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When German publisher Axel Springer agreed last week to acquire Politico, the first reaction in the media was envy.
The US political website and subscription service, founded in 2007, has pulled off a rare success story. Politico is profitable, despite two rounds of defections that saw former staff set up competing products. Now its financial backer, Robert Allbritton, has secured close to $1bn, or five times the company’s reported revenue.
The sale comes at a difficult time for Politico’s competitors, both the legacy media and the digital upstarts, particularly those that rely on advertising.
Total US newspaper circulation (print and digital) dropped 6 per cent again last year and is now half of 2007 levels. Even though digital advertising shot up amid Covid-19 to $152bn in the US alone, the benefits are not flowing to news media sites. Last year, for the first time, Facebook, Google and Amazon sucked up the majority of all US ad spending.
Many media businesses now see subscriptions as a more reliable source of revenue, and some recorded impressive increases last year amid lockdowns and the US presidential election.
But now interest is waning. Primetime viewership for each of the three big US cable news networks dropped more than 35 per cent year on year in the second quarter, with CNN doing the worst. The New York Times recently reported that subscriber growth is tailing off. Visits to its website, the Washington Post, Wall Street Journal and USA Today were all down by at least 10 per cent year on year this July, according to ComScore.
Several digital players that hoped to cash in are now struggling. Vice is laying off more staff and has shelved plans to merge with a special purpose acquisition vehicle. BuzzFeed has dropped its valuation and promised financial discipline as it pushes a Spac deal of its own.
Given all this, why is Axel Springer splashing out so much for Politico? Some analysts argue that this is another sign of private equity froth. Since delisting with support from KKR, Springer, which was outbid for the Financial Times in 2015, has been freer to indulge its global ambitions. The company said modestly last week that it “aims to create the leading digital media publisher in the democratic world”.
But another way to look at this purchase is to see it as a two-pronged battle with the tech titans. With Google and Facebook vacuuming up the advertising dollars, media organisations have two choices. They can either find specialised revenue streams that the big tech companies can’t tap, or they can try to wrest some of the mainstream money back. In buying Politico, Axel Springer is seeking ways to do both.
The American brand’s main public face comes from chatty, free emails and scoop-driven news coverage that is about and for Washington’s movers and shakers. Unlike many political sites, its web visits were up 28 per cent for the year ending in July, according to SimilarWeb, and it draws corporate advertisers who want to target a highly influential audience that Facebook and Google, for all their data mining, cannot match.
Even so, half of Politico’s $200m in revenue comes from its far less visible “Pro” subscription business, which essentially capitalises on the $3.5bn US lobbying industry. Described as “Bloomberg for politics”, it sells data, directories and detailed coverage of the legislative and policymaking process for as much as $10,000 a pop.
It is a lucrative enough market that The Hill, another profitable Capitol Hill-targeted site, recently sold for $130m to Nexstar, a local television group.
Buying Politico also gives Axel Springer greater US heft at a time when regulating Big Tech is moving up the Washington agenda. A wide variety of antitrust concerns are under discussion, but the impact on the news media could rise to the top.
Australia has already demonstrated how governments can force platform companies to share revenue with content creators — and how big media companies like Rupert Murdoch’s News Corp are most able to profit from such changes. The bigger Axel Springer is in the US, the more its American interests, which include Business Insider and Morning Brew and a stake in Group Nine as well as Politico, could benefit.
More to the point, Springer chief executive Mathias Döpfner, has been publicly battling Google and the other platform companies since 2014. Most of his efforts up to now have been directed at Brussels, but Politico gives him a US platform. A soapbox and a profitable American business rolled into one, who could resist?