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:

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:

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.

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:

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:

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!