April 18, 2023

Selling Could Be the New Trend Following Years of Acquisitions

There have been numerous companies that have experienced tremendous growth over the past few years through acquisitions. And that strategy likely made a lot of sense when interest rates were low and businesses were strong.

However, with media moving into an era where we focus far more on operations (okay, something we should’ve been doing all along), getting rid of the weakest assets will often times make the most sense.

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Now let’s jump in…


Axios reported that Recurrent had sold its food website Saveur to longtime editor, Kat Craddock. According to the story:

He [Recurrent CEO Alex Vargas] framed the deal as a win/win for the company and Saveur. “We ultimately felt that the opportunity to ensure Saveur will continue to find success under Kat’s culinary and editorial stewardship was a win/win, and we wish Kat and the team nothing but the best,” he wrote.

Vargas said that since “SAVEUR was our only food-focused brand, and the M&A market has yet to present meaningful opportunities where we could grow, we didn’t have the same scale that we do in other verticals.”

This makes a lot of sense. One of the benefits of a roll up strategy is that you get benefits of scale as you get bigger. Therefore, if you run a network of sites about food and you add another site about food, it should be relatively straight forward to monetize it.

If we look at Recurrent’s portfolio, it has a number of publications across topics including home, military, science, and outdoor lifestyle. But with food, it only had the one publication. That’s limiting in nature. Every other vertical has at least two sites.

On Wednesday, The New York Times reported that Vox had spun off NowThis, a site it had acquired more than a year ago.

The deal, just more than a year after Vox Media acquired NowThis, is backed by Accelerate Change, a nonprofit dedicated to increasing civic engagement among underrepresented groups. The terms of the deal were not disclosed, but one person familiar with the transaction, who was not authorized to release financial details, said Accelerate Change would make a cash payment to Vox Media in addition to contributing capital to NowThis.

The spinoff allows Vox Media to reap financial benefits from NowThis without having to fund the operating cost of the news site. Vox Media will maintain several business ties with NowThis, in addition to a minority stake in the new company, Jim Bankoff, the chief executive of Vox Media, said in an interview. Vox Media will continue to sell advertising for NowThis, and one of the company’s employees will join NowThis’s new board of directors.

The rationale here is similar. NowThis has a team of 75 and likely intends to bring on even more people over the next couple of years. This is happening at the same time as Vox is working to streamline operations and cut costs.

In many respects, it gets to have its cake and eat it too. It doesn’t have to carry NowThis’s costs on the books, but it can still sell the ads. And it got some sort of cash infusion. My suspicion is it wasn’t much, but for Vox, it sounds like it was worth it.

If not a divestiture, then shutting things down also makes sense.

Back in early 2022, Dotdash Meredith announced that it would stop publishing certain magazines. According to The New York Times:

The move, which affects Entertainment Weekly, InStyle, EatingWell, Health, Parents and People en Español, will lead to 200 job cuts, according to a memo sent to employees on Wednesday. The cuts amount to less than 5 percent of the company’s total work force.

“We have said from the beginning, buying Meredith was about buying brands, not magazines or websites,” Neil Vogel, the chief executive of Dotdash Meredith, wrote in the memo, which was obtained by The New York Times. “It is not news to anyone that there has been a pronounced shift in readership and advertising from print to digital, and as a result, for a few important brands, print is no longer serving the brand’s core purpose.”

These don’t fit the strategy of Dotdash Meredith, so it made sense to stop publishing them. Admittedly, though, no magazine has fit Dotdash Meredith’s strategy, so why hasn’t it shut down all of the magazines? My guess is it boils down to cash flow. So long as they are cash flow positive and remain profitable, they’ll continue running them.

That’s important because Dotdash Meredith has a lot of debt on its books now. When it announced its Q3 2021 earnings, IAC (Dotdash’s owner) only had $500 million of debt on the books (all assigned to Angi). But by Q4 2021, it had added $1.6 billion due to the Meredith acquisition. According to an 8K filed back in 2021:

The Credit Agreement provides for (a) a five-year $350 million term loan A facility (the “Term Loan A Facility”), (b) a seven-year $1.25 billion term loan B facility (the “Term Loan B Facility” and, together with the Term Loan A Facility, the “Term Loan Facilities”).

The applicable margin for (i) the Term Loan A Facility and Revolving Facility is a percentage from (A) 0.25% to 1.25% for base rate borrowings and (B) 1.25% to 2.25% for term benchmark borrowings, with the applicable margin in each instance depending on the consolidated net leverage ratio of the Borrower, and (ii) the Term Loan B Facility is 4.00%. The Term Loan A Facility will mature on the date that is five years from December 1, 2021 and will require quarterly amortization payments of 1.25% of the original principal amount thereof as of March 31, 2022 to and including December 31, 2024, 2.50% of such original principal amount thereof as of March 31, 2025 to and including December 31, 2025 and 3.75% of such original principal amount thereof as of March 31, 2026 through maturity. The Term Loan B Facility has an annual amortization of 1% per annum based on the original principal amount thereof paid quarterly in arrears commencing on March 31, 2022.

And so, with ad markets a bit weaker and integration taking far longer than expected, could Dotdash Meredith look at divesting other assets on top of what it’s already shut down? I anticipate yes.

Almost everything it owns across Health, Food, Finance, Travel, Home, Beauty, etc. all fit within a clear, search-driven strategy. But its entertainment holdings don’t. People and Entertainment are driven by the news cycle. And so, finding a buyer for these assets might make a lot of sense.

The problem is that buyers are not as prominent now compared to a couple of years ago. And so, while Dotdash Meredith might want to sell, it might have to wait for the economy to strengthen to benefit from this.

Whether it’s because you took on a lot of debt in deals or because they simply don’t fit operationally, getting rid of assets can often times be the smartest thing for media companies to do.

While we’re on the topic of debt… Any time private equity buys a media brand, it uses debt to maximize its returns. And it takes that debt and puts it on the books of the acquired asset. When interest rates were low, this wasn’t so bad. But as they’ve creeped up, the payments have become far greater.

I was speaking with a friend whose company was recently acquired. And he told me that when the deal happened, he was paying $250,000 a quarter in interest payments. Now he’s paying $1 million. He’ll be fine, but for businesses with variable cash flow—like ad businesses—this could be a big moment of pain. We’ll have to see if any deals come from private equity with this in mind.


Before we continue…

I am hosting the first ever AMO event in October here in New York City. I won’t announce the final date until I’ve signed the contract, but it’s looking like October 26th. It’ll be a full day, paid, ticketed event.

I will open up ticket sales to AMO Pro members first, so if you are interested in attending, sign up for AMO Pro today. This is going to be the first of what I hope to be many great AMO events.

Now let’s get back to it…


Spotify Removes Wall on Some Podcasts

Over the past few years, Spotify has been acquiring podcasts and pushing them behind their subscription wall in a hope more people would start paying. But it has recently begun moving some of those shows from behind the paywall.

According to Semafor:

In a statement, a spokesperson for Spotify confirmed that it would begin changing exclusivity rules for certain Gimlet shows in the coming months.

“Given our position as the leading global podcast platform, we are expanding our windowing strategies to increase the audiences and ad sales potential of our shows,” the spokesperson said. “In this case, we’re pursuing broad distribution for some of our original podcasts like Science Vs. This will be done on a case by case basis and over time.”

Not all shows are being removed from the paywall, of course. Joe Rogan and Alex Cooper’s shows will remain subscriber-only. What this shows, though, is an evolution in how Spotify is thinking about its shows and lends some hints toward how we should also think about it.

Not all content can support the same business model. For example, some content is simply better at acquiring new users with ads as the primary revenue stream. By forcing it behind a paywall, you limit how much growth a show can get. On the other hand, some content has such die hard fans that charging for it is a viable strategy.

But I also think what has been missing in Spotify’s growth strategy is an understanding that there is a funnel in marketing. By going wide with some content, you can bring users down a funnel and, hopefully, convert a percentage to a paid offering.

We should look at our content this way as well. What content can we create to bring people in versus the content we create to get people to pay? I’d be curious to see how Spotify can deploy a strategy of scale podcasts that then promote niche shows people want to pay for. That would be an indication of a more robust, multi-revenue stream funnel.

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