Dear Chatham Asset Management,
I’m offering $5M to buy The Charlotte Observer. I’m serious.
My thesis is simple — you don’t have to strictly manage it as a distressed asset, it can be transformed.
You’re running the correct newspaper playbook, up until a point. It’s not fun, but it’s the reality you’re faced with in order to provide financial returns.
- Raise rates on rich people (they complain, but rarely cancel and die slowly)
- Lower payroll as revenue declines
- Focus on keeping as much of the print insert business as possible (very lucrative)
- Make no digital investments beyond what’s needed for staff morale
- Sell real estate and other assets
I worked on the The Charlotte Observer management team from 2013 to 2015. I get it. There’s more cash left in these newspapers than people think.
But as with any distressed asset, eventually the economics stop working. Then what? I’d argue a great outcome is to get one final check and return it to local ownership.
Plans for The Charlotte Observer
Let’s talk product, revenue, and expenses.
I’d focus the team on the following products:
- Website with metered paywall and good user experience (ex, The New York Times)
- Free flagship morning and evening newsletter (ex, Axios)
- Free suite of 10 content vertical newsletters helmed by star journalists (ex, Puck News)
- Free flagship podcast (ex, The Daily)
- Social handles (ex, Axios Charlotte)
- Tentpole events (ex, Texas Tribune)
This mix of free and paid products will allow us to focus on both subscription and advertising revenue.
Subscription: I believe we can convert 5% of the local population into paying subscribers. That’s 50,000 people. I’d charge them $10/mo. That’s $6M/yr. We’ll also create a premium tier for civic minded journalism supporters. 1,000 people at $1,500/yr. That’s another $1.5M. For a total of $7.5M in subscription revenue.
Current digital subscribers are about 23,000 (thank you Tony for the stat and story), so we’ll have some work to do. But in a city one-fifth our size, The Salt Lake City Tribune now has over 30,000 digital subs. It’s possible.
Advertising: The products above give us enough surface area to sell $6M in advertising revenue. As a comp, the Charlotte Agenda quickly did well over $2M in digital advertising with far fewer products.
That’s a grand total of $13.5M in revenue (for another comp, WFAE does about $7M in total revenue).
My estimates above seem reasonable, not wishful thinking.
2 Caveats: Items I’d evaluate.
- Depending on the current print economics, I’d evaluate keeping a 1x/wk Sunday print edition (ex, Business Journals) and if so, I’d also spin up a luxury magazine (ex, Our State).
- If becoming a non-profit allows us to hit our revenue numbers faster, I’m very open to this.
Now, let’s talk about expenses.
Payroll: The main driver of any modern media company.
- Management team – 5 at an average of $300K/yr, so $1.5M total
- Sales and fulfillment – 10 at an average of $150K/yr, so $1.5M
- Operations – 10 at an average of $100K/yr, so $1M
- Newsroom – 50 at an average of $125K/yr, so $6.25M
75 people and $10.25M in payroll. Let’s add another $1.75M for space, event production, technology, etc.
That’s a grand total of $12M in expenses.
Profit: We’re left with $1M in profit on $13.5M in revenue (11% margin, similar to the New York Times). Not an amazing business, but sustainable, rewarding, and a good asset for the community.
Why now: I understand why you haven’t done this yet. It’s more profitable to squeeze all the cash out of print. But print economics start to not make sense at a certain point and I believe that point will come within the next 24 months (print circulation now down to around 10,000).
I know how to do this — I worked on The Charlotte Observer management team, I started a local media company, sold it for millions, then helped scale the concept to 30 cities before selling again for half a billion.
Chatham Asset Management, let me know! My email is ted(at)tinymoney.com
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