August 24, 2021

The Hill Acquisition Supports Politico’s Price Ambitions

Before we jump into today’s newsletter, I wanted to let you know that I will be taking some time off. There will be no additional issues of A Media Operator until after Labor Day. I hope you enjoy your last weeks of August and I’ll see you on September 7th.

And now, we jump into the newsletter…

It may be summer months for many in media, but for The Hill, this is the time to make a deal. According to a memo sent by Chairman James Finkelstein:

Today The Hill has been sold to Nexstar Media Group, Inc. which is America’s largest local television company.

Only a few years ago The Hill was a print publication struggling to survive. Today The Hill is the largest independent political media outlet – a digital juggernaut. The Hill is the most viewed independent media outlet in the country about government and politics. We are respected, liked, sometimes even feared by the most powerful in the lan.

It goes on to talk about how the publication is fair, these are exciting times, and everything else you’d expect from an email like.

According to Axios’ Sara Fischer, the company sold for $130 million. Her sources told her that “the company brought in $40 million in revenue and $10 million in profit.” This would suggest 3.25x 2020’s ad revenue or 13x EBITDA.

Frankly, this is a fair price for The Hill. Growth is clearly slowing. According to SimilarWeb, there were 53,500,000 visits in February before bottoming at 44,000,000 in June (though July appears to have pulled back some). This should come as no surprise since more news-related organizations are seeing similar drops in their traffic.

For a business dependent on advertising for its revenue, seeing traffic drop by upwards of nearly 18% can’t be good for the bottom line. Therefore, selling at 3.25x 2020’s revenue is probably a good place for The Hill.

It’s an even better place for its cross-town competitor, Politico. According to The New York Times:

Politico, the Washington news site popular with Beltway power brokers, is seeking as much as $1 billion in a potential deal with the German publishing giant Axel Springer.

Led by its owner, Robert Allbritton, Politico has been in talks with Springer about a potential investment or an outright sale, two people familiar with the matter said. Such a deal would amount to a hefty premium for Politico, which generates about $200 million a year in revenue, they said.

Full disclosure: I work for Morning Brew, which is owned by Insider, which is owned by Axel Springer.

If The Hill was sold for 3.25x revenue, then Politico is surely worth more, right? Because of the nature of Politico’s business, I believe 5x revenue is actually a very fair price for the publication. Let me explain.

Politico is actually two businesses. The first, which is what many consumers know it for, is the digital experience that covers incredibly inside-baseball political coverage. Some absolute rock star reporters come from Politico and have gone on to work for The Times, Washington Post, etc.

By and large, this digital experience is almost exclusively ad revenue. Like The Hill, it doesn’t really have a subscription product and is a completely free experience for consumers.

However, unlike The Hill, Politico has a B2B business that has become a much larger percentage of the business. To understand what that looks like, I return to a Vanity Fair story published in 2018.

According to Allbritton, Politico made $113 million globally in 2018, the highest revenue number in its history, and roughly double what the company made five years earlier. Politico, which Allbritton says will turn a profit of around $2 million this year, has grown by decreasing its reliance on paid media. Advertising accounts for slightly less than half of Politico’s revenues. Politico Pro, a business-to-business model, which typically starts at around $10,000 and can run into the mid-six figures depending on how much policy-focused content subscribers want and how many users will be accessing it, now comprises more than 50 percent of revenues…

It’s Politico Pro, in my opinion, that really gives this company a big chunk of value.

For the consumer business, traffic likely ebbs and flows just like with The Hill. If people are not as interested in politics, no amount of writing about it can get people to visit the site. Therefore, the ad business is as unpredictable as any news-related media company.

But whether politics is interesting or not to the consumer audience is irrelevant to its professional audience. On the Pro side, the clients pay for it because they need to understand what’s going on in D.C. irrespective of who is sleeping at 1600 Pennsylvania Avenue.

In many respects, it’s a very sticky business. As Allbritton told Vanity Fair, “you’re not subject to the whims of discretionary spending on the consumer’s behalf.” Politico Pro becomes a tool that people need and it rolls from year to year, making it a much stickier business than consumer subscriptions. I would hope that churn is significantly lower at Politico Pro than with consumer subscriptions.

The stickiness coupled with the price—starts at $10,000—is what supports a 5x multiple. However, my guess is that what would have Axel even more excited is the potential to take the model and expand to other areas. Ironically, Politico’s Allbritton was already thinking about this when he told Vanity Fair:

The next act for us is: can we take this model and roll it into something beyond politics and policy? We’re working on all sorts of new ideas, but there are other global economies that are out there—big industries with big pots of professionals doing work where information truly matters in how they do their work. Are there other big things that we can go cover, maybe even under a separate publication? We’re doing the analysis on that now, and hope to have the answer soonish. I think there is a model for this where we can have professional publications help cover the free—front-porch journalism that the public needs and wants and enjoys.

Two things have come from that.

The first is Protocol, which was announced in November 2019. It was dubbed “Politico, but for tech,” and was technically not a part of Politico (but owned by Allbritton nonetheless). Tim Grieve is the executive editor and had formerly been editor-in-chief of Politico Pro. My guess is that the goal was to follow an identical model as Politico: a free, ad-driven consumer site and then a premium subscription product.

Unfortunately, it launched in February 2020. A month later, Covid hit and in April 2020, it was reported that nearly half of Protocol’s newsroom had been let go. Fast forward to today and it remains a free site, primarily driven by advertising. We’ll see how it expands its Pro product.

The second is the acquisition of E&E News in late December 2020. According to The Wall Street Journal:

The nearly 14-year-old political news outlet is acquiring E&E News, a high-price subscription trade publication focused on the energy industry and environmental news, the companies said.

The terms of the transaction weren’t disclosed.

The deal will substantially expand Politico’s footprint in the energy news space and is part of a bigger move to grow its professional news business. E&E News has some 65 reporters in nine offices around the country, adding to Politico’s existing 17 editorial staffers focused on energy and environmental news.

This fits squarely in Politico’s wheelhouse and is a perfect example of how Politico can expand into new industries. Like Politico Pro, finding the price for an E&E subscription is hard; however, in a 2014 story on Nieman Lab, it was reported that “annual subscriptions cost between $2,000 and $150,000.”

The question then becomes, where else can Politico expand with new brands that fit the same model as Politico Pro and E&E News?

Long story short, my suspicion is that this is what Axel Springer sees. This is a business that generates strong revenue on a very sticky, B2B subscription product while also deploying a very large top of funnel with the consumer business. And, as time goes on, it can expand into new areas.

With The Hill getting 3.25x 2020’s revenue, I can’t help but feel like a 5x multiple for a far higher quality business is a fair price for Politico. Whether the deal happens or not, though, is way above my pay grade.

Thanks for reading today’s newsletter. If you have thoughts, please let me know. Or become a premium member and join the AMO Slack channel. I hope you have a great end of August and I’ll see you on September 7th!