Eric Beecher, publisher of The Reader has skinned Stephen Mayne, publisher of www.crikey.com.au by buying effective control of the zine for $200,000 paid in instalments over the course of 2005. This would appear to bring to an end one of the chapters in independent online media in Australia, as well as signalling that there is a financial future for some online news sites.
Beecher’s non-refundable $200,000 deposit gets him the right to drive the Crikey site for 18 months, starting from the first of March this year. If he smashes it up in that time, all he loses is his $200,000. If it survives and he decides to keep it then he has to pay an additional $800,000 – a nominal total of $1,000,000.
This is a brilliant deal for Beecher, although the dollar figures are in the category of what one of my property developer friends calls “rats and mice”, so may not make a huge difference to his net wealth.
From what we know of Mayne’s financial position, Beecher is buying the operation for around 2.5 times sales – Mayne makes around $100,000 from advertising and $300,000 from subscriptions.
Mayne appears to have around 5 paid employees, including himself and his wife and some office and webhosting costs. The operation probably just about breaks even.
Beecher has an established operation, so presumably the purchase will cause a negligible increase in his accomodation and webhosting costs. He already has someone looking after business and subscriptions, so he can probably shed some staff costs. If he can produce the journal with Mayne and political correspondent Christian Kerr, and perhaps one other, then he might manage to make an effective $100,000 EBITDA from the existing operation, meaning he is paying $1M for something worth around $1M.
But if he can actually grow the operation, then his investment is worth much more. Doubling Mayne’s subscriber base on the same staff would bring in another $300,000, turning $1M into probably $4M. It’s also possible that he can use some of Mayne’s networks to cut costs on The Reader, (which is no more than a collection of media snippets), by repurposing content.
Recent industry talk in the US is that advertising spending on the Internet is increasing strongly. Another upside for Beecher is in advertising revenue – Crikey’s email advertising appears to sell quite cheaply compared to US rates, and he appears to reap negligible amounts from banner advertising.
Beecher’s purchase is made at a good time in the financial cycle. Investment markets everywhere are booming, but tech stocks have yet to recover from the bust. Investors are looking to the non-listed market for value. Beecher’s purchase is in the non-listed market and the tech sector, magnifying the chances that his investment may be much more valuable in 18 months time merely as a result of a re-rating of private companies specifically and the technology industry generally.
Of course, there is one considerable downside for Beecher. While Crikey! has always been a commercial concern, it is also a cottage undertaking with a strong sense of community – witness the many subscribers who were prepared to stump at least $100,000 to meet Stephen’s legal costs in his defamation action with Steve Price. Will the Crikey army stick around now the site has lost its battler status and is associated with a minor media mogul? If it doesn’t, Beecher has really bought no more than a mailing list.
It is also likely that Beecher’s $200,000 is much less than the money that he will need to spend renovating Crikey! The public details of the purchase were contained in an email released to Crikey subscribers this morning by Mayne. While it is fairly detailed, it does leave some questions in my mind.
For example, if the only thing that changes in Crikey! is the management and the fact that Mayne has $200,000 that he didn’t have before, how exactly does Beecher ramp readership and incomes up? Beecher must have huge discretion to change the Crikey structure, and an intention to spend some money on it.
Another question is why Mayne is letting Crikey go. Very few entrepreneurs would spend 5 years building something from nothing to $1M and then walk away completely, unless they thought it wasn’t worth that much. If the issue was capital, or managerial experience, then they would normally look around for an investor and some expertise, and give them some small share of the enterprise in return for their money or sweat equity. Does Mayne see Beecher as his “Alan Bond”?
This is pure speculation, but perhaps it is Paula Piccinini, Mayne’s wife, who is really pulling the plug. She returns to her Family Law practice in July so will no longer be running the business side of Crikey!, they have three young children and $50,000 remaining in debt. On top of this, growth in the Crikey! readership seems to have slowed significantly – 12 months ago they had three times our site traffic, now it is closer to 2 – making it possibly appear unlikely that Mayne could ever make it profitable.
If Stephen was under this sort of pressure, then he had very few options apart from selling to Beecher. Selling to mainstream media would have decimated the subscriber base and raising fresh capital or taking on new partners aren’t solutions if the issues are emotional.
This way Stephen walks away with at least $150,000 in his pocket ($200,000 first installment less $50,000 debt) and a job with Beecher for 18 months. If all goes well, another $800,000 comes along. Of course there could be tax to pay on some of this.
While Mayne’s email claims that it will be “business as usual” it is hard to see that really being the case. Crikey is moving from buccaneer to privateer status, and next may even be “mainstream” media. While OLO and Crikey! have very different aims, we started at much the same time, and it’s always been comforting to have them out in the surf at the same break. True, we’ve taken on equity partners, but they’ve all been either educational institutions or not-for-profits, and there has never been any intention to make ours a commercial site. It’s not going to feel quite the same tomorrow.