Leaked Buzzfeed numbers sent a jolt to the many who dreamed of jumping on the distributed content bandwagon. This particular genre of advertising business model might have been overrated.

It was a bad week in the distributed content sector where gazillions “content views” were once touted as the new digital digital bonanza. On April 12th, The FT.com reported that Buzzfeed, until now the genre’s gold standard, had halved its 2016 revenue projections from $500m to $250m, after making $150m in 2015, 30% lower than expected. The Buzzfeed PR team issued the pro-forma, unconvincing denial, and BF’s chairman Ken Lerer (managing partner at Lerer Hippeau Ventures) offered a more optimistic picture in a Re/code chat. (Also read Ken Doctor’s column on the matter.)

That same week, we also learned Mashable slashed most of its journalistic workforce, including Jim Roberts, its highly experienced editor, the latter move a rather strange one. While many pure players have increased their ability to produce original/exclusive contents — Buzzfeed, as an example, has one of the best investigative teams money can buy — , Mashable is clearly moving away from that path, most likely drifting to oblivion, drowning in the internet background noise.

Finally, Mark Zuckerberg’s F8 Keynote gave us a glimpse of Facebook’s intent to vastly expand its reach in the global digital ad market, implicitly promising nothing more than subservience to those who naively pretended to build nice businesses on the back of the dominant social network (more on that in a future Monday Note).

This string of events raises three questions about BuzzFeed, and the economics of both distributed content and video.

1 . Does this impact Buzzfeed long-term survival?

The short answer is no. BF got about $300m in funding, including a recent $200m investment by NBC Universal at a $1.5bn valuation.

However, adjustments might be required.

Buzzfeed is a very large operation. Between its main New York office (editorial, sales & marketing, data, tech, admin), the BuzzFeed Motion Pictures division in Los Angeles, plus about 15 outside bureaus, it has a staff of 700. Based of known P&Ls for US-based digital media, such staff translates into a payroll expense of more than $100m; apply a ratio of 1.3x~1.5x for other charges, we are talking about $150m a year in total expenses, give or take a few million. It means that, in 2015, Buzzfeed barely broke even. For a company created in 2006, that’s not so bad.

2. Is the potential of Distributed Content overstated?

Yes, probably.

Let’s face it: Following the “Grow Fast” rule of richly funded tech companies, BuzzFeed dreamed big right from the outset. In its pursuit of television advertising dollars, it set up a 100-person studio in Los Angeles, mainly to produce video for brands, initially at a price tag of about $100k per campaign. At that price, the product had to be perfect. It means endless refinement and audience testing (the latter being crucially important in BF’s promise to max out social reverberation over more than 30 different platforms).

But despite its power and talent for producing video contents and mastering the “social lift”, BuzzFeed monetizes poorly.

Let’s take the leaked $150m in yearly revenue. When BuzzFeed CEO Jonah Peretti brags about 5 billion monthly content views generated by BuzzFeed on social, each one then generates no more than $0.0025 in ad revenue, a meager $2.50 CPM equivalent; for video that’s weak. Now let’s take BF publisher’s perspective. In this interesting post Dao N’Guyen states the following:

That would be a staggering 400 million UVs per month… But again, based on $150m a year revenue, that translates into a mere four cents per unique visitor and per year. To put things in perspective The New York Times makes about $5 for the same UV, 125x more than BuzzFeed — and that is only for the NYT’s digital advertising revenue. Even if BF’s actual revenue is higher, the gap remains huge.

In coming quarters, there will be two things to watch for BuzzFeed and the distributed branded content sector as a whole:

First, BuzzFeed’s ability to scale in order to match its $1.5bn valuation. Again, to compare with legacy media, we just need to remember that the NYTimes’ current market cap is slightly more than $2bn, with a 2015 revenue of… $1.6bn, including $639m in ad revenue, and $845m in circulation.

The second questions is about valuations: to put it bluntly, based on their respective revenue figures (actual for the NYT and speculated for BF) and their respective valuation multiples, the Times should be valued at $16bn or BuzzFeed should be worth only $196m. Again: even if BuzzFeed real figures are much higher than reported last week, a major mark-down looms.

The second thing to watch is the impact on the vast cottage industry induced by BuzzFeed’s projected success. Among companies that sell social dissemination to brands, or pure copycat that don’t even have a website, many have no revenue at all. To them, the bar got suddenly much higher…

3. The problems with video in general…

More broadly, there might be a problem with video monetizing. Media are attracted by video because its growth seems endless, especially among Millennials who watch hours of video on their smartphones.

But broken down to the actual revenue per video segment, for news organizations, the model looks extremely challenging.

Granted, social champions such as BuzzFeed excel at spreading contents at an amazing scale. But not all videos are created equal. The famous Watermelon Explosion, poorly filmed and terribly long (45'!) drew 10.5 million views, generated 315,000 comments and might have cost forty bucks to produce (1 vegetable, 700 rubber-bands, protective gear). But sending a single videographer to follow a refugee’s journey will cost thousands of dollars, or explaining Brexit issues might require more than a pair of interns. Unfortunately, both productions will generate a few thousands views, at best.

Clickbait is cheap, quality is expensive. That’s why, when it comes to monetization, video for hardcore information should be approached with great caution. In addition, it’s a crowded market in which scores of solo YouTubers produce engaging contents at costs that are impossible to match given the cost structure of large news outlets. Beyond massive clickbait production, the economics of news video might be uncertain, to say the least.

— frederic.filloux@mondaynote.com