Native-digital companies in deep trouble

In the early 2000s, a few visionaries set out to launch digital native outlets that would capitalize on the power of the Internet and social media. Today, those same outlets, which depend on digital advertising and virality, are in deep trouble. The latest news comes from the HuffPost, where the newspaper has laid off 47 people after Buzzfeed purchased the outlet. The pandemic has meant a real hit for digital ad revenues across the sector, and few newspapers can now live off only on those dollars. With tech platforms eating away a big chunk of the advertising pie, native digitals are trying to find a way to survive. For now, that path has been mergers and acquisitions. But is that a viable long-term strategy?

Native digital outlets were born in the mid-2000s when a few people decided to take advantage of the Internet launching news aggregators. Traditional newspapers were still offering their content online for free, and most lacked any paywall. One of the first to launch a native digital experiment was Matt Drudge with its conservative news site, the Drudge Report. The outlet was first launched in 1995 as a weekly newsletter, providing breaking news to the public. One of his assistants was the conservative Andrew Breitbart. Through Drudge, Breitbart met Arianna Huffington, who was already playing around with her own website. Together with Jonah Peretti, the founder of Buzzfeed, and Kenneth Lerer, they launched a new news aggregator that soon became a hit—the Huffington Post. As Jill Abramson explained in her book Merchants of Truth: The Business of News and the Fight for Facts, Peretti was fascinated with virality and understanding why something caught the public’s eye. He soon started experimenting with his own site—what later became known as Buzzfeed. His idea was to have an algorithm to determine what was viral and send users links to that popular content. And, in short, he succeeded. With a mix of memes and listicles (Buzzfeed became very popular for the latter), the company continued to grow, taking advantage of how social media made content viral. Later on, in the early 2010s, Buzzfeed would change. The company started investing more in news content and separated its news section from its entertainment one. In the meantime, Breitbart, who had also participated in the launch of HuffPost, had left to launch its own news site—the conservative news aggregator Breitbart News.

Native digital outlets were everywhere, and they started competing with traditional newspapers. Oftentimes, the latter were at a disadvantage, as sites like the Huffington Post shared information reported by outlets like the New York Times. But their links became much more popular than the original reporting. Social media was on their side. That has changed since.

Although being dependent on social media platforms seemed fine at first, it soon proved to have many disadvantages. In 2018, Facebook changed its algorithm to prioritize family and friends’ content over news sites. The head of the news feed section said at the time that the decision would mean that “we’ll show less public content, including videos and other posts from publishers or businesses.” For sites like Buzzfeed and the Huffington Post, the decision meant a blow to their finances. In 2019, layoffs ensued. Verizon cut 7% of its media staff, including positions across AOL, Yahoo, and the HuffPost. Shortly after, Buzzfeed announced it would reduce 25% of its headcount. Other news sites followed. The conclusion for the media industry was simple—digital advertising is not enough. Last year, Amazon, Google, and Facebook controlled more than 60% of the digital ad market in the United States.

While other newspapers with traditional strong brands, such as the Washington Post or the New York Times, were opting for subscription models, native digitals decided to follow another strategy. Their path consisted of mergers and consolidation to reduce costs. For instance, in 2019, Vice Media purchased the female-focused outlet Refinery29, while Vox Media purchased New York Media, with the consequential layoffs. 

In 2020, advertising took another fall. The pandemic left many companies out of business, and the ones that survived had meager resources and were less capable of investing in ads. Besides, traffic has also decreased. According to the Wall Street Journal, Buzzfeed’s traffic was down 69% in October of 2020, while HuffPost saw a decline of 5%. So, the consolidation path continued. In November of last year, Buzzfeed agreed to acquire the HuffPost from Verizon Media as part of a deal under which the companies would syndicate content and share advertising revenue on that content. But the deal, which closed in February, was soon followed by layoffs in the HuffPost. The reality is that both outlets had similar audiences and sometimes overlapped in their coverage. The layoffs, according to Buzzfeed, will help the combined company refloat. And maybe in the short-term, it will. But in the long-term, we might be facing a media landscape composed of an oligopolistic scenario as digital organizations continue to merge.

Still, cost reduction by mergers and acquisitions work for a while. Through these deals, media companies can combine outlets that share similar audiences and leverage their strengths. However, they always result in layoffs, further consolidation of the market, and don’t solve the original issue— there is not enough money in digital ads for news outlets to live from. The larger question over the business model’s profitability remains. 

Subscription-based business models may rise as an alternative, but they are not for everyone as it requires a strong brand recognition. It is a fact that at this time, subscribers have become more reliable than advertisers, especially if they feel part of a community. Examples abound, going from The Guardian and El Diario’s membership-model to the New York Times’ subscription strategy. For instance, the New York Times set a record for its subscription business last year, as it added 2.3 million digital subscribers. But let’s keep in mind that it’s hard to compare the Times with anything else and that its mere success points at another problem—subscription models also lead to consolidation. Readers can only pay for two or three subscriptions, so they will pay for those they get the most out of, which favors the Times and works against local outlets. Both native digital strategies and traditional newspaper models lead us to an unequivocal media landscape—one with very few media companies, which own the main outlets.

Native digitals must rethink their business strategy, adding new revenue sources, including events or perks for those who subscribe to them. Two things are clear—digital ad revenue can hardly be relied on as media engines, and consolidation is here to stay. Native digital outlets are in deep trouble, but their decisions can redefine the market.