The Athletic defies a lot of conventional wisdom about what it takes to be successful as a media company in the 21st century.

For one thing, it produces in-depth, long-form coverage at a time when every other brand is pivoting to a short-form approach.

What’s more, its subscription business model asks audience to pay for that content—after years of readers being used to an ad-supported model that lets them read content for free.

The strategy seems to be paying off. As of March 2020, The Athletic is on track to hit its goal of 1 million subscribers with a valuation of $500 million—just four years into the company's life. The fact that it's done all of that in an environment where publications are shuttering their doors on a regular basis makes it even more impressive.

So how’d it do it? In this piece, we'll look at how The Athletic got consumers to pay a premium for sports coverage they can get for free everywhere on the internet.

We'll examine how it used the failure of the local news business model to hire some of the best sportswriters in America, and we'll discuss The Athletic's long-term vision to unseat the 800 lb incumbent in the room—ESPN.

Capitalizing on the failed local news business model

News outlets are dying left and right, and the ones that aren’t dying are scrambling to find ways to stay solvent as advertising revenues dry up. The industry’s struggles hit them where it hurt the most: their talent.

Readers want expert coverage, and they crave engagement. Hiring a talented staff that can deliver on those desires is essential to a content operation’s long-term success. But it’s hard to keep that talent when your business model doesn’t generate enough revenue to cover their salaries.

“Even very well-read stories for large outlets may only generate $75 or $100 in revenue online. Not enough to pay a writer for a day’s work,” says James Mirtle, editor-in-chief of The Athletic Canada.

The dwindling profitability of media has led to many publications either shuttering business or tightening their belts. There’s been a 47% decline in U.S. newspaper newsroom employees between 2008 and 2018, according to Pew Research Center.

And to make matters worse, these laid-off journalists found themselves in a market where few outlets were hiring. Job postings for reporters, editors, and broadcast analysts were down 25% overall from 2008 to 2017.

Amidst the wreckage of the local sports media industry, The Athletic team spotted an opportunity:  jump-start its own coverage by snapping up the talent that floundering local outlets were letting go.

The Athletic quickly brought on writers from large media outlets to produce what it calls an “All-Star Lineup” of writers. A few examples of the type of talent it was able to attract:

• Greg Auman, who The Athletic snapped up after 19 years at Tampa Bay Times
• Lindsay Jones, formerly of USA Today and The Denver Post, who The Athletic brought on to do NFL coverage
• Joe Person, who the Athletic snagged to cover the Carolina Panthers after eight years of writing for The Charlotte Observer

The Athletic grew locally with the best writers in America. These writers didn’t necessarily lose their jobs because of a lack of demand for what they were doing. Rather, the ad-revenue model made it too expensive to keep a full-time staff. Large media companies placed advertisers ahead of readers.

Instead, at The Athletic, quality and reader engagement are at the center of its subscription business model. And that’s how it’s winning.

National takeover: The power of network effects

Conventional wisdom in media says there are basically two different ways you can build a publication: Either:

1. Hire the best talent in the country and publish a small number of high-quality articles in the hopes that your staff’s star power will draw an audience; or
2. Produce a ton of content on a lot of different subjects with more of a “throw stuff at the wall and see what sticks” mentality.

But The Athletic chose a third option—one that allowed it to optimize for both quality and quantity and unlock network effects along the way.

Competition on the talent side was stiff—particularly for an upstart like The Athletic. ESPN already has top people like Adam Schefter and former players like Louis Riddick. They've been in the game for a long time and probably come at a high price tag. To reach the Adam Schefters of the sports world requires more and more money, which can drain the wallet of a small startup like The Athletic.

The other strategy is to produce a flood of content on many topics—similar to The Bleacher Report. But here's the problem with that approach: "A majority of [quick hit] the articles enjoy just a few reads," says Greg Piechota, researcher-in-residence at International News Media Association.

Instead of choosing either option, The Athletic charted a third route: it went local, market by market, adding talented writers and new subscribers along the way. It developed in-depth content, not for the generalists but for die-hard local fans.

The founders of The Athletic determined that going city by city and spreading its network meant massive scale was ahead. “In a city like Chicago, there are 100,000 die-hard fans,” co-founder Alex Mather said. “That is a very lucrative subscription business. There are over 100,000 die-hard fans of Chicago teams outside of Chicago.”

As each new market took off, word started to spread among sports fans that the best local sports coverage was coming out of The Athletic. Its Twitter following grew to 83,000 (plus smaller local twitter profiles such as The Athletic Memphis). That strong word of mouth meant that each subsequent market became that much easier to launch into because sports fans were already waiting for The Athletic to come to them.

This is an example of what’s known as the network effect—when the value of a product or service becomes more valuable, the more people use it. It’s the same principle that helped Facebook grow into the biggest social network on earth—and helped ride-sharing companies Uber and Lyft disrupt the taxi industry one market at a time.

The Athletic’s market-by-market approach to growth was impressive—but it wouldn’t have been possible without high-quality content to keep readers coming back for more.

The Athletic brings stories to life by connecting readers through discussions and direct access to writers. For example, Ryan Clark, a Colorado-based staff writer for The Athletic, provides live Q&A sessions with subscribers.

Quality content and subscriber engagement are paying off. According to co-founder Alex Mather, most of the company's new markets are already profitable—with a subscriber count growing from just 3,500 in 2016 to now around 600,000.

“The Athletic's attempt at a solution has been to create something of a network effect, collecting so many respected writers and reporters in one place that diehard fans can't afford not to subscribe. The company emphasizes quality over quantity, believing readers will pay for coverage that's worth paying for,” writes Kevin Dowd of PitchBook.

How The Athletic got consumers to pay a premium subscription price for something they already get for free

There was a lot of skepticism that The Athletic could ever get anyone to pay for what it was producing.

Readers could easily say, "Paywall? I will NEVER pay for sports content!" And that's understandable. "We're still relatively new, and a pay-to-read model is still a nascent concept—especially for sports," says Mirtle.

Paywalls typically trigger frustration and even anger among readers. They immediately think about the time wasted even trying to get to your article.

“When I hit a paywall, I don't think 'Ooh, I should subscribe.' I think I should get back to work anyway," tweeted Paul Graham, co-founder of Y Combinator.

But The Athletic is swimming against the current. It’s banking on a willingness to pay for more tactical, more concrete, more data-driven sports content.

It clearly differentiated itself from the likes of Yahoo Sports and The Bleacher Report, where buzz worthy stories generate clicks for ad dollars.

Do die-hard fans really care about Prospect’s 37 parking tickets or who Kevin Heart is trolling today? That’s not the type of content that fits well with subscribers—they can easily catch up on gossip and trending stories across the internet.

If you want readers to pay for content, you have to provide them with exclusive, strategic coverage. And that’s what The Athletic does. It provides subscribers with in-depth breakdowns of athlete deals, playoff projections, and unique ideas.

The Athletic’s 2019-20 NHL playoff chances and standings projections post generated over 2,000 subscriber comments. It’s no surprise given its in-depth quantitative assessment of each team’s projected record and probability of making the playoffs. The Athletic ran 50,000 simulations of the remainder of the season, and it will update its scoring each morning.

The level of depth in its numeric probabilities is enhanced by follow-up stories, such as how schedule strength might affect the NHL playoff race. These factors are discussed at length as the stakes increase closer to the playoff games. It’s a great way to build credibility with subscribers who are serious about their teams and know their stats.

The Athletic also shines with its exclusive behind-the-scenes stories. Its latest post on Fox’s top XFL team is packed with direct interviews, strong narrative, and deep analytical insight. The “numbers guy” Ben Baldwin provides data-driven articles that subscribers can’t find anywhere else.

“Their willingness to pay is based on 1) their assessment of the content’s tactical insightfulness and 2) their desire to hold membership in the insider community,” says Eric Peckham, a columnist at TechCrunch.

And readers are impressed too, often tweeting praise for The Athletic’s quality content.

On the other hand, The Bleacher Report and Yahoo Sports appeal to a mass audience with a casual and distant interest in sports. They click, scroll through, and leave. They rarely stick around—and good luck trying to get them to pay.

The Athletic wins by building communities of readers by location and sports teams. It develops deep analytical thought, and it values writers and subscribers as insiders—as if they’re right in the war room discussing strategy with the pros.

Going major league: How The Athletic plans to leverage its subscription business model to reach massive scale

The Athletic is competing for the eyes and minds of sports fans by aggressively raising capital and growing its subscriber base. But there's one extremely big roadblock standing in its way: ESPN.

The network is a legacy brand that has sports fans glued to their television for live games. But even for ESPN, it’s been an uphill battle. It lost nearly 13 million subscribers in six years (as of 2017) and announced rounds of layoffs and cost savings.

But not so fast—there could be a comeback for ESPN. In February of 2019, Disney, its parent company, stated that ESPN+ doubled its subscribers to 2 million in just over five months.

Both ESPN (the 800 lb gorilla in the room) and The Athletic are going head-to-head. But the competitive advantage here is The Athletic's high recurring revenue stream that it has acquired relatively cheaply.

• 70% of new subscribers are acquired organically.
• 90% of current subscribers are active on a weekly basis.
• 80% of subscribers stay past one year, and 95% of those stay to year three.

That's a stable business that The Athletic can use to keep expanding into podcasts, video, and, eventually, maybe television, where it can compete directly with ESPN.

In fact, last year, The Athletic launched a podcast lineup to include new shows such as The Lead, which is a daily show that covers everything from the world stage to hometown sports. And The Next Chapter explores what happens to athletes as they embark on a new chapter in their lives—one that no longer involves sports.

The company also signed television vets, including “60 Minutes” correspondent Armen Keteyian in 2018 to boost its video content.

Since then, The Athletic’s video offerings have grown to include original storytelling about athletes such as Max Scherzer. There’s also a collection of short documentaries and one-on-one interviews with coaches and athletes.

“We have enough subscribers now that we can really put an emphasis on engagement...we engage our audience in different ways other than the written word — whether it be podcasts or video.... It’s really optimizing to get people to continue to renew,” says Mather.

And to continue this expansion to podcasts, videos, and beyond, The Athletic is building a war chest of venture capital.

The Athletic raised almost $140 million in funding since its 2016 launch. It even attracted big names like Matthew McConaughey, who invested via Plus Capital, a venture capital fund backed by top influencers from entertainment and sports.

"The success of The Athletic has so far played a very strong role in bending the narrative of ad-supported media business models to subscription-based models, which are much more aligned with what benefits the end customer," says Eric Stromberg, founder and managing partner at Bedrock, which led a funding round.

Speed bumps on the road to sports media glory

The Athletic’s growth up to now has been impressive—but could its $500 million valuation be less about staying power than it is about hype? After all, building a media startup is insanely expensive—and The Athletic isn't profitable.

“More investors means higher valuations,” says Jonathan Hsu, co-founder and general partner at Tribe Capital. “[Recurring revenue] is good for investors because it becomes more ‘predictable’ in the sense that it starts to look more like a fixed income yielding asset,” says Hsu.

Growing subscriber revenue and adding new investors look okay for now, but what matters going forward is how much of that revenue is retained. Hsu calls this expansion revenue—it’s a result of customers who increase their spending the longer they use the product.

And it's tricky to maintain subscriber growth. "The LA Times added 52,000 digital subscribers in the first half of the year and lost 39,000 for a net gain of only 13,000. In subscription businesses, retention is the name of the game," says Jacob Donnelly, a writer at A Media Operator.

We also have to account for heavy spending. There’s a high cost attached to each star journalist it hires. According to Bloomberg, starting salaries for some The Athletic employees ranged from $55,000 to more than $120,000. “For a top beat writer in a new market, the company might pay a 20% premium or more.”

There's no certainty it'll succeed—and it needs to do a lot of things right to get there. The Athletic's current valuation reflects the optimism investors have that it will rise to the top, but there is a path forward if it can strike a profit.

Your ticket to the subscription economy

The subscription economy is gaining traction, and the numbers clearly show this. The Athletic’s rise to 600,000 subscribers with a  $500 million valuation in just a little over four years is incredible.

For the consumer, this means quality content free of distraction—and perhaps new business opportunities in non-traditional media as investors back cutting-edge ideas similar to The Athletic.

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