It has been ten months since The New York Times agreed to acquire The Athletic for $550 million. The dream of bolstering its subscription product and giving potential customers another reason to pay for content was always apparent, but what data did it have to back that up? Finally, we're starting to get some clarity on that.

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Now let's jump in...

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When The Athletic deal was announced, I attempted to justify the price by describing a multitude of potential earnouts for the founders. But it appears that the $550 million number was the actual price. As I said at the time:

Were the founders of The Athletic unwilling to sell for less? Did they not have the votes from investors to get it across the finish line at less than $550 million? When you factor in the fact that The Times would be forced to cover the costs for a few years, the $550 million price tag looked downright awful.

And yet, the team at the Times saw something to justify this price, even If I and others on the outside didn't. The Washington Post did a piece on the rationale behind the deal and much of the drama about whether or not journalists at The Athletic can say they work at the Times. But this paragraph is what I was particularly interested in:

Perpich is right. Sport is a significant category that consumes a large percentage of people's lives—and so, seeing that there are potentially 17 million people in the Times' ecosystem willing to pay for it must have had management sitting there with moneybags in their eyes. If only 10% converted into a paid subscription at $72/year, you're looking at $122 million in net new revenue. That suddenly makes the purchase price less offensive.

However, there is a big difference between someone telling you they're willing to pay and pulling out their credit card to pay. But, if any media company has proven proficient at convincing people to pay, it's The New York Times.

When researching this piece, I visited The Athletic to see what's been going on. I had to log in—users can use their NYT login—to gain access to the content. I went to click on a piece, and a giant pop-up advertising its "All Access" subscription appeared. $1.50/week ($78/year) would get me the entire NYT ecosystem for a year.

I had two reactions to this.

First, this type of offer is where the acquisition wins or loses. The Athletic might add net new subscribers on its own, but the bundle is where the real value is unlocked. If someone is paying for news at $17 every four weeks and upgrades to All Access, NYT unlocks an additional $8 every four weeks. Once someone is a paying customer, getting them to pay more becomes easier. That's the entire thesis behind the All Access bundle.

Or, if the addition of The Athletic gets more people off zero since they perceive even greater value for the $25 every four weeks, the obvious benefits of the deal become more apparent. Ultimately, people need different reasons to pull the trigger on a subscription, so giving more for the same price can get people to act.

Second, I'm already giving NYT $17 every four weeks for news exclusively, so if I wasn't trying to get this piece done expeditiously, I should cancel and then sign up with this offer. I expect the Times to recognize that my email is already paying a certain amount, so making an offer that would dramatically reduce this is not a wise business decision.

Instead, the Times should have prompted me to upgrade to All Access for the same price I am presently paying, with a small disclosure that I'd have to pay the total cost of $286/year in 12 months. Offering me a discount when I'm a long-term, loyal customer doesn't make sense. This isn't very clear because I used my NYT email to log in. Its system should be able to assess whether I am already a paying customer and make the correct offer to me.

Why offer me All Access for the same price I am paying now? The goal should be to get current customers addicted to more products. Again, getting an existing customer to pay more is easier than getting a new customer. Therefore, get me hooked on Cooking, Games, Wirecutter, and The Athletic for an entire year, then get me to pay more.

I'm spending a lot of time discussing this, but it's an essential lesson in proper audience segmentation. It's also a reminder that even The New York Times makes mistakes (a healthy reminder since I consider them the best in the subscription business).

Couple all this with the increased advertising revenue, and the deal makes a little more sense. While I still believe NYT overpaid—unless it was $550 million or bust—if the company can get its funnels figured out, this could become a significant leg of the subscription stool. It must think it's a great opportunity since the new goal is 15 million subscribers by 2027, up from 10 million by 2025 (which it already hit).

Punchbowl expansion

Axios has a piece about how Punchbowl News, the company launched by former Politico reporters, has made its first significant expansion outside Capitol Hill.

This is also how I would think about expansion if I were the Punchbowl team. If the financial services industry is one of the most influential sectors in town, what are the others? I suspect that Punchbowl already has this list.

But why this approach?

It's a hub-and-spoke expansion strategy. For example, I'm sure many in financial services also read the main newsletter. Therefore, it can get those people to read two products now, allowing it to grow the newsletters faster than if they were launching from scratch.

This is also why I find the newsletter-first strategy to be so smart. It doesn't take many people to create a daily issue; therefore, the margins become incredible once it reaches a particular scale. For example, Axios reports that it has 14 employees and did over $10 million in revenue last year. Let's say it's going to beat that this year. That means it's likely generating $1 million or more per employee. That's a pretty sweet position to be in.

It will slow down as it gets more extensive—and each spoke in the newsletter wheel will be smaller than the main one—but Punchbowl has clearly claimed its chunk of the media landscape.

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