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How Axios matched the 5x revenue price

Axios, the five-year-old all-digital US news brand which trademarked its “smart brevity” style of punchy, bullet point news, is being acquired by the privately-owned $20bn-revenue Cox Enterprises for $525m. It had fund-raised a total of $57m.

Axios was launched in Washington DC by former Politico executives Jim VandeHei, Mike Allen and Roy Schwartz who will still own “a significant stake” in the company and will continue to manage it. Axios is said to have generated revenue of $88m in 2021 – 40% up on the previous year – and to have made $4m of EBITDA. It is believed to be targeting revenue of at least $110m in 2022.

The Axios deal is another example of legacy media acquiring all-digital brands, following: the acquisition of Business Insider, Morning Brew, and Politico (by Axel Springer); The Athletic (New York Times) and Industry Dive B2B (Informa Plc). This week’s deal – like Politico and Industry Dive – was also priced at some 5x revenue (based on the 2022 forecast).

Most of the Axios revenue comes from brand advertising in its 19 national newsletters and podcasts, athough it recently launched a subscription product, Axios Pro which is five ‘vertical’ newsletters so far with a subs price of $600. The strategy is similar to that of Politico, whose profit is largely dependant on the paid-for Politico Pro.

While Axios succeeded both journalistically and financially (unlike the longer-established and, arguably, better known BuzzFeed, HuffPost and Vice), Vox this week pointed to something unusual about its success: the dependence on revenue from the tech giants: “…Meta, Alphabet, and other Big Tech companies looking to repair or burnish their reputation have been pouring ad money into Axios and other digital publishers that focus on Washington, DC. That group includes Politico and Punchbowl News, a startup that focuses on Congress. Publications that would like to be in that group include Puck, the subscription news startup, and Semafor, the publication Ben Smith and Justin Smith will launch this fall.”

Vox estimated that the so-called “corporate social responsibility” advertising market – which might have started in earnest with the launch of Politico in 2007  – may currently total $350m. That “influencing” adspend seems like an appropriate bookend to the week when Rupert Murdoch’s News Corp reported substantial improvement in the profitability of its news brands in the UK, Australia and the US. The figures were trumpeted without reference to the semi-secret Google, Facebook and Apple Big Tech payments which may just account for the recovery in the profitability of its news brands.

From Flashes & Flames, 28 Jan 2022

Five years ago, Jim VandeHei described his Axios startup as a cross between Twitter and The Economist.

It’s a vertical stream of news resembling the Facebook timeline or Twitter feed. But, instead of posts from friends, the Axios feed has short newsy bites. Each day’s newsletter begins with a wordcount and the time it will take to read. They’ve even trademarked “Smart Brevity” to describe the snappy journalism.

The Axios difference is not confined to its publishing style. There’s also the way it has been growing revenue at more than 40% a year – and not burning cash. Its relatively tight staffing (currently almost 400, about half that of The Athletic, for example) has ensured its profitability. Axios has been EBITDA positive since 2018 on revenues that might just reach $110m this year:

*Flashes & Flames estimate

This is the story of a news startup which has raised $57m but, reportedly, still has at least $20m of cash. 

Back in 2017, VandeHei – the Axios co-founder and former CEO of Politico – sounded a bit like many another digital news entrepreneur with big ideas for supplanting legacy media. In the past 15 months – when Politico and Morning Brew have been acquired by Axel Springer (owner of Business Insider) and The Athletic by the New York Times – it is easy to believe that the future of news is in the enticing combination of digital startups and still-powerful legacy media. But Axios – which itself flirted both with Springer and The Athletic – provides an alternative scenario.

VandeHei was a journalist from the US midwest who became a political reporter for the Washington Post before co-founding Politico in 2007. After 10 years, during which Politico established itself as a major political news channel, he quit along with White House correspondent Mike Allen and chief revenue officer Roy Schwartz. In 2017, they launched Axios (it means “worthy of” in Greek) into a world that was still captivated by clickbait, dismissed by VandeHei as “crap trap”. 

The ex Politico trio pinpointed the initial weakness of BuzzFeed et al, but they were preoccupied by the news appetites of young people who, in an earlier generation, would have become loyal readers of broadsheet daily papers: “They have less time and they have less interest in reading or spending an absurd amount of time on something that could be delivered more efficiently.”

The Axios strategy underlines the simple fact that appetites for news media have been transformed by all things digital: people’s wants and needs really are different. The decade of clickbait frenzy was a a false dawn which prompted the Axios founders to say the media landscape had too much “crap,” too little expertise – and no real way to make money. Legacy news organizations had increasing difficulty monetizing their content online while new digital ventures were often good at raising money but poor at building a sustainable business model. 

As Trump became president and unintentionally helped to inflate news consumption almost everywhere, the Axios co-founders secured $10m in financing from Lerer Hippeau Ventures, Cox, NBC News, Laurene Powell Jobs’s Emerson Collective, and Atlantic Media Group. 

Investors came to love the journalist-turned-entrepreneur VandeHei who says that the digital media push for scale for its own sake has been superceded by “companies that are doing serious journalism and have a real business model behind them”. But, then, this is the CEO who says “Facebook and Google…used to be massive threats to so much media…I don’t think they work against us anymore…I think they’re now a net asset for high quality media companies”. And it’s the same CEO who – back in the first year of Axios – said: “Don’t ever tether your business to the benevolence of another company.” Phew.

Axios claims some 2.4m email subscribers – and a 40% email open rate – for its 34 free newsletters. Its profile has been hugely enhanced by its decision to abandon the familiar video strategies of digital publishers and, instead, has produced a documentary news show for HBO for the past four years. The show has featured on-camera interviews with Donald Trump, Tim Cook and Elon Musk: “TV is our editorial video strategy.” But even that is only the top of the funnel for Axios which – on its fifth anniversary – is diversifying rapidly in three main ways:

Local news: Axios has taken its flair for bite-sized newsletters into the US regional newspaper market. Last year, it acquired the seven-year-old all-digital Charlotte Agenda, in South Carolina, for an estimated $5m. The lively local news brand has almost doubled revenue to $2.2m during 2018-21, reportedly with 30% profit margins. Axios quickly followed the acquisition with local newsletter launches in Washington DC, Chicago, Atlanta and 11 others, with a target of 25 by the end of 2022 – and 100 “soon after”. In a market ravaged by newspaper closures, Axios seeks “to bring smart, modern trustworthy local news to every community in America”. It is building what looks like a scalable local newsletter business. Axios Local is said to have achieved $5m revenue in 2021. 

The emphasis is on securing national advertisers and sponsors across the range of Axios Local newsletters as a way of generating good levels of revenue while keeping sales team costs under control. It seems to be working.

By the end of 2021, Axios Local’s 14 free newsletters had 600k non-paying subscribers. As if to underline the hard-nosed approach to news ‘quality over quantity’ – and to building a sustainable business – most of the newsletters have just two or three journalists (“the two best journalists in each market”). Even Charlotte has just seven. Technology and admin are centralised. The flagship newsletter is the model: free for readers and funded by advertising but its membership program also has 2k paying supporters. It has 55k non-paying subscribers and its website has almost 700k monthly uniques – equivalent to 80% of Charlotte’s population. 

VandeHei is convinced and convincing about the potential revival of local news: “There is an audience — and real revenue — in cities. It’s a tough nut to crack, but creating a daily habit for local readers who care deeply about local issues stirs the possibility of starting to solve the local news crisis.” Some longstanding regional publishers have been dismissive of Axios Local newsletters, claiming they can “only skim the service”. But Axios is a serious journalistic company which may be expected, over time, to devote increasing resources to ensuring the sustainability of local news gathering.

Subscriptions: Five years after the Axios founders declared an ambition to build a media business funded at least 50% by subscriptions revenue, they have introduced their first high-end subscription products. Axios Pro is three daily newsletters covering investment and acquisition news in the fintech, healthtech and retail industries, each priced at $599 per year (no monthly option) or $2,499 for All Access, which includes the three existing newsletters – and two more on media and climate tech, being launched in the next few months. 

The style of the newsletters is familiar to existing Axios readers, with short sentences, bolded text, bullet points, emojis, and headers like “1 big thing,” “why it matters,” and “by the numbers.” It’s all SmartBrevity, of course. And also tight staffing, with a total Axios Pro team of 16. The inspiration for what seems likely to become the company’s most profitable revenue stream over the next few years, reportedly came from the success of its Axios Pro Rata, a newsletter on all-industry dealmaking that now claims more than 200k subscribers. Axios has consistently talked of its strategy to build a brand, audience, loyalty and, then, a subscription model on top of it. It’s all underway.

Software: Last year, it launched AxiosHQ communications SaaS software to allow others “to communicate in our trademarked SmartBrevity style. Organizations, big and small, pay annual fees to utilize the tech for internal communications.” 

AxiosHQ, provides licensees with: email templates for memos; an AI editing program, providing suggestions for content; analytics software that gives stats on open rates and engagement; and SmartBrevity scoring on the communication itself. 

In 2021, HQ generated more than $1.5m of software licensing starting with annual contracts of $10k. It is expected to exceed $4m this year. Some of the 150+ clients are paying more than six figures for annual contracts in a business which is prompting a comparison with Bloomberg: “Can we have a terminal business and a news business? In our case, we would have this communication business and a news business.” Bloomberg is one thought, the other might be Amazon: who would have guessed how significant Amazon Web Services would be to the profitability of the world’s largest online retailer? Axios is up with the best and its SaaS activity will, presumably, also strengthen its B2B subscription newsletters.

At first glance, Axios has looked like other breezy US newsletter startups, exploiting the low-cost simplicity of “push” emails. These are the digital operators which understand the importance of getting audiences to make a regular “appointment” to view, read or use: creating the inescapable habit. But the Axios pedigree is evident also from the mix of both free and paid content, and from the fusion of B2B and B2C. The Axios people know only too well that the secret sauce of their former employer is Politico Pro, the high-priced subscription service for politicians, lobbyists and government – which generates most of the revenue. 

The lessons of Axios may be that media companies everywhere should develop services with:

  1. A distinctive style and tone. It’s about more than just exclusive content
  2. Low-volume, high quality content – and staffing
  3. Diversified revenue sources, with both free and paid-for content
  4. A 360-degree mixed-media strategy, embracing B2C and B2B

Axios reiterates the potential of email newsletters. It also shows that you don’t need the resources of the New York Times in order to experiment with the widest range of products and services, using existing and/or new content to build new audiences and revenue. 

Whether you are an information provider for consumers, business people, or the narrowest vertical community, you can emulate Axios. Be inspired.