It’s telling that the New York Times Co.’s $550 million acquisition of sports website The Athletic is the storied newspaper’s biggest takeover since it splashed $1.1 billion to buy the Boston Globe in 1993. It heralds a fresh experiment in how to sell more news to a generation of readers raised online that, if successful, could prove a model for other media giants to emulate.
The Boston Globe deal marked the pinnacle of the Grey Lady’s ill-fated expansion into regional news: at the time it owned 31 regional newspapers, 20 magazines, five television and two radio stations. The advent of the internet era meant the subsequent two decades were not kind. As the web hoovered up advertising dollars and readers alike, net debt ballooned to six times Ebitda, an earnings measure, by 2009.
The Times has spent the past decade retrenching, selling its regional media businesses, cutting debt, and building a best-in-class digital subscription operation. The Globe was flogged off for a knockdown $70 million in 2013.
Which brings us to the Athletic takeover. It’s an effort to encourage re-bundling. The classic newspaper subscription was the original bundle. Even if you were only really interested in sports, you also received the politics, business, arts and other sections wrapped in a bundle on your doorstep each morning.
The web atomized that. People didn’t need to buy whole newspapers any more – they could just find the stories they wanted online. Online streaming video is a prime example of unbundling. Rather than paying $100 for a 250-channel monthly cable subscription, you can instead pay for just ESPN+, for instance, if sports are your thing. Substack is the epitome of unbundling. It’s a service for journalists and writers to sell subscriptions to their newsletters. Readers can sign up for one, 10 or 50 writers, and pay for each.
The Athletic, too, represents a relative success in the unbundling trend. With 450 journalists covering the nitty gritty of sports across the U.S., as well as England’s Premier League soccer, it has built a 1.2 million-person audience in just six years. But there’s a major challenge: the Athletic is not profitable by a long way. It had an operating loss of $55 million on revenue of $65 million last year. For New York Times investors to start seeing a return on the acquisition price, the company will need to double the Athletic’s revenue. Chief Executive Officer Meredith Kopit Levien said that the unit would have a detrimental effect on profit for the next three years.
But she also alluded to how profitability would be achieved. Firstly, they’ll push more ads. In a sense, that’s not vastly different from the Boston Globe deal of 30 years ago, which essentially bought more ad space that the existing sales teams could try to fill. Secondly, they’ll add more subscribers. And part of that will eventually be cross-selling the products: persuading existing Times subscribers to pay for the Athletic and vice versa.
That makes the price look quite appealing, according to Bloomberg Intelligence analyst Geetha Ranganathan. It’s paying about $460 per Athletic subscriber – a significant discount to the $880 per subscriber at which the NYT Co. was valued at prior to the deal.
If that approach works, it’s a model that other media companies should seriously think about. Take Axel Springer SE. It now owns Insider Media (formerly Business Insider) and Politico in the U.S., but it’s not possible to buy a bundled subscription to both that is cheaper than buying individual subscriptions. The same with Conde Nast, which owns the New Yorker, Vogue, GQ, Glamour, Wired, and Vanity Fair magazines.
It might also encourage regional newspaper owners to think more creatively about how they package their content. Take Gannett Co. Inc., whose hundreds of regional titles and ownership of USA Today make it the largest U.S. newspaper publisher by total daily circulation. Perhaps it could consider developing news sites that pull content from all its titles and aggregate by theme, such as the NFL, music, or technology.
Rebundling is not a new approach for the Times – the tech reviews site Wirecutter, its cooking recipes and crosswords are already optional extras for digital subscribers. But this is the biggest effort to date. To be sure, it’s not betting the house. With $1 billion in cash and no debt, Kopit Levien can afford to pay for the deal with the existing balance sheet. If it works, expect to see it expand into other special interest fields. Newspaper bundles are dead. Long live newspaper bundles.