah Peretti even floated the idea to The New York Times that a merger of a few of them - BuzzFeed, Vice, Vox Media, Group Nine Media, and Refinery29 - could be the way to survive.

But the CEOs of some of these other companies are standing their ground, saying they're set up to be the acquirers in a declining market for digital advertising.

"Having a brand that stands for something has always been a differentiator for us," Refinery29 co-founder and CEO Philippe von Borries told Business Insider. "We're still a significant business with longevity."

Read more: With media-merger talk swirling, Vox Media says it will evaluate partnerships and acquisitions

The women's lifestyle publisher was founded in 2005, raised $125 million as of 2016 from Turner, Scripps Networks, and Hearst. It went through two rounds of layoffs, in 2017 and 2018, and isn't profitable yet. It's going to be another tough year, von Borries said. But given the company started with an email product, it's not in the same boat as other digital media companies like Mic that started later and built big but fleeting audiences on Facebook, he argued.

"We launched in 2005 when building an audience was the hardest possible task in the world," he said. "You had to build it one subscriber at a time. A lot of people hitched their wagons to third-party platforms where most of the revenue never showed up. We feel like we have the more relevant and differentiated brand with our audience."

Refinery is still reliant on advertising. 70% of its revenue is advertising, with the rest coming from events and other sources. The plan is to keep growing the non-ad portion this year by expanding live events, growing internationally through advertising, and selling high-quality video to streaming services.

And von Borries said he's looking at companies to acquire, in areas like events and direct-to-consumer businesses. "There's significant opportunity for us to be a consolidator," he said. "There's interesting businesses to roll up. I want the business to be relevant and meaningful 10 years from now. And one way is to acquire but if there's an amazing company that would allow us to accelerate our vision, of course that's something we will consider."

Publishers' millennial pitch is losing relevance

Still, investor interest in funding advertising-based businesses is drying up. And long-form, high-quality video is expensive to make, the sales cycle is long, and the profits are low compared to advertising.

"The biggest challenge they have is that the defining characteristic of millennials is, there is no defining characteristic," said Chris Wexler, SVP and executive director of media and analytics at Cramer‑Krasselt. "Marketers desperately want millennials to be more monolithic, but the older end are parents with a couple kids, the younger end is just getting out of college. It's the most culturally diverse group, and they celebrate that. Media companies struggle with mass culture segmenting. You can't be all things to all people. We're no longer thinking in large, demographic swathes. We're thinking of coalitions of like-minded groups."

The rise of programmatic advertising lessens the value of individual sites to ad buyers, and when they do work on ad buys directly with a site, those deals tend to be bigger but occur infrequently and are low-profit.

BuzzFeed, which missed its 2017 revenue target, laid off staff in 2018, and hasn't consistently made a profit, talks about managing costs and "sustainability."

"We've been about outgrowing people, now it's about outlasting people," Peretti said.

In the race to survive, Peretti insisted BuzzFeed is best positioned, though. "Our model is more diversified, our tech and data is more developed, we have a deep understanding of the ecosystem."

BuzzFeed has been growing other revenue streams to complement its core business of native advertising. Around this time last year, Peretti said half the company's revenue would come from non-direct-sold sources like commerce, programmatic advertising, studio, and platforms by 2019. He told Busines Insider the company is "close" to that goal. It's also started a $5-per-month membership program for BuzzFeed News. The company passed $300 million in revenue in 2018, Peretti said, which The Times reported was up from $260 million in 2017 (but which was below the goal of $350 million).

"One huge difference in BuzzFeed today versus two years ago, when you meet with marketers at CES, they'd just meet with us to do native advertising," Peretti said. "Now, we're much more full-service. We're not a one-trick pony."

BuzzFeed is already making more money from YouTube

Peretti's case for a multi-company merger is that a combined company would have more clout to demand more ad revenue from the digital distributors Google and Facebook. He said BuzzFeed has already seen this happen with YouTube. As BuzzFeed has become a bigger share of the inventory in Google Preferred, YouTube's top content, BuzzFeed's inventory become more valuable to advertisers, he said.

Another company seen as a candidate for a merger is Group Nine Media, which is itself the product of a rollup of NowThis, The Dodo, Thrillist, and Seeker two years ago, when Discovery Communications put $100 million into the company. Discovery led another round of $40 million in 2017. Media watchers see it as a likely partner with BuzzFeed because they have similar audiences, share an investor in Lerer Hippeau (managing partner Kenneth Lerer is Group Nine CEO Ben Lerer's father and BuzzFeed's chairman), and the CEOs are friends.

Ben Lerer said Group Nine isn't yet where it wants to be in terms of diversifying its revenue, but that it's made progress in getting revenue from platforms and selling its video studio output in addition to advertising. In 2019, the company plans to add e-commerce to its revenue mix. Lerer wouldn't share any financials but said the company has "plenty of growth to validate it's working."

"We're clearly not screwed," Lerer said. "We had a great last year and I think we're set up for an even better or equally better in terms of growth, margin improvement."

Lerer said he expects to add some companies in the next year.

"We own brands people are crazy for and are growing in all kinds of ways," Lerer said. "Consolidating is not easy to do. It's people and culture and strategy. We're really, really well positioned to participate meaningfully."