February 6, 2024

Does 6AM City Fundraise Hint at a Possible Sale?

On top of the main story in today’s newsletter, there are three additional ones down below that we wrote over the last few days. One suggests that perhaps it’s time for the storied institutions to die in place of newer upstarts. And the second digs into TechCrunch’s problems. But first…

Did you know that acquiring a new subscriber costs anywhere from 5x to 25x more than retaining a current one? And yet, publishers focus so much of their energy on acquiring new subscribers rather than minimizing churn. 

BlueConic has just published a new ebook called A Publisher’s Guide to Mitigating Churn and Increasing Subscriber Retention. I read through it and there are a number of concrete steps publishers can take to reduce churn and, therefore, increase their subscriber revenue. 

Additionally, it digs into why subscribers are churning to begin with. You may be surprised to hear, but sometimes, it’s not your fault; however, you’re still losing those subscribers. 

That’s why you should download this ebook today. Just click here to get started.

6AM City raises cash; but can it reach profitability?

Local media is not exactly an area where operators are choosing to play. And yet, some are trying to make a business out of it. Whether it can work sustainably, though, is anyone’s guess.

According to Axios, 6AM City, a network of hyperlocal newsletters, has raised more than $10m in a round led by Tegna, which is the broadcast entity created when Gannett Company split into two. According to Axios:

The new funds will help 6AM scale its business, while hopefully achieving profitability in 2024, said co-founder and chief operating officer Ryan Heafy.

The Greenville, South Carolina-based company will maintain majority control, as it has since it was founded in 2016.

6AM City, which has around 120 employees, closed 2023 with nearly $8 million in revenue, per Heafy.

There are a few things to unpack here, but the biggest question is whether or not 6AM can get to profitability with this additional round. It ended last year generating nearly $8 million in revenue, which is up from $6.3 million the previous year. However, Axios reported back in October that 6AM was projecting “around $9 million in revenue.” And so, Q4 revenue appears to have slowed more than anticipated.

On the cost side, it has 120 people, which if we estimate $80,000 in total cost per person (salary, benefits, taxes, and other intangible costs tied to these people), you’re looking at an annual cost of $10 million. That leaves you with an estimated loss of $2 million. The delta in revenue and costs may be smaller since 6AM is based in the south compared to media companies up in New York. Nevertheless, there’s still an obvious gap here.

Ryan Heafy, Co-Founder and COO of 6AM City, told AMO:

Total all-in costs came in at or just below $10m because we had other expenses in anticipation of the fundraise. The company has surpassed revenue goals for January and February this year, so that puts us on a trajectory to achieve profitability in Q3. The total operating cost is lower than you might expect. $80k is a high number.

6AM City is not the only local network to have seen revenue growth slow. Adweek reported back in mid-2023 that Axios Local would not expand any further for the time being.

In 2021, its first year, the program entered 14 markets and generated around $4 million in revenue, according to a person familiar with its finances. In 2022, it entered 10 markets and netted a total of $8.6 million—short of its $10 million forecast. 

So far this year, Axios Local has booked $7.5 million in revenue, although it is not currently profitable. Across all markets, it has 1.55 million free subscribers, up roughly 500,000 from last summer, according to Drumond. 

See the below table comparing the two local networks.

Axios Local6AM City
2023~$7.5m by mid-year on 1.55m subs~$8m on 1.4m subs
Numbers from Adweek and Axios respectively

Local is very hard and 6AM City has made it even harder because it’s trying to sell predominately local ads. That means having salespeople covering each of its markets, which is likely why it has so many people on the team. Heafy confirmed this in our conversation:

If you think about the brands on the back of a 5K shirt. Your healthcare institutions, travel and sports, real estate… those are the people that were coming in to support the brand. We have one sales person roughly per market, but most of our sales is done through Zoom because we were built remote-first even before Covid.

In an email to AMO, Heafy laid out what the plan is now that they’ve raised the money. They expect to grow to 2.5m+ subscribers, expand into new markets, and expect to hit profitability in Q3 2024.

That said, I find Tegna’s involvement interesting. This investment is clearly a strategic one. Tegna is going to push some of its content into the 6AM newsletters and, in exchange, will promote the newsletters across its network. It’s a mutually beneficial relationship.

However, if we continue down this comparison to Axios Local, I estimate that over the next 12-18 months, Tegna will look to acquire 6AM City outright. That’s what happened with Axios and Cox Enterprises. It made a minority investment in Axios in November 2021 before acquiring it outright in August 2022—far faster than the 12-18-month window.

When that deal was announced, Cox Chairman and CEO Alex Taylor said:

A big part of this investment is to expand the number of local markets we serve. Local watchdog journalism is so important to the health of any community, and no one is more focused on building that out nationally than Axios.

Could it be the same thing for 6AM City and Tegna? For the much larger broadcaster, it’d be a new product for its sales team to sell on top of the TV ads. Or it’s a way to offset lost revenue as TV continues dying. And for 6AM City, it’d find legitimate synergies because it might not need its own, independent sellers covering the same markets as Tegna’s team.

While Heafy contended that this is a possibility, he cautioned that it’d be a mistake to assume this is the only outcome. “While we have this unique relationship with Tegna,” he said, “this does open up places for unique distribution opportunities. Maybe that means we expand into new verticals like sports or expand into new formats like audio.”

I spoke to one local news executive who agreed to speak anonymously and said:

I think they are well-positioned. They have a huge list. They are probably spending a lot to get there, though; between a buck or two bucks per email through Facebook Lead Ads. But those lists are tangible assets. They have intrinsic value. I think this investment by Tegna is smart for a broadcaster that is in secular decline. I think this is a prelude to an acquisition.

None of this is guaranteed; however, I’d be shocked if it didn’t happen. This is a tiny deal for Tegna, which generated $713 million in revenue in Q3 2023. The easiest way to understand how a business is performing is to be an investor and get access to the books. If 6AM City continues to grow and can start punching closer to profitability, we could see an announcement about an acquisition sooner rather than later. But as Heafy said, that’s not the only path to success with Tegna.

AMO Pro: Maybe the Storied Institutions Do Need to Die

The last month has been jarring to many parts of the media ecosystem. Whether it’s Condé Nast, Forbes, Business Insider, Los Angeles Times, Sports Illustrated, etc., people have lost their jobs. Heck, the publisher of numerous papers in my county abruptly announced last week that it had suspended publication and was looking for solutions to bring them back to financial sustainability.

And I don’t anticipate it is going to get better for many of these large media companies. But as this occurs, many are asking whether journalism is dying. While I would argue that it’s not, I do think that the institutions that got us here might not be the ones that lead the charge going forward. An AMO reader said in the Slack last week:

Maybe a longer time scale perspective is worthwhile: things rarely fundamentally change without hitting rock bottom. Maybe news needs to “die” so that it can be reborn?

I think this reader is right. We lament the loss of so many of these institutions, but perhaps it’s time for them to die. For so many years now, the media industry—at least the big, mainstream media industry—has been in a state of decline. Executives are not investing to build; they are just trying to keep the lights on for as long as possible. How uninspiring.

I dig into this and what other changes we can expect in Friday’s piece for AMO Pro members. Click here to become an AMO Pro member so you can read the full piece.

Craig Fuller’s Firecrown Acquires FreightWaves Media

Speaking of the type of media company that will take us forward, AMO reported last week that Craig Fuller’s newly launched holding company, Firecrown, had acquired FreightWaves Media. This deal is a fun one because Craig Fuller is the founder and CEO of FreightWaves. Confused? Keep reading.

In essence, FreightWaves is splitting into two pieces: media & SaaS. Fuller’s Firecrown will operate the media business while he will also continue leading the SONAR SaaS business. The justification for this deal boils down to financials. A SaaS business can sell for a much higher multiple if it is a pure-play business than if it is a blended media-software play.

Fuller explained that the universe of strategic or private equity buyers interested in a co-mingled media and data business is small. “It’s not non-existent, but it’s small,” he said. “Ultimately, the reality is that what a buyer wants is a pure-play business that they can benchmark to other businesses. If you want to sell in two years, you want to have a couple of years of clean reporting so you can benchmark against other SaaS businesses.”

Without doing this deal, FreightWaves would be punished by what’s known as a conglomerate discount. When investors can’t determine the true value—in this case, because there are both SaaS and media revenue sources—buyers have to discount it. That’s no good for current FreightWaves investors, so this cleans everything up.

Click here to read the full report on this deal and what comes next.

TechCrunch’s Problems Are More Existential

TechCrunch is a fascinating business that really got its rise during the Web 2.0 era. I was an ardent reader of it in the early days, especially as I was building my own blogs. I was immensely envious of how prolific the team was in publishing everything going on.

This all comes up because TechCrunch announced last week that it was shutting down TC+, its subscription product targeted to startup founders. The founding editor of TC+, Danny Crichton, who’s now at Lux Capital, wrote a piece breaking down both the business model of TechCrunch and the overall problems for the business. I’d recommend reading the entire piece, if for no other reason than it articulates rather nicely the standard B2B media play.

However, while reading it, I couldn’t help feeling as if Crichton was unintentionally writing an obituary for the entirety of TechCrunch. And there are several reasons for that, but I’ll start with this one. It didn’t actually have an audience.

Click here to read the full analysis of TechCrunch.

And that’s all we’ve got this week. It’s been a busy one. If you never want to miss another article from AMO and want to continue learning new tactics and strategies to grow your media company, become an AMO Pro member today. Not only will you receive all content, including Friday’s AMO Pro-only articles, but you’ll also receive an invite to the AMO Slack. Sign up here. Have a great week and see you next week.