Athletic, Axios talking merger?

Their readers aren't loyal to the writers. They are loyal to the coverage of their favorite sports teams or their favorite sports. The writers and editors matter if they provide good coverage. But I'd guess that for most readers, it's not the writer that got them to subscribe. It's the sports coverage.

"All you are purchasing with The Athletic is a bunch of contract obligations and subscriber info." In other words, what someone would be purchasing is more than a million steady paying customers (i.e. revenue) that a business has managed to attract and retain due to the quality of the work produced by the people working for the company.

That is all any business is.

You seem to think there is no value in that, or that it is easy to do. Apple has customers for the iphone and some hardware and software engineers. Can someone with a boatload of capital and the incentive just recreate what they are doing, because no biggie there?

I think you are so wrong about it being easy to recreate what the Athletic has done. Being first has to have had immense value. They came along at a time when there was a lot of writing and editing talent being shed by traditional outlets, and they hired a lot of those people and put them under one umbrella. There isn't a similar roster of talent that can be so easily poached anymore. That has to have a lot of value to someone. Secondly, with the decline of those traditional news outlets, they saw a hole for the niche they have tried to fill. Whether it is a good enough niche to support a profitable, growing business is still a big question. But putting that aside, they were trying to fill a largely untapped niche when they came around. Anyone looking to get in now is looking at competition; a niche someone else is already addressing. And given that the actual question that is difficult to answer about the Athletic at this point is if it is a lucrative enough niche to be viable (are there enough customers willing to pay enough money), stepping in to compete with them would probably end up being incredibly stupid. If something without competition is not yet profitable, multiple outlets trying to compete within that space are going to dilute that potential profitability and possibly guarantee failure for everyone.

If it would be so easy to recreate the Athletic in one or two years, have you asked yourself why nobody has done it, yet others are talking about merging with them or acquiring them (what you do when the cost of recreating something is likely to be much greater than the cost of acquiring them)? You said that "any company with the capital and incentive" could do it. The incentive anyone with capital has to deploy it is the opportunity to profit. ... to find the best opportunities to grow that capital. I think anyone who thinks the Athletic is a good investment, has probably thought about what it would take to recreate it, and sees a lot of difficulties you are sort of glossing over.

 

I really think you are confusing the chicken with the egg. Most people subscribe to the Athletic for sports coverage. Not because of loyalty to specific writers. If they targeted writers to hire who had "loyal followings," it's because those followings would have been indicative of reporters who covered a beat or a sport well. Which is what would have attracted those readers. It's a hell of a lot different than Substack, in that regard, which is a portal without any particular niche. Replace Rick Carpinello with someone else covering the Rangers in hockey for the Athletic, and I am not going to stop reading because Rick Carpinello is gone. To the extent he has a following, it's because he does a good job covering the beat. The sports coverage is what matters to readers, not him personally being the one to provide it. Put someone else in there who covers the team just as well, and the Athletic doesn't lose anything because his name isn't on the stories. Its the sports coverage that people are paying for, first and foremost.

Then why do startups with no profits get bought (quite often, actually, and often for a lot of money)?

The number one reason to buy any business is the potential for future profits. What a business earned (or didn't earn) yesterday benefited (or cost) someone else. I do not know if the Athletic has a lot of future potential, but I do know that anyone seriously thinking about purchasing it would think it does. They'd estimate growth that is not being tapped yet (it is still a relatively young business) that can bring about profitability, and / or they'd see ways they could leverage the business they already have to bring about efficiencies or squeeze out costs that can bring future growth and profitability.

This isn't what you said in the original post. The price tag would have to be well into 9 figures. ... because of where the earlier venture capital valued it. And I agree, that price tag for what you are getting is going to be the main impediment to getting a deal done. It's something like 6 or 7 times revenue, which in a normal time in which assets weren't being inflated to insanity by a phony interest rate environment, would be absurd for a media company. Even within the current ridiculous environment, that is extremely, extremely rich. But saying that the price tag may be too high to get a deal done isn't the same thing as what you said about someone being able to recreate what they have done in one or two years. Precisely because of what I said in my earlier post. By being first, the Athletic benefited from some serious advantages that aren't available now.

If anyone buys it, it will be because they disagree with you about synergies (I hate the word, FWIW). The way you are talking about it, it is as if you are certain that it is already a mature company that can't possibly grow its subscribers anymore or derive more sales and income. ... beyond where it has gotten to in just 5 years. You may be right. Maybe this is all the potential it has. But I also don't think it's a foregone conclusion the way you seem convinced, either. And anyone kicking the tires right now is doing it because they have access to info about the business that you and I don't, and they are trying to figure out just how much potential is there and whether the cost for it makes sense.

 

The New York Times earned about $100 million last year, which was down close to 30 percent from the year before. Which is why it is trying to plot new income streams. The Times is profitable and a cash cow still, but it's not a behemoth earner.

It's in no position to give away the Athletic like some kind of loss leader. The Athletic lost some undisclosed amount of money last year, on $80 million in revenue. Even if it had broken even, you'd be talking about giving away $80 million of potential revenue on earnings of only $100 million. If it's losing say $20 million a year still, it would drain everything the entire New York Times earned last year.

If the Times were to buy it, it would be to try to get a return on the investment by making it profitable and bundling it with other things it offers. That NYT Times cooking section contributes to the bottom line. This would have to, also.