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Jan. 29, 2015, 8:41 a.m.
Business Models

Newsonomics: From national, Politico expands into global — and local

Having a built a business model around targeting influentials, Politico is testing how many ways it can replicate it. Why aren’t other news companies learning its lessons?

Twenty years ago, Jim VandeHei took an unassuming job that would later shape the global news empire he’s still building. Fresh out of the University of Wisconsin-Oshkosh with degrees in journalism and political science — numerous job rejections in hand — he joined a weekly newsletter called New Fuels Report in Washington. Ethanol and methanol were all the rage, and he covered that emerging alternative energy field. While he w0uld go on to Roll Call, The Wall Street Journal, and The Washington Post, the experience of that targeted newsletter stayed with him.

Today, Politico, which he cofounded in 2007, has taken that newsletter metaphor and inflated it into one of the most successful digital news startups in the U.S., now employing 244 journalists and 431 people in total. At the start of 2015, Politico is at a turning point, as cofounders VandeHei (now CEO) and John Harris (now editor-in-chief) focus on company growth and increasingly turn over the daily operating reins to others — prompting organizational change and some turmoil.

Politico now goes both global and local, extending its influence and its model as far as Berlin and Warsaw and as close as Tallahassee. This spring, Politico Europe will launch, a 50/50 partnership with German media powerhouse Axel Springer. And fresh off last week’s announcement of Politico hiring ace Miami Herald political columnist Marc Caputo, Politico Florida is poised to take off — soon to be joined by other state-focused Politicos. Politico has even named a executive vice president for expansion — a title I haven’t seen anywhere elsewhere in the news business. (Danielle Jones took on that post in October.)

Politico Europe is a noteworthy effort on several levels; the state-focused Politicos may be more surprising. Politico’s launch eight years ago was met, predictably, with great skepticism within the news industry. A “government vertical”? Daily newspaper’s websites saw little value in political news; we heard that advertisers wanted health, tech, sports, and other areas of more passionate interest — not tired, old boring government news, the kind newspapers had long stuffed into their metro sections out of a sense of public service and reflex. Starting with a little tab newspaper circulating among a valuable group of politicos around D.C.’s influentials, Politico turned conventional wisdom on its ear, reinventing “politics” and “policy” and beginning to grow.

Then last year, the company — owned and continually invested in by Robert Allbritton, a scion of the family that once owned the Washington Star, who sold off his broadcast TV assets in 2013 for $985 million — ventured beyond Washington. It bought Capital New York, a four-year-old government- and media-oriented start-up, finding kindred editorial partners and a new place to apply the unique Politico business model. (Full disclosure: In addition to my work here at Nieman Lab, I’ve recently started a new column for Capital New York. My interest in Politico and its model, though, is a longstanding one, including a 2013 Lab post, “The newsonomics of influentials, from D.C. to Singapore to Raleigh.”)

What’s are the ideas fueling the expansion? “The most important meta-takeaway is this: There’s a big block of influential high-end readers who want to read high-end, nonpartisan political and policy content, and there’s a good chunk who will pay a significant amount. If you deliver the goods, there’s a market there, for ads and for subscriptions, and we’re now plunging into events,” says VandeHei, who talks about building a durable company, “deeper into Washington, broader into the states and globally” — and one that can last 25 years.

Can you apply the Politico model to New York? It’s not the country’s political nerve center, but it’s the center of so much else, so maybe evolving ads/premium subscriptions/events there could work. But Florida — or perhaps Illinois or Texas or California? In the nation’s capitols, statehouse coverage has seen major cutbacks, with dailies cutting staff and expenses. We’ve seen dedicated local journalists try to fill the vacuum, though in too few places. The Texas Tribune, MinnPost, and the Center for Investigative Reporting (in California) have gotten some notice for their statehouse investments, and there are smaller outfits that have gotten less attention, but deserve recognition, including Maryland Reporter, NJ Spotlight, WyoFile, and the Maine Center for Public Interest Reporting. Collectively, these sites have replaced some of what newspapers cut.

In fact, the biggest news in this kind of coverage slipped out in December. The Associated Press, newly reenergized as CEO Gary Pruitt has righted its finances, announced building out statehouse coverage as a major priority. In all, AP has hired 13 statehouse reporters over the past year; some are jobs that had been vacant, some new positions. In addition, AP says it will add about “40 additional contract reporters to cover legislative sessions” this year, in addition to its regular staff. That’s significant — and welcome — firepower, but it won’t compete in consumer product terms with Politico’s undertaking.

Why? Politico’s model is a smart one, and one I’ve urged daily newspaper companies to consider (to little success). It’s a three-headed revenue model, and the important part is Politico Pro. While, at birth, Politico immediately mined advocacy advertising, and still does well it, it soon figured out it is categorizable influentials that could prime the pumps of each of the three revenue streams — with Pro at the center of the business and responsible for driving its spurt of editorial hiring.

The diversification of Politico’s revenue breakdown is the envy of many news companies: roughly 40 percent Politico Pro subscriptions, roughly 50 percent advertising, and about 8 percent events.

What exactly is the Pro model, and why does the company believe in may be extendable to Sacramento, Austin, Springfield, and Frankfurt?

In 2011, Politico launched three Pro products, in health, tech, and energy (“Politico Pro grows to 1,000 subscribing orgs, moves into print”). At last count, it offers 14, a model that it’s adapting in New York. The Pro products are aimed at insiders: people in the topical fields who want to know the more important details immediately, with as much context for potential decision-making as possible. Individuals can pay four or five figures per year for the actionable intel, but customers are more likely to be companies buying licenses to allow a certain number of their staffers to have access. In short: Figure out who’s got the checkbook and will open it for what kind of content. Here, too, the pricing model is no invention; it sits atop LexisNexis-like practices long used in the B2B marketplace.

Though only four years old, Pro drives four out of every 10 dollars earned, and VandeHei says Politico hopes to get Pro to 50 percent of revenues in the near future. That’s hugely important in the digital news business: Reader support is far more durable than the vagaries of digital advertising. In addition, Politico is seeing a 95-plus percent renewal rate for Pro. Finally, Pro connects to the growing events business and offers advertisers proof of reader engagement.

How big and fast will the Politico advance into states be? VandeHei says his team will finish figuring that out in the next couple of weeks. Expect a number of launches this year, with staff numbering in the handfuls in the big ones. The initial hiring of Marc Caputo in Florida is instructive; he’ll be doing a Florida Playbook, a descendant of Mike Allen’s Politico Playbook that initially defined the site’s aggressiveness and immediacy.

The biggest question for Politico in the states is how big a staff and business each state can support? What are the sectors in each that will pay for dedicated Pro coverage? That’ll be tested this year. If it finds success, we’ll once again have to ask the question of the U.S.’s major metros: Why haven’t they built anything similar of their own?

If the state-level opportunity is hard to figure out, the European opportunity is less so. The European Union is about 66 percent greater than the U.S. population, at 500 million. It’s a big potential market for Politico’s model — if it it can be transplanted into MittelEurope. Europe’s press — in political, business and general news — is massive, and struggles with all the same business issues as we do in North America. Politico’s play centers around crossing boundaries; the EU by its very nature is a boundary crosser. With bureaus in Brussels, Paris, and Berlin, Politico Europe will try to connect dots that others haven’t, weaving together politics and policy and explaining their implications.

That’s a tall order for a news startup moving into a place where American digital imperialism is something felt, not liked. Politico isn’t Google or Facebook — two prime targets of European scrutiny — but it is another case of Americans believing they have a superior digital formula.

VandeHei and Harris see that challenge. In part to counter it, Politico signed on to a 50/50 partnership with German media powerhouse Axel Springer, which itself has been exiting print assets (“The newsonomics of the German press’ tipping year”) and diversifying. Just this morning, Springer announced that it was leading a new $25 million funding round for Business Insider’s expansion; Jeff Bezos is also part of that investment group.

Springer provides Politico with a card of introduction in Europe as it sets up shop. Smartly, the new joint venture bought the weekly European Voice (circulation 16,000), providing both a beachhead for operations and a platform for growth — “it’s a campus newspaper for insiders,” as VandeHei puts it, the campus being the rich one of European governance.

Politico Europe will launch — in English — with a staff of about 30 in the second quarter; a German language site is likely next up. Expect it to grow to 60 to 70 before too long, under what we may call the Politico Doctrine, or use of “overwhelming force. Better reporters, more reporters, so we can dominate an area,” as VandeHei said in Europe in December.

It’s a $10 million joint venture. These are two strong companies, but 50/50 ventures often end in tears, and this one will be closely watched on both sides of the Atlantic — and a big test of how extendable the Politico Pro B2B model is beyond the District of Columbia.

Back in the American capital, it will be curious to see how the newest Politico evolves as it grows and Harris and VandeHei move away from the day-to-day. A year and a half ago, VandeHei and Harris hired Susan Glasser to head its “new long-form journalism and opinion divisions.” Glasser, a Washington Post veteran, had won numerous national magazine awards at Foreign Policy, transforming a tired title. Flash forward: Glasser has now become editor-in-chief of Politico overall, named to the job in September. Already, Politico’s magazine strives to match the best of the East Coast’s thought-leader journals, and a hiring spree (the most recent one here) is changing the kinds of pieces Politico produces. It’s seen great staff turnover, with as many as 40 staffers leaving, in addition to the hiring, predictable given both its growth and new leadership. (Erik Wemple details the organizational angst, both before and after Glasser’s appointment, in the Post: “Politico editor Susan Glasser: We’re in a ‘period of growth and rising ambition.”) Politico now finds itself in the fierce hunt for top-end journalistic talent, both losing and gaining staff as the bidding increases. There’s also a union organizing effort underway.

The new Politico is certainly open to criticism — but readers and critics alike find a much different product to critique today than even two years ago. For some, it’s been too “inside the Beltway.” Others disparage it for covering the horse race of politics better than the substance of governing. Some peg it to the left; others to the right. Whatever the truths of these observations, in its sheer breadth, the new Politico now emerges to do more of more kinds of things.

Isn’t that what the news business, startup and legacy, should be about? Last week, I wrote about the newspaper industry’s “money hole,” attributing it to too much samethink and too little step-out-from-the-crowd innovation — innovation in this case including adapting others’ good ideas, not necessarily inventing whole new ones. That’s what Politico has done, from its newsletter model to its Pro pricing. As VandeHei acknowledges: “We didn’t invent anything here.”

In our recovering economy, companies that have a sense of (and confidence in) the future express that by investing in innovation. We’ve seen a few of those investments — but mainly by venture capitalists intending to cash out well short of Politico’s 25-year timeframe. Politico’s expansion shouldn’t be a rarity, but in 2015, it is.

Photo of Washington Monument and The Mall by Bossi used under a Creative Commons license.

POSTED     Jan. 29, 2015, 8:41 a.m.
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