February 8, 2022

Largest Newspaper Brands Keep On Growing

It’s fascinating how the biggest digital success stories over the past decade have been the media companies that were going to be disrupted by the digital upstarts. As we move into the 2020s, the biggest media brands are the same names that people may have bought in the 1920s.

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Now let’s jump in…


NewsCorp (owner of The Wall Street Journal) and The New York Times both reported their quarterly earnings last week. Both businesses appear to be growing rather healthily. I’ll break both down and offer my thoughts.

First, there’s NewsCorp. I’m mostly interested in Dow Jones, which is the division that oversees WSJ, its US-based digital media properties, and its b2b business. Its second quarter fiscal revenue was $508 million, up 14% from last year. It generated $144 million in EBITDA, which was up 32% from the previous year.

What’s incredible is that WSJ is starting to see a lot more growth in its digital subscription. Looking at Q2 numbers going back to 2018, digital subscriptions were:

  • 2018: 1,389,000
  • 2019: 1,709,000
  • 2020: 1,929,000
  • 2021: 2,460,000
  • 2022: 2,900,000

The digital product now accounts for 81% of the total subscriptions. WSJ had been struggling to generate much growth with the joke among some Journal editors, according to The New York Times, that “the No. 1 reason we lose subscriptions is they die.” For context, the Financial Times had 1.1 million subscribers in 2021, and Bloomberg is still far from hitting 1 million subscribers. Whether it has solved its growth problems remains to be seen, but for a business publication, it’s clear WSJ remains the big dog.

There’s little discussion in the earnings release about why EBITDA increased as significantly as it did. I have a couple of theories. First, advertising significantly rebounded. Print and digital advertising revenue increased $26 million, or 23%, year-over-year. My suspicion is the margin on this advertising was greater. WSJ has to put a product out every day with or without advertising, so does more of this move to the bottom line?

Another contributor could be the “landmark agreements with Big Tech.” Although we have not received any insight into the numbers, the team said this in the earnings release:

The landmark agreements with Big Tech continued to benefit our journalism and our bottom line. In addition to the substantial deals with Google and Facebook, we expanded our multi-year global agreement with Apple, which is expected to be an important source of subscriptions and of advertising revenue for our news sites around the world.

The nice thing about these agreements is that the cash drops to the bottom line. It doesn’t cost that much to take a big check from Google and Facebook. On the contrary, it’s just monetizing the same content in an additional way. Therefore, the tens of millions start to be really beneficial to overall profit.

Going forward, I expect to see b2b become a bigger part this business line. Dow Jones is in the process of acquiring two separate b2b brands, OPIS and Base Chemicals, both from S&P Global and IHS Markit. These deals are expected to close in the first half of 2022. The brands were estimated to have generated a combined $194 million in revenue.

Suffice it to say, things at Dow Jones are looking good and continue to grow handsomely.

If we change our attention to The Times, things are looking robust there as well. In 2021, it generated $2 billion in revenue, the first time it hit that number since 2012 (two years before the infamous innovation report). The big news for The Times is that it hit its subscription goal ahead of schedule. According to the release:

Kopit Levien also announced today that with the acquisition of The Athletic, the Company surpassed 10 million subscriptions, well ahead of its stated goal of reaching that milestone by 2025.

The Company plans to increasingly promote a high-value New York Times bundled digital subscription, and has set a new goal of at least 15 million total subscribers to The Times by year-end 2027, a number that would be larger if expressed in individual subscriptions.

There were two things that jumped out to me in the release. The first is that The Times is now talking about subscribers, not just subscriptions. According to the release, “the company ended the fourth quarter of 2021 with approximately 7.6 million paid subscribers with approximately 8,789,000 paid subscriptions.” This means each subscriber has, on average, 1.15 subscriptions with The Times. This is likely a scenario where someone pays for News and Cooking, for example.

For The Times, there are two scenarios that could happen. First, subscription revenue increase should increase and the delta between subscriptions and subscribers decrease. If this occurs, it means more people might be purchasing the bundled subscription product versus the individual subs. Second, the number of subscriptions increases faster than the number of subscribers. This would suggest that people are picking two products, but don’t see enough value to go with the bundle.

The likely scenario for the first scenario is that people started with the News product and then added in Games, Cooking, etc., ultimately deciding that the bundle is the right product to get. If, however, we see the second scenario play out, it could be that more people are opting for non-News products. We can already see this happening where 204,000 of the quarter’s digital subscriptions were for non-News, whereas 171,000 came from News. For The Times to really ramp up subscription revenue, it needs to figure out how to get more people into the first scenario.

The other thing is this call out to The Athletic deal, which closed on February 1st:

On February 1, 2022, we completed the acquisition of The Athletic Media Company, a global digital subscription-based sports media business that provides national and local coverage of more than 200 clubs and teams in the U.S. and around the world, for an all-cash purchase price of $550 million, subject to customary closing adjustments. The purchase price was funded from cash on hand.

I was incredibly shocked with The Times paying $550 million upfront without any sort of earnout. Unfortunately, this paragraph leads me to believe that my theory that there was an earnout was wrong. At this price, I remain bearish on the acquisition. On a per-subscriber basis, it was simply too high, especially considering the business will continue losing tens of millions of dollars per year until 2024.

The good news here is that The Times is a solidly profitable business. Operating profit in Q4 was $94.1 million, which is a margin of approximately 16%. This will obviously drop with the deal in the short term, but The Times isn’t suddenly at risk of going out of business. The gamble may be worth it to the management team.

All in all, things are in a good place for these legacy brands. They are profitable, growing by double-digit percentages year-over-year, and are continuing to make investments. Compare that to BuzzFeed. According to Axios:

BuzzFeed is limiting hiring to only critical positions, and will not be adding any new jobs unless there’s a business-case justification, CEO Jonah Peretti told staff last week.

BuzzFeed was initially projecting around $95 million in revenue from commerce sales for 2021. It’s now projecting a high-teens percentage increase in commerce sales year-over-year, as opposed to 60% year-over-year, due to pandemic-related supply chain issues slowing retail sales.

Hiring freezes are necessary to preserve cash. According to an 8K issued at the end of December, cash is tight. The updated FY’21 guidance suggested that it would have approximately $70-75 million of cash, cash equivalent and restricted cash on the books at year-end, down from $145.6 million at the end of Q3. According to the statement:

FY21 ending cash balance outlook reflects the issuance of approximately $150 million in convertible notes and approximately $16 million from 890’s cash in trust, offset by approximately $200 million of cash consideration for the acquisition of Complex Networks, and approximately $35 million in expenses related to the transactions with 890 and Complex and convertible notes issuance

With revenue pulling back and Complex still not quite profitable, this next year is going to be incredibly important. Inorganic growth is likely off the table, but if it can get to a stable footing from a profitability perspective, it might be in an okay place. We’ll learn more whenever BuzzFeed reports its earnings. But in the meantime, brands that are over 100 years old look like far more compelling businesses than the newer ones.

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