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March 8, 2017, 10 a.m.
Business Models

Newsonomics: With a cross-country merger, Spirited Media aims to build a nationwide digital local news chain

After combining with Denverite, the company behind Billy Penn and The Incline hopes to prove its events-heavy model can work in a dozen or more cities.

Consider it a baby chain. Today, with broad ambitions, two of America’s young, dynamic, millennials-targeting, mobile-first city news companies are merging. They’ll take the name of the older (by 19 months) company, Spirited Media.

That company, funded and founded by serial digital news entrepreneur Jim Brady, opened up Philly’s Billy Penn in October 2014 and Pittsburgh’s The Incline, six months ago. Merging into Spirited is Denverite, the 10-month-old startup bankrolled by investors Gordon Crovitz, Kevin Ryan, and Jim Friedlich. The new company, to be led by Brady as CEO, vision-setter, and cheerleader, also counts Gannett as a minority investor as the country’s largest news company aims to learn tricks of the newer trade.

The combined company will employ 27, 21 of them content-creating journalists. In total, the three sites combined, by their internal counts, reach about 1 million readers per month. Given the newness of their sites, there’s little revenue history to draw on to provide a valuation of its worth. Spirited Media is not yet profitable, though Brady says Billy Penn may reach that point by the end of this year.

The goal: one stronger, faster-growing chain of city news sites, one able to attract a $3 million-plus Series A investment round this spring and build out the kind of contemporary audience-developing/visuals-building/product-creating/social-feeding infrastructure modern news publishing demands. The merged company aims to add a fourth city site to the mix by year’s end.

“Looking out over the next few years, we can imagine getting to a dozen cities, covering a large percentage of the country and reaching 50 to 100 million highly engaged readers,” says Crovitz. He will serve as a board member in the expanded Spirited Media, while Ryan serves as an advisor to the company and Friedlich, fully occupied with his role as CEO of the recently renamed Lenfest Institute for Journalism, takes no active role with the new company. “Our model is that we will spend $1 to 2 million per city to get to break-even and expect to build properties in each community we serve that are worth $15 to 20 million each as they grow.” (Crovitz, a former Wall Street Journal publisher and a serial digital news investor, earlier parlayed the paywall tech company Press+ into an industry leader, merging that startup with Piano Media.)

“Each local publishing operation will continue to have its local flavor and local voice in the community, but will benefit from increased scale and access within one company to best practices,” he says. “Keep in mind that there have been several digital publishing ventures that have become businesses worth in the hundreds of millions of dollars and more, such as BuzzFeed, Huffington Post, Business Insider, and Bleacher Report. The missing part of the media landscape in terms of successful businesses is local — and we aim to be the first.”

The newly reenergized Spirited Media model borrows some that business-building strategy from Business Insider. That company, sold for more than $500 million to Axel Springer, was founded by Ryan. (Crovitz and Friedlich were small investors in BI.)

While the investment here is small — a couple of million so far — we can look on this merger as part of a larger intent to reinvest in city news. Local news disinvestment has been the decade’s dominant theme in the industry. Too few daily news companies — largely the independents and those still family-owned — have judiciously placed small bets, while most newspapers, especially owned by the big chains, have cut relentlessly. Spirited Media’s new push joins fellow millennials startups Charlotte Agenda and WhereBy.Us and the half-a-generation older nonprofit sites like MinnPost, Voice of San Diego, and New Orleans’ The Lens in trying to redefine city news in the digital era.

The new business model is an amalgam, one built heavily around events and the human touch.

“Events has always been about connecting with readers,” says Brady. “I mean, you have an event that goes really well. You send 175 ambassadors out of your event thinking it was awesome, saying ‘I love Billy Penn’s events.’ And on top of that, you make money doing it.” Across its three cities, Spirited plans as many as 125 events this year. The marquis “Who’s Next” events — in communications, in health and fitness, in politics, in bartenders, and many more — smartly tap into the target millennial audience. Informal events, often held at bars, ooze casualness and purpose while leveraging the value of peer recognition.

Brady knew that events would be part of the mix when I first talked with him about Billy Penn at startup. Events, though, have driven the engagement — and revenue — of the site overall. In 2015, events generated 86 percent of Billy Penn’s revenue and 65 percent in 2016, as traditional advertising grew. (For more on Spirited Media’s event-centric strategy and what he’s learned, see this accompanying interview with Brady.)

In fact, that events-centric business model is one of the factors that convinced Crovitz and his partners to throw in with Brady. When they launched Denverite, they committed their efforts fully to growing audience, not even hiring anyone to do ad sales — or make any revenue — for most of the year. (“We met that promise,” Crovitz says wryly.)

Looking ahead at a second year, they liked what they saw in what had Brady developed. Events seems to be Spirited’s special sauce, the door opener to entice advertiser/sponsors to open their wallets and test out a new brand. When the audience behind that door is millennials, so much the better.

And it is a profoundly millennials audience that these sites have targeted, the same kind of audience that has builtBuzzFeed, Vox Media, Vice, and Mic. About half of Billy Penn’s and The Incline’s audience is under 35; about 70 percent are under 44.

Only 32 percent of Billy Penn’s audience reads it on the desktop; 64 percent are on phones and 4 percent on tablets. Fully 75 percent of Denverite’s readers are on mobile.

Though events can lead to more traditional forms of ad support, they’re also intended to lead the company down one more important road: reader revenue.

Later this year, Spirited will launch a membership campaign. The sites will offer a package of benefits, including support for their news mission, and they intends reader revenue will become another leg to grow on. Given the recent spurt of reader and public support for journalism through subscriptions and donations, that move may be well-timed.

If events draw readers to try out the sites, it’s the content that must bring them back. And Spirited’s content mix is intriguing. It can be tough for the casual, outside-the-city observer of these sites (and of peers like Charlotte Agenda) to get a bead on their breadth and often surprising quality. A closer reading shows how they’ve evolved a digital-native sense in both creation and presentation. They can take on what may seem to be “boring” local planning issues, but they do it in a new way. The voice is less formal and at its best represents the on-the-ground concerns of their younger readerships.

“We’re very strong in covering what the city’s up to,” says Brady. “Whether it’s broader governance of the city, or a more specific focus on public transportation. A lot of focus on Uber, and Lyft, and how young people get around the market.” (Lexi Belculfine, The Incline’s editor, points to such an Uber/city politics story as emblematic of her six-month-old site’s work.)

“We’re very good at arts and entertainment, especially food and drink,” Brady says. “I think we’re getting much better. We’re good in sports now in Philly, since we hired Dan Levy from Bleacher Report. I think we’re a little bit lighter on opinion, probably.”

It’s not just news that drives the sites — it’s also a sense of place that Brady asks his younger staffers to aim for, something often elusive for newspapers online.

“I think both sites do really well in telling stories that are not necessarily breaking news, but they teach you something about the city that you would never have known otherwise. We do a lot of ‘whatever happened with’ stories. That development five years ago, everybody wrote about, but nothing has happened. Why has nothing happened? What’s going to happen to this development? Trying to pull things out of the news, give people an update, and I think we do a wonderful job of that there. We just did a story the other day about…remember the movie Money for Nothing, that John Cusack movie where he finds a shitload of money? A bag…We just did an update on whatever happened to that guy?”

Importantly in these times, both Billy Penn and Denverite have managed to find local angles within the national political tumult. “This story on ICE agents hanging out in the hallway at a courthouse by Erica Meltzer was a great one for us,” Denverite editor Dave Burdick says. “It’s emblematic of the way we’ve been able to explain some of the local, on-the-ground changes under President Trump.” The story was later cited by The New York Times in their story on the same subject. “That we’re able to do local journalism that helps people here understand their world — while also helping national outlets form a better picture of what’s going on away from the coasts — is so cool.”

Burdick says the site has lots of readers inside city government: “There was a fluky thing that happened early on with the city’s web security vendor that temporarily flagged us as an unsafe site…We got calls and emails asking how to turn back on in city buildings…They’re taking us seriously, as we take them seriously.”

As this new wannabe chain moves forward, it’s worth thinking about the disconnect between baby-boomer readers still relying on their print-based news vehicles and the millennials heading to these news sites. Or whether, more optimistically, there’s a reconnection of local news and newsreaders. In another sense, this startup spirit can be seen as simply a throwback to an earlier, likely more fun, local news age.

In those golden olden pre-World War II days, cities like Philadelphia and Denver witnessed the crackling, often Front Page-like competition of multiple dailies. The through-the-day news report of 2017, delivered to smartphones, should greatly differ from the often-lurid print editions of eighty years ago — but that competitive spirit needs to be revived. (Just witness the now-daily battle between The Washington Post and The New York Times to break the news out of the Trump administration.)

If city journalism in 2017 needs more and deeper reporting, it also cries out for competition — and in a few cities now, we’re beginning to see it.

Photos of the Philadelphia, Pittsburgh, and Denver skylines by Tom Ipri, Always Shooting, and Robert Kash used under a Creative Commons license.

POSTED     March 8, 2017, 10 a.m.
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