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Media Companies Looking to Get Out of Software Business


Once considered a viable way to grow revenue, media companies are rethinking whether they want to be in the software licensing business. And for good reason.

As we move into more challenging economic climates, media companies must think long and hard about business units outside their core focus. And we’re starting to see that play out with software licensing. According to WSJ, the Washington Post is thinking about selling its Arc XP business.

The Post’s software, known as Arc XP, now services the likes of pro basketball’s Golden State Warriors and energy company BP PLC. But the business, the executives said, had reached a crossroads and the Post needed to explore a spinoff or sale to realize its potential, according to people familiar with the discussions. Mr. Bezos gave his blessing to explore those options, they said.

As the Journal reports, there are approximately 250 people who work on Arc full-time to generate roughly $50 million in revenue. Unfortunately, it’s not profitable either.

So, does a company that will likely lose money this year continue to invest in these endeavors, or does it look to maximize a return and move on?

The best time to sell would have been a year ago when multiples were insane, but the Post would likely still generate a pretty return. It’s hard to find a good comparison, but let’s use Salesforce. According to FinBox, Salesforce has an enterprise value of 4.21x LTM revenue. And so, if Arc could get a similar valuation, it’d be worth $210 million.

Now, it’s not so cut and dry because perhaps Arc is growing faster than Salesforce, which would increase the multiple. But, on the other hand, it’s not profitable, which could decrease the multiple.

Nevertheless, the Washington Post would look at two optimistic business scenarios if we use that as its multiple. First, the sale would ideally provide an influx of cash for the Washington Post to use to invest in its business. That kind of money can hire a lot of reporters. Second, while revenue will drop, it won’t burn as much cash either. So, could it be profitable again?

Ironically, six months ago, I suggested that the Post keep Arc. But since then, its primary voice, Shailesh Prakash, The Post’s Chief Information Officer, left the business. So that changes the equation a lot.

Then there’s Vox. According to Adweek:

Chorus, which has six clients currently, will no longer take on new customers and will not renew its existing contracts, according to a person familiar with the business. Current clients will have 18 months to migrate off of the platform.

“Vox Media has made the decision to wind down our Chorus SaaS business to better focus our company’s resources on supporting our industry-leading editorial brands, and where we see opportunities for immediate and long term growth,” said a spokesperson for Vox Media.

Trying to sell software and maintain it for clients is expensive. Six customers don’t warrant all the necessary support staff. And as Vox attempts to survive this economy, it makes sense that it wants to focus.

Ultimately, that’s what we’re talking about here: focus. These businesses could continue petering on, but that doesn’t help anyone. It’s better to be great at a few things than okay at many things.

What’s interesting about Vox is that it had already shut down another CMS: Clay. So when it bought NY Mag, it suddenly had two content management systems to support. Naturally, as the buyer, it went with Chorus. If you go to Vox’s corporate site, you don’t see Clay advertised anymore.

Software’s tough. It requires a different investment strategy than a media company. Vox is wise to stop servicing clients; it needs to focus. As for the Post, I think selling makes sense. However, if it decided to hold on and continue growing, that wouldn’t be the worst idea.

But one thing is evident for the Washington Post. It needs to figure things out. Unlike its competitors, The New York Times and Wall Street Journal, it is shrinking. And that’s not a position it wants to be in. Therefore, if selling unlocks the ability to invest in the core product, that must be the priority.

BuzzFeed is a penny stock

For a couple of moments yesterday, BuzzFeed dropped under $1.00 a share, which is certainly a massive drop from when it originally went public via a SPAC one year ago.

This is not at all what management had anticipated. The initial dream was to go public, raise a boatload of cash, and then go on an acquisition frenzy. But investors balked at that, and very few converted their SPAC shares into BuzzFeed stock.

So, it begs the question: what now?

An interesting Twitter poll posed the thought: “a reputable party will announce intentions to take BuzzFeed private by Valentine’s Day 2023.” Unfortunately, only 19 people voted, but if I had to vote, I’d likely have voted no for only one reason: the timing.

I do think someone will take BuzzFeed private. I believe management will be replaced. The team’s had a long time to figure things out, and they’ve always chased the latest fad. So here is my strategy for BuzzFeed if private equity is reading:

  1. Spend the next year ramping up your first-party data capabilities. What do you know about the audience?
  2. Shut down BuzzFeed News. Management continues to scale it back, but this is not an asset that will generate any semblance of a return. General news is a lousy business.
  3. For the core asset, create topical interest to sell ads against using that first-party data. It won’t get as specific as Fandom, but there’s value in bunching users together.
  4. Identify which assets are highly loved by audiences and potentially find buyers for them. Spin-offs can return cash to investors or provide cash to grow the business.

BuzzFeed has traffic that can be monetized. But it’s not going to be a world-class asset. Some investor is going to figure that out in 2023.

Thanks for reading. If you have thoughts, hit reply. Become a premium member to receive AMO on Fridays and an invitation to the AMO Slack. Have a great week!

Source:  https://www.amediaoperator.com/newsletter/media-companies-looking-to-get-out-of-software-business/



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