Jonah Peretti on Facebook’s changes, that revenue miss and how BuzzFeed is growing up

BuzzFeed co-founder and CEO Jonah Peretti seems like the kind of guy who never sees the cloud, only the silver lining, no matter how dark things get. But even he admits his new-media empire has had a difficult few months. Revenue last year came in as much as 20 percent below targets (Peretti won’t say exactly how much), and more than 100 people were laid off. Then Facebook announced a controversial shift in its News Feed algorithm, one the company says will de-emphasize news from mainstream publishers.

This last item seemed to be a dagger pointed straight at BuzzFeed’s heart, since the company has built itself into a digital behemoth in large part by catering to Facebook’s whims with respect to content. In memos and interviews in 2016, Peretti talked about how the secret to BuzzFeed’s success was going to be a distributed publishing approach, one in which the company would be deliberately agnostic about which platforms its content appeared on. “Fishing for eyeballs in other people’s streams,” Peretti called it.

Is that stream drying up in Facebook’s case? And if so, how does the company plan to adapt after putting so much effort into integrating itself into the giant social network’s content plans? I asked Peretti about all of this and more during a wide-ranging interview, and what follows is a lightly edited transcript of our conversation:

CJR: What do you think of Facebook’s latest changes to the News Feed algorithm? Do you think they will benefit BuzzFeed or hurt it?

Peretti: “A lot of changes that Facebook has started making really play to our sweet spot, which is making social content that is about bringing people together. It’s hard to predict, but I think overall it plays to the kind of content we tend to make. I think Facebook got too much into content that was just the kind of thing you could read on some random website, as opposed to something that really makes sense on Facebook. So to have more content that actually makes people happy or provides meaning in people’s lives or is about what they like to cook or what they do on the weekend, I think that’s very aligned with Facebook’s objectives.”

CJR: What about the impact this is going to have on news — are you concerned about how it’s going to impact BuzzFeed News, and are you planning to de-emphasize news as a result?

Peretti: “What we know is that there are a lot of young people, particularly young people who are really active on Facebook, who really trust BuzzFeed News, so I think we will do well. And we’re not de-emphasizing news at all, BuzzFeed News had a really tremendous year, we had a lot of scoops and high impact stories. There’s always a question of over time, what is the rate of growth of news vs. entertainment, and Tasty definitely grew faster than news. But I think news has been a part of a lot of great businesses throughout history. Once you build a great news-gathering operation there are a lot of things you can do. There are reputational benefits, and benefits to the world, but it’s also important to the platforms, to the Snapchats and so on, to have a source of digitally native news that is global.”

CJR: What do you think about Facebook’s plan to rank news sources based on trust. Do you think it will work?

Peretti: “If you look at how you would want to design a trust ranking if you were Facebook, you would want to have a pretty light touch. They don’t want to have some major news source like Fox News or the Washington Post or New York Times that is going to be hurt by the algorithm just because there’s lots of people who distrust it — they’re going to have to deal with the partisan issue and adjust for that. I think news sources that a large group of people broadly trust and that other non-partisan people have a neutral or slightly positive view of will do better. The real issue isn’t how high the HuffPost or Talking Points Memo should rank, the real issue is hundreds and hundreds of super sensationalistic news sources that no one’s ever heard of, they need to design a trust ranking that hurts those kinds of publications. I think it will be designed so that the broadest possible number of people get news they trust from a brand that they know, and so it minimizes the sites where they just spun up a page and called it Patriot News or whatever.”

CJR: Your end-of-the-year memo seemed much more negative towards Facebook than in the past. For example, you talked about how you think they need to pay media companies more for their content.

Peretti“When it comes to monetizing video, I think YouTube is doing a pretty good job of it. In Facebook’s case, there has been a lot of thought that in the future they might do a better job, but right now they’re not doing a great job. There’s a certain length of time you can wait for that future to arrive, and I think they need to accelerate that. Basically they have taken the approach that they will share money with our partners on new services, maybe Watch or Instant Articles, but they aren’t sharing on the main news feed, where they’re really good at generating revenue. Instant Articles is fine, it’s meaningful for us, but it’s still not a good enough product to support news, it’s still not paying enough to fund journalism. My main criticism of Facebook is they have done lot of experiments, but they’re making gobs and gobs of money on news feed, and their partners are providing a large chunk of that content, but that’s the one place where they’re not sharing revenue.”

CJR: Other than being a benefit for media companies who need more revenue, what would paying media companies do for Facebook?

Peretti: “I think it actually would be good for Facebook. If I were running Facebook, I’d want to be able to influence the news feed not just through traffic but also through money. If you want to get rid of fake news or sensationalistic content or whatever it is, the best way to influence the content that’s there and shape it in a positive way would be to say I am going to reward content with traffic — which they already do — but I’m also going to reward it with revenue. Those two things together would allow for an economic model that would give them some control over the news feed, but without that it’s very hard for them to control what’s in it. You can’t control random people who post things, and you don’t have much control over news companies if you’re not paying them anything. The reason cable operators paid for content was they wanted media companies to invest in better content so more people would sign up for cable.”

CJR: You said in the past that BuzzFeed’s strategy was “fishing for eyeballs in other people’s streams,” an approach that seemed to be based primarily on Facebook. But in your latest memo you seemed to be moving away from that.

Peretti: “I don’t think our strategy has changed so much as we’ve added to it. We started as a website, with native advertising as the main goal, we were much more vertically integrated, so we made our own ad products and so on. Then we shifted to a model where we wanted to be distributed, to make content that could be consumed all across the web, including on our own site. Then we had a lot of success reaching a huge audience across these platforms, so the next evolution of that strategy is to say, okay, we should focus on using that reach to build all these strong brands like Tasty and Goodful and BuzzFeed News, and then generate revenue in multiple ways from those brands. A vertically integrated company often will have one source of revenue, but for a company that’s distributing across many different platforms it makes more sense to have multiple revenue sources, because maybe you make money one way with Snapchat, maybe a different way on YouTube, maybe a different way on Facebook.”

CJR: There were a number of reports that BuzzFeed missed its revenue targets for 2017 by as much as 20 percent–is that true? And were the layoffs primarily an attempt to cut costs?

Peretti: “We had another year of growth in 2017, but we’re always trying to grow more and faster. I would say we had a good year but not a great year. What we saw was that growth was faster than expected in some areas, so what we did at the end of year was we restructured to focus on the areas where we were seeing lot of growth, like show development, commerce, programmatic, turnkey ad products and so on. The UK was a bit of a different situation, it was a tough business climate, and we invested more than we should have earlier than we should have.”

CJR: What were some of the things that didn’t work well in 2017?

Peretti: “Some of the products that were really big for us in 2016 didn’t grow the way we had hoped, some of the higher touch, labor-intensive creative work, the really strategic stuff where we partner with a brand and help them solve business problems. These were things that were more akin to a 30-second commercial. It’s pretty labor intensive and it’s less differentiated and it’s less social. There was demand from the market but it wasn’t an area where we felt we had enough of a competitive advantage, and it was something that was really underperforming relative to other products we had.

CJR: Those kinds of expensive, sponsored content deals seemed to be the core of BuzzFeed’s advertising and revenue strategy at one point. So they’re not any more?

Peretti: “We’ve always liked making really social types of content — we like making things that the audience will really love, and that people will share and have conversations around. It’s actually the stuff that was less native, and in some cases that was driven mostly by advertiser demand; it ends up being harder to make those, and it doesn’t play to our strengths. So the market was asking for something maybe it shouldn’t have been asking for, and we sometimes obliged more than we should have. In some ways I think we’re seeing social companies like BuzzFeed and Facebook kind of going back to their roots: With this recent change, Facebook is saying we want actual social content, not the kind of content you’d see on YouTube or TV. And what BuzzFeed has found is similar. We want to be organized around more social formats that causes people to have conversations, and to share and engage.”

CJR: You made a fairly big change recently by deciding to use programmatic and display ads on BuzzFeed, something that you have historically been pretty negative about. Why the reversal?

Peretti: “We figured that there are also ways we can generate additional revenue from all the content we’re creating that don’t take a lot of extra effort, like licensing our products or running programmatic across all the great content we’re creating. We were very careful as we tested programmatic, we took a small proportion of our audience and showed it to them, and we saw zero impact on engagement. So what I realized was that some of my thinking (about how bad it was) was out of date. One way of looking at it is we were already doing programmatic, just not on our own site — so we looked at how much revenue we were generating from YouTube and Snapchat and Instant Articles and thought, whoa, this is meaningful, why are we not doing this on our own site?”

CJR: A lot of media sites seem to have come to the conclusion that advertising is dead or dying, and that subscription models are the only way forward, but you seem committed to ads.

Peretti: “Really small outlets that are doing quality work definitely shouldn’t be embracing a business model that is about reach. If you have loyal fans, Facebook’s algorithm shouldn’t matter that much to you — ad-based business models that are based on algorithms giving you scale and reach are not great for smaller players. If you reach hundreds of millions of people a month like we do, advertising is a pretty good model, but if you reach a hundred thousand, it’s probably not a good model. But we’re also seeing that ads can be part of group of business models that can benefit from scale, such as Tasty licensing cooking products. There are also business models that benefit from deep engagement or small scale — so we did a test with early access to one of our shows, and lots of people were prepared to pay $2.99 to watch a show a week ahead of everybody else. So if you have a dedicated fan base that loves your content, there could be room for models like that.”

CJR: After the revenue miss, some analysts said the plans for an IPO were off. Have you given up on that idea or is it still a possibility?

Peretti: An IPO is one option among many. Our focus has always been to just build a good company for the long term and then you’ll have a lot of options.

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