Politico deal gives profits to Axel Springer and US platform

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Updates to Axel Springer SE

When German publisher Axel Springer agreed to acquire Politico last week, the media’s first reaction was envy.

The US political website and subscription service, founded in 2007, has achieved rare success. Politico is profitable, despite two rounds of no-shows that saw former staffers roll out competing products. Today, its funder, Robert Allbritton, has raised nearly $ 1 billion, or five times the company’s reported revenue.

The sale comes at a difficult time for Politico’s competitors, both traditional media and digital newbies, especially those who rely on advertising.

Total U.S. newspaper circulation (print and digital) fell another 6% last year and is now half of 2007 levels. Even though digital advertising has skyrocketed amid Covid-19 to reach $ 152 billion in the United States alone, the benefits are not reaching news media sites. Last year, for the first time, Facebook, Google and Amazon absorbed the majority of all US ad spending.

Many media companies now view subscriptions as a more reliable source of revenue, and some saw impressive increases last year amid lockdowns and the US presidential election.

But now the interest is fading. Prime-time viewers for each of the three major US cable news networks fell more than 35% year-on-year in the second quarter, with CNN doing the worst. The New York Times recently reported that subscriber growth was slowing down. According to ComScore, visits to its website, the Washington Post, the Wall Street Journal and USA Today all declined by at least 10% year-on-year in July.

Several digital players who hoped to cash in are now in difficulty. The vice is lay off more staff and put away plans to merge with an ad hoc acquisition vehicle. BuzzFeed has lowered its valuation and promised financial discipline as it offers its own Spac deal.

Considering all this, why is Axel Springer spending so much on Politico? Some analysts argue that this is another sign of the growth of private equity. Since its delisting with the backing of KKR, Springer, which was the subject of an outbid for the Financial Times in 2015, has been freer to fulfill its global ambitions. The company modestly said last week that it “aims to create the first 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 sucking up ad dollars, media organizations have two choices. They can either find specialized revenue streams that big tech companies can’t tap into, or they can try to get some of the mainstream money back. By buying Politico, Axel Springer is looking for ways to do both.

The main public face of the American brand comes from the talkative and free emails and media coverage focused on the scoops about and for influential people in Washington. Unlike many political sites, its web visits increased 28% for the year ending July, according to SimilarWeb, and it is attracting corporate advertisers who want to target high-impact audiences like Facebook and Google, for all their data mining, can not match. .

Even so, half of Politico’s $ 200 million in revenue comes from its much less visible “Pro” subscription business, which essentially capitalizes on the $ 3.5 billion US lobbying industry. Described as “Bloomberg for Politics,” it sells data, directories, and in-depth coverage of the law-making and policy-making process for as much as $ 10,000 per person.

It’s a sufficiently lucrative market that The Hill, another profitable site focused on Capitol Hill, recently sold for $ 130 million to Nexstar, a local television group.

The Politico buyout also gives Axel Springer more weight in the United States at a time when Big Tech regulation is moving up the Washington agenda. A wide variety of antitrust issues are being discussed, but the impact on the news media could peak.

Australia has already shown how governments can force platform companies to share their revenues with content creators – and how large media companies like Rupert Murdoch’s News Corp are most likely to benefit from such changes. The bigger Axel Springer is in the US, the more his US interests, which include Business Insider and Morning Brew and a stake in Group Nine as well as Politico, could benefit.

Specifically, Springer CEO Mathias Döpfner has been fighting publicly against Google and other platform companies since 2014. Most of his efforts so far have been directed in Brussels, but Politico gives it an American platform. A soapbox and a profitable American business combined, who could resist?

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