Company executives love to project confidence and resiliency. But Adam Hansmann, co-founder of sports-news company The Athletic, admits he was terrified in March, when the coronavirus pandemic shut down sports across the globe.
"It should have been the end for us," Hansmann said in an interview. "There were some dark moments."
Hansmann said in the first two weeks after sports shut down in March, there were days when fewer than 100 people were signing up for The Athletic, compared with "thousands" normally. The Athletic announced in early June it had laid off 8% of its staff and mandated across-the-company pay cuts.
Three months later, The Athletic is typically adding more subscribers per day than ever and has reached the 1 million subscriber milestone, co-founder Alex Mather said. While Netflix and Spotify are the gold standards of subscription media — each with over 100 million global subscribers — few news companies have more than 1 million subscribers. The New York Times topped 5 million digital subscribers earlier this year. The Wall Street Journal crossed the 2 million mark in February.
"In the end, the fundamentals of the business have proven to be really strong," Hansmann said. "We are literally at peak engagement."
It certainly helps that sports are back. With the National Football League set to return this weekend, American sports fans will have professional football, baseball, basketball and hockey games all running live at the same time — an unprecedented occurrence and a boon for millions of fans who were relegated to watching ESPN documentaries and international table tennis earlier this year.
While other media companies have seen advertising revenue dip 20% to 40% this year, Mather and Hansmann credit their subscription-only business model with keeping the company afloat.
The company makes more than $60 million in pure subscription revenue and has ad sales from podcasts. That's enough to make "our newsroom profitable," said Mather. In other words, The Athletic, as a whole — when adding in sales and marketing, HR, cloud computing costs, and so on — isn't profitable. But the company makes enough money to pay for all of its journalists and editors, including travel expenses and benefits. Mather and Hansmann have tried not to overextend the company by growing too aggressively, moving to new markets only after they've established profitability in existing ones.
The Athletic publishes more than 200 stories a day and has spent the past four years pillaging local newspapers around the country to scoop up their sportswriters, offering higher salaries, stock options and more stability. The company also has hired about 100 people to run technology that allows for more visual storytelling, and has fully embraced podcasting, offering 120 shows for subscribers, who pay an average of $64 a year for a subscription.
There are no plans to prioritize video, Mather said, which is expensive to produce but typically offers higher ad rates per viewer. Since The Athletic doesn't rely on ad dollars, it's not as important as it is at other media companies.
"We don't have sports rights or the backbone of a television company," said Mather. "We're focused on what we're good at, which is the written word and audio."
Grabbing the next 1 million subscribers will require The Athletic to expand globally, Mather and Hansmann said. The Athletic is already in the U.K., where it has focused on European soccer writing, and plans to carry its soccer coverage into other European countries, the founders said. The Athletic hired Simon Greenberg earlier this month as its new head of international business development to explore new opportunities.
In the U.S., The Athletic is developing several product enhancements, such as a new front page and more breaking news elements, to better compete with Disney's ESPN.com. Mather said many of the company's higher paid, well-known writers and columnists, some of whom host The Athletic-run podcasts, could be called upon to give quick five-minute audio reactions to breaking news in addition to shorter reaction pieces.
"So much of the breaking news is happening on Twitter right now, but it should be on The Athletic," Mather said. "If something happens, you should know on The Athletic. Part of our product is bringing in tweets, but we need to bridge that gap between the initial tweet and that deep story that gets published six to 10 hours later."
The company has also recently started bundling subscriptions with Bloomberg's business website and giving away a free year to certain T-Mobile subscribers. The Athletic receives no money from its T-Mobile deal, Mather said. Rather, the company hopes the one-year free trial will showcase the value of the content to a new audience.
"We're seeing many digital subscription businesses move away from the 30-day free trial, which used to be standard," said Eric Stromberg, founder and managing partner at Bedrock, a venture capital firm that co-led The Athletic's $40 million Series C funding round in 2018 and led its $50 million Series D in January, valuing the company at about $500 million. "If the trial is a year, it allows them to prove value and build new consumer habits."
Digital subscription businesses are still a relatively new phenomenon, noted Stromberg, who is also on The Athletic's board. He pointed to Duolingo and Peloton as other companies that are showing people will pay for content they love on the internet.
"A lot of people will look at Netflix or Spotify and ask 'are these just anomalies?'" Stromberg said. "Or actually, are we seeing an emergence of a powerful new business model? They're proof that subscription can scale just like transaction and ad-based models."
But it's still unclear how Stromberg is going to monetize his firm's investment. Bedrock typically has a five-to-10 year investment horizon before it pushes to exit an investment. Stromberg acknowledged that The Athletic "may get closer to 10 years" before he starts discussing endgame plans with Mather and Hansmann. The Athletic has raised $139.5 million to date and has no plans to raise more, Mather and Hansmann said.
The Athletic's aggressive growth tactics have made some people skeptical about the company's trajectory. Eric Jackson, founder of EMJ Capital, a hedge fund that specializes in media and technology investments, is curious about how many customers are churning and the distribution of how many people are paying full price as opposed to promotional offers.
"Who knows what their real growth story is?" said Jackson. "I'm skeptical."
The co-founders said they aren't thinking at all about exit strategies. Instead, they're just focused on growing the company — and sticking to sports. There are no plans to branch into other verticals, they said.
"Our investors have been and continue to be incredibly patient," said Mather. "We just don't think about exit, and we don't know the upside here. There are very few companies doing what we're doing. The New York Times is the tip of the spear, and they're growing faster than ever. We don't know what our ceiling is. When we feel like we know what our ceiling is, then it's time for Adam and I to have a chat. But we have not come close to having a chat."