Features

Can Politico Take Manhattan?


Far from the Beltway: Politico’s Jim VandeHei at 30 Rock

Photograph by Ashley Gilbertson for Bloomberg Businessweek

Far from the Beltway: Politico’s Jim VandeHei at 30 Rock

Since its launch in 2007, Politico, the D.C. upstart covering national politics in print and on the Web, has hosted presidential debates, won a Pulitzer Prize for editorial cartooning, established a distinctive, breathless style of breakneck political reporting, grown to a staff of almost 300, pioneered a genre of morning tipsheets, attracted millions of dollars from advertisers seeking influence on Capitol Hill, and, in general, upended the Washington media market, entertaining, baffling, and enraging the other players along the way. It has also become the voice of and mirror to a certain class of reader—the self-styled influencers, decision-makers, fixers, and emcees of a city that never tires of itself, and that takes its serious business very seriously. It’s a publication where “The strange thrill of covering Chris Christie” might be a hit with readers.

Now, Politico is expanding beyond the Beltway, heading for a destination almost as obsessed with itself as Washington and with just as many self-appointed know-it-alls: New York. As might be expected, media watchers in Manhattan and its annex, Brooklyn, are dubious about the ability of a big deal in D.C. to make a dent in New York. But Jim VandeHei, the co-founder, executive editor, and now chief executive officer of Politico, is stoked about the possibilities.

“In some respects, New York feels like Washington did in 2006,” he says. “It has the appearance of being saturated. It has the appearance of there not being an opening. I don’t think that’s true. When you look at City Hall, when you look at Albany, when you look at media, even when you look at finance, I think there are huge pockets of this city that are under-covered or that could be covered exponentially better.”

In September, Allbritton Communications, which owns Politico, purchased, for an undisclosed sum, Capital New York, a local news website based in Manhattan, which in November saw only 184,000 unique U.S. visitors, according to Quantcast. VandeHei and company have been reconfiguring the news outlet for the Dec. 3 relaunch—hiring reporters, redesigning the website, and infusing it with Politico’s sensibility. Capital New York will be giving up general coverage to focus on politics and media. If the experiment succeeds, the Politico colonization will spread to other cities. “Essentially, this is the first experiment of taking Politico and exporting it somewhere else,” says VandeHei.

Competitors in New York are watching Politico’s arrival with curiosity. “They bring a significant skill set to the party,” says David Carr, media columnist for the New York Times. “It’s in part a numbers game. If you apply the leverage of reporting and phone calls to any given topic, stories are going to squirt out. I do think the incrementalism that has helped make their coverage a must-read on the BlackBerrys of Washington may not help them as much on the iPhones of New York.”

Allbritton is a regional media company based in Arlington, Va., run by Robert Allbritton, scion of the late billionaire Joe Allbritton, who made a fortune in real estate and banking. In October, Allbritton named VandeHei president and CEO of Politico and Capital New York. Allbritton says he considered other candidates with more traditional business experience for the CEO job. But with the modern news business changing so fast and so full of hazards, he says, he needed someone like VandeHei, 42, who has spent the past decade charging face-first through the bloody bramble. “Jim’s a very driven guy,” says Allbritton.
 
 
Many casual readers know Politico from its free website, which about 5 million Americans visit each month, according to ComScore (SCOR). That’s a respectable number for a specialized publication but not enough to reliably attract consumer ad campaigns from brands looking to reach mass audiences. Although Politico set out to break new ground on the Internet, a large portion of its revenue comes from its print newspaper, which targets a smaller, more hard-core group of D.C. wonks. The paper, also called Politico, mixes original work with articles picked up from the website. It has a circulation of 35,000 and is distributed free around Washington four days a week when Congress is in session. The ads that appear in Politico come in two flavors: issue-advocacy advertising, in which a group attempts to influence a specific bit of pending legislation; and corporate image advertising, in which a company tries to burnish its own reputation in Washington.

Politico has displaced rivals such as Roll Call, The Hill, and the National Journal. How much it’s making is something of a mystery. Allbritton Communications is a private company and does not disclose financial information. “Politico is doing well,” says Allbritton. “Everybody is like, ‘Well, are you making money?’ I guess the answer is, if I want to, yes. I don’t need the cash flow out of it, so we continue to plow the money back into the business.”

Elizabeth Wilner, a vice president at Kantar Media’s (WPPGY) Campaign Media Analysis Group, an organization that tracks political ad spending, says that while Kantar doesn’t calculate the overall size of the issue-advocacy market in Washington, she’s heard estimates in the range of $100 million to $200 million per year. Unfortunately for Politico’s ambitions beyond the Beltway, there is no advocacy market anywhere else in the country of comparable size. According to the New York State Joint Commission on Public Ethics, during the first six months of 2013, a mere $3 million was spent on lobbying-related advertising in the entire state.

VandeHei believes that over time Politico’s presence will lead to an increase in the advocacy ad market in New York, but in the short term, he’s not counting on ads to achieve profitability. “I would not start a media company today based on advertising alone,” he says. “I think it would be crazy.” Instead, VandeHei will try to attract paying subscribers. It’s a model Politico has been experimenting with for the past several years in Washington.

In February 2011, Politico began offering a subscription-based product called Politico Pro. Initially, the service focused on providing targeted news updates on three subject areas: energy, technology, and health care—and has since expanded to cover seven other fields, ranging from agriculture to defense. The service is geared toward institutional subscribers such as lobbyists. Subscriptions can cost more than $5,000 a year. Politico Pro subscribers get customizable alerts, access to subscriber-only events, and an e-mail tipsheet every morning. Advertisers, such as Raytheon (RTN) and Fuels America, pay to sponsor morning newsletters devoted to their industry. In recent weeks, VandeHei has found himself on the defensive, publicly responding to a Washington Post report suggesting that sponsors get unusually favorable coverage in the morning newsletters—a charge VandeHei denies. Politico Pro now employs roughly 80 full-time staff members and claims 1,300 subscribing organizations, representing 8,000 professionals. (Bloomberg LP, which owns Bloomberg Businessweek, operates BGOV, a Web-based information service focused on the federal government.)
 
 
VandeHei, whose energy drives Politico’s frenetic style, grew up in Oshkosh, Wis., with an accountant for a father and a homemaker for a mother. He was never shy about speaking up for his own interests. “He was the middle child, which he reminded us of often,” recalls his father. “He had read some article on middle children—how they sort of get the shaft. He would mention that on occasion. His brother and sister both had braces. Because he didn’t need braces, he wanted the cash instead.”

For college, VandeHei stayed close to home, attending the University of Wisconsin at Oshkosh. Between classes he covered high school sports for the local daily newspaper, the Oshkosh Northwestern. During one summer break, VandeHei traveled to Washington to serve as an intern for Wisconsin Democratic Senator Herbert Kohl.

VandeHei loved D.C., and after graduating from college in 1994, he headed back East to start a career as a political journalist. After months of rejection, a company called Inside Washington Publishers hired VandeHei as a staff reporter for New Fuels Report, a weekly newsletter covering the alternative fuels industry.

At the time, Capitol Hill was in a state of upheaval. The Republican Party had just taken control of Congress for the first time in 40 years. Inside Washington Publishers introduced a trade publication, called Inside the New Congress, which aimed to make sense of the power shift. The newsletter needed reporters. As editor Charlie Mitchell recalls it, VandeHei vigorously lobbied for a job. “I figured, we better give him the job or he might blow up the building,” says Mitchell.

Across town, Susan Glasser, then editor of Roll Call, noticed that Inside the New Congress was routinely breaking news in a section of short, unsigned items. She sent someone to investigate who was behind the anonymous scoops. When the answer came back, Glasser offered VandeHei a job. (This fall, when Politico launched a glossy magazine to showcase longer pieces of political reporting, VandeHei hired Glasser as its editor.)

VandeHei landed at Roll Call as a new wave of young, Republican congressional staffers was coming into power. Juliet Eilperin, a White House reporter at the Washington Post who worked alongside VandeHei at Roll Call, says he quickly bonded with many of the up-and-comers. Like VandeHei, many were in their mid-20s and hadn’t gone to Ivy League schools. According to Eilperin, they tended to like that VandeHei spoke with a Wisconsin accent, knew how to hunt, and told funny stories about childhood vacations in the family camper. Pretty soon, VandeHei was playing in a regular poker game with some well-connected Republican staffers and dating Autumn Hanna, an aide to Texas GOP Congressman Tom DeLay. VandeHei and Autumn are now married, have two children, and live in the suburbs of Washington.

From Roll Call, VandeHei eventually jumped to the Wall Street Journal and then to the Washington Post. In 2006, Allbritton, whose family had once owned the Washington Star, decided to start a print and Web publication covering national politics. To run the new publication, Allbritton picked VandeHei and another Washington Post alum, John Harris.
 
 
In November, VandeHei shows up at a Japanese restaurant in New York’s Times Square wearing a blue North Face jacket and a faded, threadbare baseball cap—looking more like a customer at the Eddie Bauer store in Tysons Corner than a media mogul invading a new market.

VandeHei takes over as CEO of Politico armed with a hefty war chest. In July, Allbritton Communications announced it was selling its long-held TV stations to Sinclair Broadcast Group (SBGI) for $985 million (the deal is still pending regulatory approval). In the months ahead, VandeHei will largely determine how and to what extent the proceeds will go back into new journalism ventures.

“There has never been a single thing that we have brought to Robert where we said, ‘We need more money to spend on X,’ that he has said no to,” says VandeHei. “Now, we have never gone to him without a business rationale for it. But he is an aggressive guy who has big ambitions.”

“If you come up with a good idea, I’m going to fund it,” says Allbritton. “If you don’t come up with a good idea, I’m not going to fund it. It’s not like there’s the personal bank account and the Politico bank account. It’s all the same damn thing.”

The decision to expand into New York was largely VandeHei’s call. Roughly four years ago, Tom McGeveran and Josh Benson, who were then editors at the New York Observer, approached Allbritton Communications about investing in a digital-only news site. No deal came to fruition. In 2010, McGeveran and Benson started Capital New York, eventually raising $1.7 million from private investors.

By the summer of 2013, Capital New York was running out of money. Again, they approached Allbritton. VandeHei pounced. McGeveran and Benson remain in charge of editorial operations at Capital New York, which will keep its name. VandeHei is in charge of making money.

On Dec. 3, Capital New York rolled out three new subscription products in New York: City Hall Pro, Albany Pro, and Media Pro. VandeHei will likely experiment with pricing. In September he told Bloomberg News that a subscription might cost in the range of $1,000 a year. A few years ago, Allbritton invested heavily in a local news startup in D.C. called TBD.com but quickly pulled the plug. Capital New York will face similar pressure to perform. “Within 18 months we’ll know whether or not this is on a trajectory to being successful and scalable,” says VandeHei.

VandeHei makes the rounds on Dec. 2, promoting <em>Capital New York</em>’s relaunchPhotograph by Ashley GilbertsonVandeHei makes the rounds on Dec. 2, promoting Capital New York’s relaunch

The general idea is not without precedent. Since 2009 the Texas Tribune has built a sustainable (albeit nonprofit) business by intensely covering state politics in Austin on the Web. According to tax records, the Tribune managed to finance a budget of about $4.5 million in 2012 through a mix of live events, corporate sponsorships, subscriptions, advertising, and charitable donations. The site employs a staff of about 40—roughly equivalent to Politico’s target in New York.

Persuading people accustomed to getting news for free to pay for the specialized coverage presents a challenge. “Through Twitter (TWTR) and RSS, you can pretty much not miss anything on the media beat,” says the Times’ Carr. “You may not know at that second, but so little of media information is transactional to the point where seconds count. They don’t.”

On a Thursday afternoon in October, VandeHei sat onstage at the Dome Theater, across the street from Politico’s Arlington headquarters. Over the next hour he spoke to the assembled Politico staff about the direction of the company. At one point, according to a witness in the theater, a staff member asked if there was any risk that Politico’s investment in New York might come at the expense of the core mission in Washington.

It’s a reasonable concern. These days everywhere you look in D.C., publishers from the National Journal to the New York Times are taking aim at Politico. In August, just as Politico’s top minds were calculating their advance into New York, Amazon.com (AMZN) founder Jeff Bezos announced he was buying the Washington Post.

What exactly Bezos will do with the newspaper remains unclear. At the moment he’s busy building the world’s largest online retailer, running a space travel company, constructing an atomic clock that will last 10,000 years, and dabbling in drones. But it’s probably only a matter of time before Bezos adds destroying Politico to his to-do list.

Sitting in the Japanese restaurant in Manhattan, VandeHei says he welcomes Bezos’s entry into journalism. “What I don’t like about the media right now is there is a tendency to pooh-pooh what everyone else is doing,” says VandeHei. “God bless anybody who is putting money and time into trying to figure out a way to fund journalists. I don’t know what Jeff Bezos is going to do at the Washington Post, but I love the fact that a guy with big ideas and with a lot of money is going to experiment. Everybody is testing out a bunch of different theories right now. As journalists, you’ve got to adapt or you’re going to get crushed.”

Gillette_190
Gillette is a staff writer for Bloomberg Businessweek in New York.

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