Opinion

Felix Salmon

The financial-media rollup strategy

By Felix Salmon
November 15, 2013

Financial news is a classic ripe-for-disruption industry. It generally makes its money by selling expensive subscriptions to the price-insensitive, but that model won’t last forever: it’s never been harder to find anybody under the age of 40 who pays for such things. The trick, for anybody looking to navigate the industry, is to create products which will have a much greater chance of gaining broad traction in a mobile-native world — and which can generate profits through as many revenue streams as possible.

If you’re ambitious, it’s easy to see an enormous opportunity here. The FT and the WSJ are both billion-dollar brands; Bloomberg and Reuters are worth much, much more. All of them have very substantial subscription revenues, which they can’t afford to endanger. (Well, Bloomberg probably can afford to endanger them, but it won’t.) As a result, if an aggressive digital financial media company starts going after their customers, the big guys are not going to fight back by lowering their prices.

Now, with today’s news that Deutsche Bank has been hired to sell Forbes Media, it looks as though the opportunity to create just such a company has arrived. Forbes is being sold relatively cheap: Bloomberg’s Edmund Lee reports that the asking price is in the $400 million range, while US ad sales alone were $275 million last year. Add in international sales, events revenue, and licensing revenue from software deals and things like Forbes Media Tower and the Forbes School of Business, and you’re talking about a sale price which is barely above 1X revenues.

Forbes is not the only digital financial-media property going cheap. TheStreet.com is publicly listed, and has a market cap of $75 million on annual revenues of $50 million. Chances are, any takeover offer would be taken very seriously.

Meanwhile, Andrew Edgecliffe-Johnson reports that Henry Blodget, the CEO of Business Insider, is “in full pitch mode”, saying that BI “would actually be perfect for a merger”. Blodget has been preaching the roll-up gospel for a while now, and would surely jump at the opportunity to get involved in one. He has revenues of about $20 million right now; BI is valued at much higher multiples than Forbes or TheStreet, but still surely less than $100 million.

Throw in a bit of extra cash to bring it all together, then, and for say $700 million — significantly less than it would cost you to buy the FT on its own — you could buy Forbes and Business Insider and TheStreet, and probably Seeking Alpha as the cherry on top. At that point, you have the makings of a real digital powerhouse.

The companies are complementary in many ways. Forbes has a big ad-sales base, as well as a storied brand name, a large events business, and a valuable network of thousands of editorial contributors; it is also furthest along in terms of building a strong native-advertising franchise. Business Insider has growth, attitude, aggression, speed, and by far the most web-native newsroom in financial media. It knows what people want to read, and it is extremely good at providing exactly that. TheStreet, meanwhile, has an enviable list of stock-market investors who are willing to spend serious amounts of money on newsletter subscriptions; it also has a very sophisticated video setup, and last year spent $6 million buying The Deal, which reaches pretty much everybody who matters in the New York financial industry. And Seeking Alpha has managed to build up an extraordinary base of reader-contributors, who between them provide some of the most timely and sophisticated stock-market analysis on the web.

The big question is, of course: who has $700 million to spend on such a roll-up, as well as the managerial and technological nous to get them all to play nicely together? The facile answer is: anybody who can afford to spend $400 million on Forbes alone can afford to spend $700 million on something which is much more likely to make a real impact. But still, we’re talking about real money here. Which means that one company in particular springs to mind as the place which could put a deal like this together: Yahoo.

Yahoo already owns Yahoo Finance, which is by far the most valuable financial property on the web. (It’s also, for my money, the single highest-quality product that Yahoo owns.) Yahoo is also in acquire-and-expand mode right now, buying up anything with buzz. $700 million is less than two-thirds what Marissa Mayer paid for Tumblr; she has $1.8 billion in cash alone, and might well come into even more, depending on what happens with Alibaba. On top of that, Yahoo Finance could provide the kind of readership and quality data services that all of the rolled-up companies would kill for: it has the makings of a great platform on which to build a truly formidable financial-media competitor.

Of course, getting all these different properties to work well together would not be easy, especially given geographical obstacles: Yahoo is in California, while Seeking Alpha is in Israel. Most mergers subtract value, rather than adding it. But we’ve reached a point, in financial media, where nimble digital companies have finally managed to build up the ability to constitute a real threat to the incumbent giants. That will take growth, and substantial investment. This isn’t the world of startups any more — these are real companies, with real revenues. There’s a strong case for a deep-pocketed player to roll them up and make them substantially greater than the sum of their parts.

Comments
4 comments so far | RSS Comments RSS

Felix, it’s possible you are a little too close to the pie cooling on the ledge, so to speak, and it might be coloring your value assessment.
There is a fine line between cheap and in trouble, and a sale of $400m would be substantially less than what Elevation Partners allegedly paid when they took 45% at $237m.

Further, according to Fortune, at least, the contract between the two does murky the waters substantially (this is a direct quote):

Elevation’s contract includes a “put” option giving it the right to force Forbes to buy back the 45% stake at fair market value anytime between Aug. 4, 2011, and Aug. 3, 2016, according to a footnote in Forbes’s 2010 financial statement.
(In a twist that could prove lucky for Forbes, it has a “call” option to force Elevation to sell back its stake at fair market value anytime after Aug. 4, 2011. If the company’s value does not rise above what Elevation paid in 2006, Forbes could buy back the stake and stick Elevation with a loss.)
Elevation also got Forbes Media to give it a hitherto-undisclosed escape clause: After the put option expires, Elevation has a 90-day window during which it can sell its stake back to Forbes Media at its original price.

Posted by thispaceforsale | Report as abusive
 
 

Blooomberg is the most valuable property on the web. Tompson-Reuters is #2. If Yahoo finance wants to stay #3 they will need to stop “improving” their user experience as they did a week or 10 days ago by upping the add space on their home page to about 50% of the screen.

Posted by y2kurtus1 | Report as abusive
 

to be a useful mobile-native news experience, it has to be linked to a trading platform. i don’t think yahoo could do that. or rather, if someone wants to do it, they can do it better building from the ground up.

forbes may have revenues but it has no future. it’s been devouring its own reputation for years.

Posted by Setty | Report as abusive
 

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