The Athletic keeps growing .......

SI doesn't (or didn't, to put it more accurately) have a business model that hinged entirely on subscription revenue. It was trying to sell advertising. These guys are trying to do something different. Presumably they are not giving away subscriptions -- magazines very often comped some subscribers or didn't cut people off after their subscriptions lapsed, because they were still trying to sell those eyeballs to advertisers (even if their audits showed those comped subscriptions and advertisers discounted them appropriately).

These guys aren't audited as far as I know (they have no need to be, because they aren't selling ads), and there is no way to verify anything they have said about their path to profitability. But they are relying on subscription revenue. And ASSUMING they aren't lying. ... If they are saying they have income in every market they have been in for more than a year, and they expect to have income as a whole for 2020. ... AND they have a million subscribers (and they are saying they have more than 80 percent of people resubscribing). ... it suggests that they are NOT giving away subscriptions.

You are correct that the number of subscribers (in a vacuum), only tells you so much, whether it is an ad revenue model (such as a legacy magazine) OR a subscription revenue model (what these guys are doing). In their case, if they are selling subscriptions for less than their operating costs (contrary to what they seem to have said), or their margins are too low to justify the growth they are projecting (i.e. selling subscriptions for way too little), it would be a flaw in their business model that would suggest a way lower valuation. At this point, that would be my biggest question about them. They have raised a lot of funds, which has allowed them to try to ramp up aggressively. That valuation suggests sales and profits that may not be realistic. Consumers worldwide may not have the discretionary income a bunch of subscription services are all counting on. Especially if there is any kind of meaningful global slowdown coming. For year one, these guys were clearly selling a lot of discounted subscriptions. Beyond that, they seem to be counting on millions of people to keep allocating $5 a month to their product. But if people who have $13 a month going to a Netflix subscription and $10 a month going to an Amazon Prime membership and $5 a month going to their Athletic subscription start to feel stretched and they need to make choices, what happens? Worse, if $5 a month isn't enough to support their operating costs, but those people are feeling stretched at that level, how can they expect to charge more (as would be necessary) and not lose even more people?

 

You can't just question something that is either empirically true or empirically false and then say, "But I don't want to get into a long whatever." It's not an opinion. What is your basis for saying it's probably not accurate?

THEY have said multiple times in various reports and interviews over the last 6 months or so that they had income in almost every market, and they were operating profitably in every market they had been in for more than a year.

Those statements aren't audited, so they could be lying, but making it at least a little unlikely that it's false is that they have investors who do know the truth of that statement, and if it was a lie, they probably would be putting the clamps on the founders making statements like that.

For what it is worth (re: Are they just giving subscriptions away), Mather also said at one point that the average revenue per subscriber was about $64 a year. Again, could be untrue, but IF it is true, it could be entirely consistent with the picture of profitability this year that they have painted.

 

I'm not suggesting that your experience (and what you value) isn't the same as millions of others, and what they will be willing to pay.

But in the days that gazillions of people still subscribed to their local paper for the sports coverage, you couldn't go to the Internet to get the level of coverage that you can get today for free.

That is what the Athletic is competing against. One question is whether the content proposition they are selling offers enough value above what you can find for free or cheaper (via ad-based models) to justify the cost for a big audience. And then the second question is whether can they come in at a price that is cheap enough to meet the demand they are tapping while covering their costs and leaving a decent profit.

 

I wonder (though I'm sure I'll never know) how they're getting $64 per subscriber. My subscription auto-renewed at $59.99, which I'm guessing is the highest rate they have. And obviously they have sold plenty of half-off subs and such. So how does all that average out to $64?

 

I wondered about this, too. I don't have an answer. It's really hard to say without them revealing more info about the business and exactly where they are deriving revenue from -- beyond subscriptions. For example, their strategy with their podcasts seems to be evolving, but in addition to the subscription-based podcasts that are ad free, they have been offering some podcasts for free that are ad supported (and they just expanded to more of that). I don't know how much in revenue those ads are worth, or if there are other things we aren't discussing that might account for some sales, but it's possible. Just because we don't know what their income statement looks like doesn't mean he's necessarily lying.

 

The Athletic gets the WaPo treatment:

https://www.washingtonpost.com/sports/2020/03/03/the-athletic-sports-media-future

Jane McManus' quote about most journalism careers having a 10-year arc sounds about right.

 

Several things.

The reason that legacy media businesses have fallen victim to what you are describing is that they are failing businesses. Their value is falling rapidly, so the only further investment they can attract is from vulture-type investors who look to cut costs and squeeze out whatever value is left. They are trying to buy something distressed for a value that is even cheaper than it is still worth, and to realize that value they look to aggresively cut costs and chop dead weight.

The Athletic is a much different beast. It's not a distressed property. It's a relatively new business that is actually growing very rapidly, at least in terms of subscribers. They are attracting a lot of new investment and at higher and higher valuations. The business has taken advantage of a distressed media environment, and has bet on the fact that local sports fans still want coverage, where newspapers falling apart has left a void. They snatched up great talent whenever there has been layoffs and they have scaled up very fast, and by all accounts they have found demand for their idea. It has also required a lot of money; venture capital.

The question now is whether a lot of money in investment has built what can be a self-sustaining business, where the revenue they generate from subscriptions can meet the hefty expenses it requires to pay the salaries and infrastructure the business requires, and then leave a profit. It's a big question, because they are paying a lot in salaries. There is speculation that the goal may be to sell themselves to a large company, but the reason it won't play out the way you fear is that in their last round of funding, they achieved a half a billion dollar valuation, and nobody pays half a billion dollars for something they need to chop up to squeeze out costs.

My guess is that the $500 million valuation is way beyond ridiculous (there are reasons why a lot of things today have become this overvalued; we are in a world of asset bubbles primed to pop). As someone in the link @playthrough gave yesterday said, media businesses don't fetch valuations that rich (although with no sense of their actual revenues, there is no way to know just how rich it is). The valuation may actually make it less likely they get bought. In the linked story, it said that a senior employee at ESPN said the company had no interest, particularly at its current valuation.

But if it gets bought, it will be by someone who sees the value in what they have built, and will be looking to sustain and grow it, not try to destroy it to squeeze out value. IF it ever gets bought in the manner you are worried about, it will mean that what they did failed and it is reduced to attracting deep value investors. That is not where it is today. It's a hot startup on the upswing. What you fear could happen, but if it ever does, the layoffs will be a function of their idea not having worked and the business not being viable, not because of an acquisition.