November 19, 2019

Could the NYT One Day Be a Millennial AARP?

Axios published a story on Tuesday about how AARP is actually one of the largest media companies in the country. In the piece, Axios reports:

Revenue, by the numbers:According to the association’s most recent financial filings, in 2017 the company made:

– $142 million in print advertising between its two magazines

– $32 million in digital advertising

– $350,000 in revenue from its video studio

At its core, the non-profit is a membership business, earning $299 million annually on almost 38 million members. But then coupled with that is a considerable advertising arm for advertisers looking to target this incredibly affluent market. AARP says that its demo “drives $7.1 trillion in annual economic activity each and every year.” Advertisers clearly want to talk to them.

Axios made a good graphic to show just how much scale the organization has.


But it got me thinking. While I don’t believe that anyone can directly compete with AARP—it’s a non-profit lobbying arm after all—I wonder if there is a way to compete with the media business specifically by targeting the audience before they reach the age of AARP.

Consider the millennial (Gen Y) generation. We were born between 1981 and 1996, which means that we are now all out of college and some of us are only a couple years from hitting 40. This generation is both saddled with student loan debt as well as raising children who could already be in the double digits.

But over the next 25 years, $68 trillion will be passed down to Gen X and Gen Y heirs. The buying power that today’s baby boomers have will be soon be in the hands of these younger generations.

I can imagine a publication that discusses parenting, financial advice, dealing with aging parents, career development and a multitude of other topics. When the publication discusses issues in politics, it does it through the lens of how it would impact this generation. For example, when Social Security is discussed in most media companies, it’s typically about how current recipients are not getting raises. But this publication would focus on how it would be surprising if millennials even got the benefit.

Revenue would come from three primary avenues: subscriptions, advertising and DTC commerce. With a dedicated audience, I see no reason why this publication couldn’t go into the product development business and sell directly to its readers, especially if the audience is already there.

There’s only one problem…

I believe The New York Times is already thinking about this product. While researching my last piece on the Times’ quarterly results, I spent quite a bit of time on the parenting site (which is weird considering I don’t have children).

In the announcement post back in May, the company wrote:

With that in mind, The New York Times has worked for a year to develop a single source online where parents can find not only trustworthy, deeply researched guidance on child-rearing, but also relatable advice on maintaining well-being as an adult with a child. NYT Parenting is a new site that starts in beta today and aims to serve families and expectant parents of all kinds, at the same level of quality and expertise readers have come to expect from The Times.

Jessica Grose, the lead editor of NYT Parenting, said the site was intended to take the array of information found in fragments across the internet and filter it down to the advice parents really need to take action. A goal of NYT Parenting, she said, is that it should feel inclusive and nonjudgmental for parents and allow them to adapt each resource to their individual circumstances.

Millennials are solidly in the “raising kids” range right now. The Parenting Section covers parenting from getting pregnant to preschool. The age range of children stretches from getting pregnant to preschoolers. Topics include handling work & money, health & wellness and relationships while parenting. These are all topics that a millennial parent cares about.

While The New York Times doesn’t charge for this today, I would bet that by the end of 2020, parenting is a new subscription product.

How hard would it be for The Times to add additional topics and turn this into a robust millennial content offering? Last time, I suggested the following:

  • Personal finance
  • Careers

As this generation of parents continues to grow, additional topics could be added.

I can’t be certain that this is what The Times is doing, but we know for a fact that the company is looking for new types of subscription products. By starting with parenting, they’ve ultimately picked an audience type. The Times could make a bigger play for this audience, become an integral part of the lives of millennials, and by the time they’re reaching their 50s and 60s, be the media company of choice for seniors.

Reducing friction with your subscription

Speaking of The New York Times, CEO Mark Thompson did an interview with Ken Doctor over at Nieman Lab. A few sections jumped out to me:

We made this significant change in July. We’re asking pretty much everyone who wants to read more than one article to register and log on, after which they get a greater number of articles.

The biggest single effect is to greatly increase the numbers of registered logged-on users — registered logged-on non-subscribers, in particular. I have to say, though, it’s also helping some subscribers because it’s also dealing with another issue, which is subscribers who draw back on their logged-on state for whatever reason on a device where they never registered. Which happens a lot, and people appear as anonymous users.

There are two primary problems we run into as publishers when dealing with our audience. The first is the anonymous user. We can’t do much personalizing and our ability to target strong ad campaigns to them is equally difficult.

The second problem is that, when we introduce a subscription, we require so much data to get the conversion.

It begins with account setup. Once that’s set up, the user has a bunch of choices on what type of subscription they want. Daily, Weekend, Print, Digital, Print & Digital, and the list goes on. Then you have to put your credit card information in and only then do you have an account.

Frankly, it sucks. How many people drop off?

The nice thing about The New York Times starting with a registration before the subscription is that it reduces the friction when the user finally decides to pay. Rather than needing to create an account, I’m already logged in. That way, you can take me directly to the credit card offer.

Substack does a great job at this. The first thing it asks for is our email and then, if we hit a subscriber-only piece of content, it immediately asks for the credit card. By reducing the number of steps, it theoretically helps increase the number of sign ups.

But it’s also important to think about friction overall. Ask yourself these questions:

  • Am I asking for too much data at sign up?
  • Do I offer too many subscription types?
  • Does my subscription page load slowly?
  • Does my subscription page look bad?

Put yourself in the user’s shoes. They don’t want to give their life story away on a crappy looking and slow loading page with a dozen subscription types. Give them a quick form, a fast loading page, and simple choices and they’ll absolutely convert.

If you introduce a free membership ahead of time, you’ll be able to cut out a big step in the subscription process since users will have already made their accounts.

The Athletic looks to raise more money

Changing course and returning to the topic of valuations. The Information reported on Monday that The Athletic is looking to raise another round of investment.

The Athletic, a subscription sports news site, is raising around $50 million at a valuation north of $500 million, the people said. The company has raised a total of about $90 million in the past, including $22 million in May at a valuation of around $300 million. Its backers include Founders Fund and Y Combinator.

The first thing that jumps out to me is that $50 million is a seriously large amount of money. The second is the valuation.

When I originally discussed The Athletic’s valuation, Bloomberg had reported that it was valued at $500 million:

Venture capital investors have poured more than $90 million into the site to date; in the most recent fundraising round, a $22 million investment the Founders Fund led in May, the company was valued at about $500 million, says a source familiar with the offering.

There are two possibilities here. Either the company was valued at $300 million back in May and now it’s trying to be valued at more than $500 million or it was always valued at $500 million and the company is raising a flat round. If the latter is the case, raising an additional $50 million at a similar valuation is a sizable dilution to the team.

The reality is, The Athletic has no choice but to raise the money. I originally calculated that the company lost $21.6 million per year, assuming 600 total employees and an average employee cost of $100,000 when factoring in salary, benefits, real estate, etc.

But it did have a path to break-even. I wrote:

According to the Bloomberg article, The Athletic believes it will hit 1,000,000 paying subscribers by the end of this year. If it does that, it’s going to be at $64,000,000 in revenue at current revenue/user. But I think in their quest to hit 1,000,000, they’re going to see a reduction in revenue per user. The Athletic is currently offering an annual plan at $3.99 a month. And if I refer someone, they can get it for $2.99 a month and I get a $25 Amazon gift card. Even at 1,000,000 subscribers, I will wager that they’re still losing money.

I checked on Thursday and if a user signs up for an annual plan, they can get it for $2.99/month. If it’s signing up hundreds of thousands of users to that cheaper plan, ARPU for that first year will be significantly lower.

Here’s my question… At 1 million subscribers earning $64 per, with costs staying constant, the business is profitable. But to get those 1 million subscribers and then keep them, how much more will the company need to spend?

There’s a bigger risk and one that explains why the company is looking to raise now. Between January and August 2019, the company added nearly 300,000 subscribers, many of them on the annual plan. Right now, The Athletic sees an 80% retention with its early, more loyal users. But will retention stay that strong when half the audience is ready to churn? Will The Athletic have to keep the price lower to ensure churn stays low?

If that is the case, raising money now gives The Athletic far more runway to continue growing its business. But can it really push to solid profitability before it runs out of money?

I’m going to say yes. The Athletic will be profitable in 2020 and any worries about cash flow are not there. But once again, we come back to the valuation.

At $64 million and a multiple of 3x revenue, the company is only worth $192 million. At 7x revenue, it’s $448 million. While subscription revenue is most coveted, I don’t see a lot of media companies getting bought for 7x revenue.

The Athletic could be the best media business there is, but ultimately, the high valuation is the biggest risk.