Will sports fans accustomed to free news pay for online content dedicated to their favorite teams?
It's a question Courtside Ventures is set to answer in the coming months.
In January, the New York-based VC firm announced that it had led a $2.3 million seed round for The Athletic, a subscription-based website betting that diehards will support quality sports journalism. It's a surprising wager on an industry that's had a particularly rough year, with massive layoffs at ESPN, Sports Illustrated and other outlets around the country. The financing was a small victory for a sector that has experienced diminishing VC interest over the past few years, as newspapers and magazines struggle to find a lucrative mobile or web-based business model to offset print advertising losses.
However, there are reasons for optimism.
After major national outlets such as The New York Times and The Washington Post reported modest success with metered digital paywalls, VC firms have shown increasing interest in subscription-based models, according to Bloomberg.
Enter The Athletic, which launched in Chicago last summer and now has online sports sections in four additional metropolitan hubs—Toronto, Cleveland, Detroit and the Bay Area—with Montreal slated to go live in September.
The company's business premise is simple: Round up enough subscribers to achieve profitability. Don't rely on a digital advertising landscape dominated by Facebook and Google. Don't run ads that generate revenue through a CPM (cost per thousand) model that requires huge swarms of readers to generate significant returns. In theory, this means writers won't be burdened with high traffic goals that force them to pump out multiple stories per day.
The site has plucked sportswriters with big regional followings in hopes of turning their readers into its subscribers. The list includes renowned San Jose Mercury News columnist Tim Kawakami, who will serve as editor-in-chief of the Bay Area section, longtime Sports Illustrated college football writer Stewart Mandel and a host of others.
The Athletic charges subscribers $47.99 annually to those who pay for the full year upfront—it contends it needs just 8,000 to 12,000 subscribers per market to reach profitability, per Bloomberg. But of the five cities, only Toronto and its some 10,000 subscribers reportedly currently turns a profit. Regardless, the company has caught the attention of investors, who dedicated another $5.8 million to the website in July. The Athletic plans to increase coverage of college football and the NHL, launch a site in Philadelphia and expand its editorial staff to 75.
It's hard to tell by the numerous headlines bemoaning the sorry state of media enterprises across the country, but the US media industry has recently experienced a moderate uptick in VC investments. In fact,
VCs have already devoted about $1.44 billionto the space this year, according to the PitchBook Platform, up from the $1.31 billion brought in during all of 2016. VC investments in the US publishing sector are also on pace to beat the roughly $100 million invested last year, with $77.4 million invested so far.
Below is a look at VC investments in US publishing companies since 2008:
Wondering about the spike in 2014? That came when Vice Media, the millennial-focused digital media company that's earned acclaim for its self-titled HBO series, received $250 million from early Facebook- and Netflix-backer Technology Crossover Ventures as part of a larger $500 million investment.
Another Vice-fueled spike came in June, this time for private equity deals, when TPG Capital devoted $450 million to founder Shane Smith's operation, causing overall PE investments in US publishing companies to surge. But last month, the company laid off 2% of its employees, including its entire sports department, as it pivoted to video.
Still, other PE firms have played a role in the resurgence. In April, Apollo-backed publisher American Media bought tabloid US Weekly for $100 million. Overall,
PE firms have already poured about $666 million into the US publishing sector this year, nearly doubling last year's total ($344 million). With 20 PE-backed deals completed so far this year, the sector is on pace to surpass the 2016 total (26 deals).
It's still unclear if subscriptions by themselves can sustain a news organization. Many publishers not named The New York Times and The Washington Post have seen the post-election surge of new digital subscribers level out. But there is reason for hope after the American Press Institute released a study in May that indicated
53% of adults in the US pay for news.
Now, VC firms like Courtside are willing to wait and find out if the model will stick.
Interested in learning more about VC & PE investments in publishing? View the full data here and here.