In another sign of the disjointed economic recovery following the Covid-19 pandemic, internet media firm BuzzFeed (NASDAQ:BZFD) is suffering a steep market loss today. According to a CNBC report, an internal memo revealed that the company will lay off 15% of its staff. Citing in part digital advertising headwinds, the organization will shut down BuzzFeed News, its straight news and investigative reporting unit. On Thursday afternoon, BZFD stock fell about 20% on the BuzzFeed layoffs announcement.
In an email to staff earlier today, BuzzFeed CEO Jonah Peretti discussed the context of the difficult disclosure. The headcount reduction amounts to approximately 180 people. According to the company’s most recent securities filing, the company had about 1,200 people on staff.
In particular, BuzzFeed News employed around 100 employees and lost about $10 million a year, insiders familiar with the matter told CNBC last year. Contrasting with the core, viral-content generating content for which BuzzFeed garners attention, BuzzFeed News focused on true journalism. Indeed, the unit won a Pulitzer Prize in 2021 for exposing China’s mass detention of Muslims.
Unfortunately, neither the news unit nor BZFD stock as a whole could find exemption from the digital advertiser cuts. As CNBC noted, these cuts impacted media stalwarts like Wall Street Journal publisher Dow Jones and Vox Media.
Journalism Market Headwinds Forecasted the BuzzFeed Layoffs
While the public at large demand true journalistic integrity in an era of “fake news,” that desire apparently runs into an economic conundrum: few people want to pay for it. Unfortunately, this dynamic feeds into a self-fulfilling prophecy. Quality journalism requires extensive time to generate — and the providers of said journalism have to eat. Thus, fundamental pressures inherently catalyzed the BuzzFeed layoffs.
Further, as Harvard Business Review pointed out many years ago, the media and government agencies tend to thrive on crises. When they don’t exist, they create them, driving eyeballs and thus attracting advertisement dollars. Unfortunately, this exploitation of the lowest common denominator requires constant feeding, leaving little room for non-scandalous stories.
In addition, a paper published by Harvard University indicates that “[p]owerful forces motivate news providers to slant and increase bias rather than clear up confusion.” In other words, true journalism can’t sustain itself economically without catering to certain market demands. Therefore, BZFD stock may have been operating on borrowed time.
“There’s no free lunch anymore in the [digital media] space in the sense that the advertising market this year is not particularly strong, and everything has to be earned,” said Jonathan Miller, CEO of Integrated Media.
Why It Matters
In Peretti’s email regarding the BuzzFeed layoffs, the chief executive referenced a fading market for special purpose acquisition companies (SPACs). In 2021, BuzzFeed announced that it would merge with 890 5th Avenue Partners Inc, thus making its public market debut.
Unfortunately, SPACs post-business combination have not performed well. BZFD stock obviously was no exception. Since its debut, shares have fallen around 92%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
