A few points:
1. Facebook can now claim it is truly addressing the problems (way exaggerated in my opinion) associated with the 2016 election. This looks decisive, and the company can present it as a turning point.
2. In essence, they are blaming the media, without having to throw the stones themselves. Americans respond positively to attacks on the media, so this is a strong public relations move. Facebook retains the option of blaming the media more explicitly for its previous troubles, if need be.
3. The news feed can always be reintroduced under another name or guise. Two years from now, the entire dialogue about the major web companies is likely to be different, one way or another.
4. I do understand this may devastate some marginal media outlets, and in fact many media outlets are marginal these days in economic terms. Still, in the longer run I prefer a scenario where other web sites try to compete with Facebook rather than being co-opted by it and dependent on it.
5. Does this mean more ads will turn up on Instagram, chat apps, Facebook Messenger, and other Facebook services?
There is also this angle (NYT, speculative):
Facebook’s pulling back from the news — which necessarily depends on conflict — and elevation of homier material may bolster the company’s attempt to enter China, where it has been met with stiff resistance.
“Facebook is just desperate to get into China, and it will never do that unless it censors news — and this is actually a neat solution to that,” Mr. Weisberg, the Slate chairman, said. “If you only have news on the platform shared by users, users who live under repressive regimes don’t have access to real news and can’t share it, because it’s legally prohibited.”
I’m not entirely happy about this last factor, but I also don’t see how it is better for China for Facebook to remain permanently outside the country. And if the desire to enter China makes Facebook in some way worse for Americans, that is a potential problem, but I don’t see how this move makes the overall media environment worse for Americans.