Online News Startups Feeling Ad Dollar Pinch

April has been a sobering month for online news startups, as BuzzFeed and other industry leaders were forced to cut budgets, layoff workers or slash revenue expectations for the year. The struggles stem from a perfect storm of plateauing web traffic and faltering ad revenue in the competitive online marketplace. 

April has been a sobering month for online news startups, as BuzzFeed and other industry leaders were forced to cut budgets, layoff workers or slash revenue expectations for the year. The struggles stem from a perfect storm of plateauing web traffic and faltering ad revenue in the competitive online marketplace. 

The story of newspapers struggling to escape an industrywide die-off amid an explosion of digital alternatives is nothing new.   

But you might be surprised to hear that the rising startups of the online news world aren’t exactly raking in the profits either. In fact, as John Herrman of The New York Times wrote last week, some of the biggest brands in online news are already being forced to tighten their belts.

“This month, Mashable, a site that had just raised $15 million, laid off 30 people,” Herrman said. “Salon, a web publishing pioneer, announced a new round of budget cuts and layoffs. And BuzzFeed, which has been held up as a success story, was forced to bat back questions about its revenue – but not before founders at other start-up media companies received calls from anxious investors.”

BuzzFeed appeared to be doing fine until The Financial Times reported earlier this month that the company fell $80 million short of its $250 million revenue goal for 2015. Building upon the dismal picture, BuzzFeed lowered expectations for the near future, slicing revenue projections for 2016 in half from $500 million to $250 million.

The news was a stunning development for an online world that has come to look to BuzzFeed as a content strategy leader. BuzzFeed has become a trend setter over the past several years with the popularity of its punchy listicles and quirky quizzes. Impressed with BuzzFeed’s ability to draw a massive online audience, struggling newspapers looked to the site as a model for how to get clicks. Building on that early success, BuzzFeed later expanded from a news and entertainment aggregator into providing its own news coverage. Fast-forward several years to today, BuzzFeed now fields a formidable investigative political reporting team, which has broken numerous stories about the 2016 presidential candidates.

But altogether, the revenue struggles of BuzzFeed, Mashable and Salon indicate it’s a dangerous time for publishers and a tricky time for advertising, both on the web and in print as neither sector appears to have found a stable business model for the digital age.

“The trouble, the publishers say, is twofold,” Herrman said. “The web advertising business, always unpredictable, became more treacherous. And website traffic plateaued at many large sites, in some cases falling – a new and troubling experience after a decade of exuberant growth.”

Numerous financial challenges have emerged for online publishers in the past several years, Herrman said. That includes anything from ad-blocking tools and automated advertising to the growing trend of readers gathering their news from stories posted on Facebook and other social networks.

“Audiences drove the change, preferring to refresh their social feeds and apps instead of visiting website home pages,” Herrman said. “As social networks grew, visits to websites in some ways became unnecessary detours, leading to the weakened traffic numbers for news sites.”

Of course, advertisers have taken notice of the metrics, leading them to invest heavily in ads on Facebook (and Google) than with online news startups like BuzzFeed, Morgan Stanley analyst Brian Nowak said.  

Posing further challenges on other fronts, Facebook just unveiled a big 10-year expansion plan that looks to give people fewer reasons to navigate away from Facebook. Chief Executive Mark Zuckerberg recently spoke of Facebook’s ambitions to launch “TV-style live video.” Some like BuzzFeed and Vox are racing for their own video production deals with sights set on TV and film, and others like Mashable are investing more heavily in expanding their presence on Facebook.   

“Other companies are looking to focus more on branded content like videos, sponsored stories and full-fledged campaigns,” Herrman said. “But publishers have quickly learned that those efforts are labor-intensive and put them in direct competition with advertising agencies.”

The bottom line is if you thought the online startups had it all figured out, well, not just yet at least. The future of the news industry is still just as unclear as ever before. 

Justin Runquist is CFM’s communications counsel. He is a former reporter for The Oregonian, The Columbian and The Spokesman-Review. Away from the office, he’s a baseball fanatic with foolhardy hopes that the Mariners will go to the World Series someday. You can reach Justin at justinr@cfmpdx.com and you can follow him on Twitter at @_JustinRunquist.