I recently spoke to a group of mid-sized media entrepreneurs looking to scale their ventures. They had the same problem: finding capital to grow. This has been a problem for media, which tends to have low (and declining) profit margins. But the rise of monthly recurring revenue – mainly via newsletters and subscriptions – might be changing those dynamics.
In recent years, finding capital to grow has been a tough task for media entrepreneurs. Donor funding, while helpful, is not designed for scaling (for one it typically decreases as revenues grow – but that’s when companies need to step up spending).
Banks rarely lend to anyone except corporate heavyweights. Venture Capital firms (VCs) and seed investors want to see “hockey stick growth”. That doesn’t happen in media (at least, almost never). Other forms of equity funding are also tricky – especially for outlets in shaky legal jurisdictions or the growing number of publications structured as non-profits.
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But the relationship between media and finance is changing. Years of “easy money” policies mean have resulted in firms holding record amounts of capital. That money needs to be placed somewhere, even if expected returns are lower.
Moreover, media increasingly boast a revenue type that VCs are going after – monthly recurring revenue. Streaming giants like Netflix have shown the potential of the model; even fintechs are looking at subscriptions to fuel sustainable growth. Many Americans tripled their subscription spending during the pandemic.
Publishers are seeing their own MMR boom, notably due to newsletters and subscriptions (content licensing also plays a role). It’s hard to find a website these days that doesn’t offer the option to make regular contributions.
This has led to a flurry of big-ticket deals (albeit mostly on the US side of the Atlantic). In February this year Outdoor Media – a publisher with 22 lifestyle brands – raised $150 million in a Series B led by Sequoia Heritage. It aims to use the money to fuel acquisitions that will bring its total number of subscribers to 1 million (with average annual income of $70 per subscriber).
A smaller but still noteworthy deal came in April with Defiant, an open finance and crypto media. The publication secured $1.4 million in pre-seed funding to continue moving beyond its Substack-newsletter origins, reliant on paid subscriptions.
In Ukraine this May, newspaper of record Ukrayinska Pravda was bought by Czech investor Tomáš Fiala, CEO of investment firm Dragon Capital. Most of the country’s media deals have been based oligarchic influence-peddling. In this case, the investor has kept staff on and aims to invest in further growing the company it’s multi-tiered membership model, launched in 2020.
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Media tend to be wary of finance firms. This is mostly due to bad experiences with hedge funds and private equity firms buying up properties and optimising them – a euphemism for cutting payroll and staff benefits. This has certainly been the case for many US chains, for whom a private equity or hedge fund acquisition can “feel like a death knell”.
But media need scale and the only reliable way to get there is through capital injections. But bank lending continues to be difficult (this will likely remain the case – lending has become problematic in many industries, especially smaller ones). Hence investments from other institutions are the best way forward.
Moreover, it is not all bad, especially in the cases of VCs, which seek to turbocharge growth in companies they invest in. To understand the good this kind of capital can bring, it’s enough to look at the case of Tiny Capital and Overstory Media Group.
Together, the fund – which invests in small internet companies and grows – and the media group aim to launch 50 local media and hire 250 journalists by 2023. Their recipe for success is simple – launching paid local newsletters that can grow into local news companies.
The story started from the Capital Daily, a newsletter launched in 2019 that has since expanded to a site and even a podcast. With the backing of Tiny Capital, Overstory Media Group is looking to invest $500,000 in each new publication and scaling the subscription-powered model across the region.
Now imagine the picture without the capital to scale the model. Even if Capital Daily decided and managed to expand, it would most likely do so at the rate of 1 publication every year (or even every other year). More financial institutions showing interest in media means the best and most creative entrepreneurs might just have a chance to expand their solutions.
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