As the web has brought down the upfront costs of launching a publishing business, there are plenty of them. This means I’ve been asked to join several conversations about how to decide how much one of these are worth.
I’ve been involved in several conversations over the last few years in which publishers (those with no full-time employees to those with several dozen) have sought advice or discussed the topic. I suspect I’ll have other conversations like them in the future, so I thought I’d just share some of the advice I most commonly give and have seen take place.
Reminder: a defining characteristic of a market economy is that everything is essentially worth whatever someone is willing to pay for it. Therefore these are rules of thumb, not immutable laws.
It’s also worth saying the obvious: not all publishers are created equal. For example, in 2009, McKinsey published a thorough report [PDF] that includes valuations on B2B information services, profitable entities that command a far higher price than a community newspaper.
One last caveat: these change due to macroeconomic trends and the publisher’s own trends, so this not meant to be exhaustive, comprehensive or authoritative. This is a summation of some goal posts I’ve given and been given in the past.
On the whole, I’ve seen roughly four different approaches to determining a valuation of a content business. These come from sales through brokers that specialize in content and from real life examples, including detailed stories from trade groups I’m a part of. Here they are:
- Net profits multiple (or an EBIDTA multiple): This is most common in B2B media and other established categories. Similarly though I’ve seen real ranges. I’ve seen at the highest end 13-20 times earnings multiples for digital media companies with recurring revenue, down to a 3-4 times multiple for prestige but lower-margin brands and even lower like 1-2 for smaller, older publications with old-line advertising revenue.
- Top-line revenue multiple: I’ve seen a real range between 3-7 times revenue, with many exceptions and caveats. Revenue makes sense if that’s keyed in on some trend, but the publisher is low-margin or loss-making for some strategic reason (expansion investment, etc.)
- Traffic multiple: I’ve seen less of this but I am familiar with deals done based on how much a targeted page view is worth (or, say, newsletter subscribers).
- Goodwill: These tend to be far smaller deals but I’ve seen a few deals that are more like an “acqui-hire” for the team building a publication with in-roads in some coveted community or a rabid fan-based
All of these have their own risk factors and discount rates. How established and recurring is the revenue? What is the publisher’s reputation? How well do you fit into longterm projections?
Still, it’s worth knowing how some have been priced in the past.
(Handshake photo by Pawe? Czerwi?ski @pawel_czerwinski via Unsplash)