Looking at the Axios Charlotte Acquisition
The New York Times reported on Thursday that Axios had agreed to acquire The Charlotte Agenda for “close to $5 million.”
The plan worked. The Charlotte Agenda has thrived. It’s free for readers, supported by advertising and a membership program that has 1,700 supporters. It also has 235,000 Instagram followers and 55,000 newsletter subscribers, who on average open the emails sent to them 40 percent of the time, a phenomenally high rate compared with the industry average, which is half that. The website itself attracts 650,000 readers a month.
In 2017 the company generated $1.3 million in revenue and pretax profit of more than $400,000, according to two people with knowledge of its finances who were not authorized to speak publicly on the matter. The following year The Charlotte Agenda made $1.9 million in revenue. Last year the site topped $2.2 million. Each year the profit margin was over 30 percent, the people said. Even during the coronavirus pandemic, the business has stayed healthy, on track for about $2 million in 2020 sales.
How do you like that? A local media company with eleven employees has grown to do $2.2 million in revenue and a 30% margin. And they said local news couldn’t be profitable…
Digging into the numbers a bit, at $2.2 million and a 30% margin, that’s $660,000 in EBITDA. With a valuation of approximately $5 million, that means the company was sold for a multiple of about 7.6x. When you’re a profitable media company and don’t need to be acquired, you can command healthy multiples.
It’s nice to see…
This is also a smart move for Axios. It has clearly decided that local is its next move. According to The Wall Street Journal story from September announcing its local investment:
Newsletter sponsorships contribute more than 50% of the company’s total revenue, the people said, and now Axios is looking to expand. Early next year, the company said, it plans to establish two-person newsletter teams in several local markets, starting with Minneapolis; Denver; Tampa, Fla.; and Des Moines, Iowa.
“This is a big bet—a bet that you can hook local readers on a daily basis with a morning newsletter and build up from there,’’ said Jim VandeHei, Axios’s co-founder and chief executive. “It’s a risk worth taking because if we are right, it’s superscalable and part of a solution to the high-stakes local news puzzle.”
Mr. VandeHei said the coming, localized newsletters wouldn’t focus on politics but rather on local business, technology and education.
VandeHei’s stance is mostly right on this one. If you think about it, it looks a lot like the vertical media growth strategy that I’ve talked about here a few times. By centralizing all technology, analytics, human resources, design, etc., it becomes much easier to move into new markets because your fixed costs don’t grow linearly with the number of new sites you’re launching.
My question is how VandeHei thinks about staffing the sales organization to support this. When the story about local came out, this is what I said:
The problem is the advertising business… If Axios intends the advertising business to just be an extension of its main newsletters—and seeing as how Facebook is the launch sponsor of this, that might be the case—then it should be a pretty straight forward endeavor. A little underwhelming, perhaps, but still straight forward.
However, if the idea is for these local newsletters to actually become ingrained in the community, that’s going to necessitate local sales efforts as well, which requires additional staff. Ideally, the type of advertiser here is a major company in that particular region rather than Facebook trying to show the world it supports local news.
That runs counter to The Charlotte Agenda’s sales approach. The majority of its advertisers are local: OrthoCarolina, Charlotte Eye Ear Nose & Throat Associates, and Diamonds Direct SouthPark.
Do you need boots on the ground to actually sell these local advertisements? Or, has Covid shown us that people can sell from anywhere so long as they have a computer and a decent webcam? My suspicion is that Axios might start each newsletter with a couple of people, but they’ll quickly realize they need people selling locally. That’ll change the math a bit.
To expand on this, Axios is going to need to solve what I believe is an advertising problem. Last spring, I bought an advertising campaign with Axios across two of their products. My goal was to drive sign-ups of a virtual event that was upcoming. The results were pretty underwhelming.
Obviously, you can’t say there’s a problem just because my product was potentially uninteresting. But I’ve spoken with others that have tried Axios and the results are similar. The ads run, but they do not perform beyond people seeing the ad.
But if we think about it, that’s not entirely unsurprising. The types of advertising Axios runs is issue-based targeting a very specific demographic. There’s nothing wrong with that business, but the question is whether pure brand marketing is something that can work locally.
Now… perhaps it’s not a problem. On The Charlotte Agenda’s advertising page, the team writes:
We’re not a lead generation tool. If you don’t care about brand marketing and just need leads (which honestly should be the majority of your budget), we recommend buying Google and Facebook. It works. It’s efficient.
We’re not cheap. In terms of partnerships, we’re relatively expensive and require a minimum commitment of 12 months. This allows us to develop longterm relationships and work deeper with local brand marketers. Everything we do is custom. If you want cheap, go buy Facebook ads (low CPM) or Google Display Network ads. Both are great tools for inexpensive impressions.
That attitude is inspiring. They want to be thought of as more than just a lead gen play. And if the approach is to launch dozens of these, each generating a couple million a year in revenue, then perhaps this approach is fine. However, I can’t help but feel that as they grow and as they are forced to diversify their advertising budgets, Axios is going to need to figure out how to prove ROI on its spend.
To sum up the key questions Axios will need to answer as it continues pushing into local:
- Target advertiser: Are they looking for national brands spread across multiple local newsletters? Or are they going to try and integrate themselves into the community and find local partners?
- Ad product: Can it convince advertisers that brand marketing is good enough? It appears The Charlotte Agenda has, but how long will that last? Are advertisers going to start demanding products that are lower in the funnel?
- Prove ROI: Even if it does focus exclusively on brand advertising, how will it help these local advertisers judge ROI? Or is it just pay and pray?
Moving away from the advertising side of things, I want to end with a focus on the editorial product itself.
I believe media companies like The Charlotte Agenda, with enough time, can be exciting new options for residents to get local news. If you look at the team composition, six of the 11 employees are in the newsroom. Six people for one city is far more than the two that Axios is planning. Additionally, because the fixed costs are so low, these local companies can be profitable without having the same burdens that large papers have.
The question becomes… will Axios look to replicate The Charlotte Agenda’s model? It’s not just a newsletter. The website is a destination in and of itself. Will we start to see larger newsrooms form in each of these cities? If so, does that speed things up for Axios or slow them down? How many writers does a city actually need to cover it sufficiently?
I don’t know the answer to these questions. Newspapers obviously have very large staffs, but lean teams can focus on the stories that readers really need.
All in all, I am somewhat bullish on this move. Because Axios has geographic data on so many newsletter subscribers, the ability to expand quickly to the largest metropolitan areas doesn’t seem all that difficult. Whether it does it organically or with small acquisitions like this, I anticipate Axios being in more than 10 geographies in the next 18 months.
And for other local newsletter businesses—looking at 6AM and WhereByUs—is this move just the first of other deals? Could these two companies also be acquired if the price is right? The models are not exactly aligned with both companies appearing to go even more niche with its coverage approaches, but it’s certainly possible.
This doesn’t solve the problems caused by major newspapers disappearing from towns and cities across the country. But every once in a while, I enjoy writing a piece that talks about a positive in local media.