$10 Million Won’t Make Honey Any Sweeter For Investors
by Angela
I’m having a hard time figuring out what makes the new online version of Honey magazine worth a $10 million dollar investment. Sure, the re-emergence of Honey in an online only format will no doubt be popular among fans of the old print edition and those new to the Honey brand. Sahara Media has the necessary steps to ensure honeymag.com and the affiliated hivespot.com social network will be dynamic and of high quality. Sahara purchased full rights to the Honey brand, brought on former Vibe Associate Editor Shanel Odum as it’s Editor-in-Chief, and managed to obtain $10 million dollars in private investments to use at its disposal.
But what kind of return do investors expect to make on their investment, if any?
The website and social network’s four components will include community, communication, career, and connection. The hivespot.com website also makes note of a “virtual closet” and “access to incredible offers on clothes, cosmetics, gadgets, music, and more,” with free access. This essentially means the site will offer content, social networking, job listings, the ability to sell third party merchandise, and sponsorships. This means it will make its money off of traditional advertising and sponsorships, along with a percentage of transactional third party-to-consumer, possibly direct-to-consumer, and potentially (if the virtual closet has anything to do with sales) consumer-to-consumer sales.
Let’s do some basic math based off of some very optimistic assumptions. The print version of Honey reached as many as 1.5 million people per month. Myspace has a 2% profit margin. Radio One’s combined Interactive One and publishing businesses generated $5.6 million in revenue off of the 9.4 million people who visited its websites or read its magazines between July and August of 2008, or $0.20 per viewer/reader monthly, its best reported quarter in terms of the year to date.
If honeymag.com manages to attract as many visitors as the print magazine did in its heyday (more than twice that of essence.com’s 729,000 according to quantcast), brings in as much advertising and subscription revenue per visitor as Interactive One did in its best quarter, and has 10 times the profit margins of myspace, it would make an annual net income of $720,000. Add another $20,000 per month for other potential income sources, such as subscription, sponsorships, and/or job listings (about $0.01net income per potential visitor) and you’d end up with a net income of about $860,000 per year. If Honey could consistently hold these numbers they still would not be able to make up for the $10 million dollar investment a decade later, and that’s assuming that Honey does not go through the normal pains of an internet start-up, which often lose money for at least their first few years.
But those are just numbers, and optimistic numbers at that. Despite having its best quarter in revenue in 2008, Interactive One/Publishing still lost $4.9 million. Honey’s well-known brand, vertical African-American and female-focused orientation, and centralized content will save it from losing nearly as much money as it makes. But I’m willing to bet the new version of Honey will end up much like the old one. It will be a great product, but it’s financial return won’t justify the investment. It’s tough to justify a $10 million investment in an internet media company during a time when the biggest and the best in new and old media haven’t found a way to turn a decent profit off of internet magazines and social websites. That amount of capital should have been enough to secure full ownership of the entire Honey/Sahara Media operation.
The math doesn’t add up, and it would take one of five things for this investment to make sense. Maybe you can tell me which one you think it is. I am guessing 2 or 4. And if it is 2, I am assuming that Honey will look to generate a large portion of its income off of third-party sponsorships, revenue share, and percent of transaction or licensing, much like Robert Johnson’s new concept for digital television content from established magazine brands:
1. Investors were being realistic. They will recoup what they spent and more.
2. Sahara Media is applying a revolutionary, or at least extremely sound, business model they have yet to share with the public. Tell us what you think they are up to.
3. The math, logic, assumptions and/or information in this post are the off mark. Tell everyone how much of an idiot I am and school us all.
4. John Thomas Financial, and the investors it represented in this transaction, used dot.com boom era valuations to decide how much to invest in the company. Much like Oak Investment Partners recent $25 million dollar investment in Huffington Post.
5. The same investors have other incentives in investing $10 million dollars into Sahara beyond actually making a return on their investment. Say contribution to cultural prosperity, diversity within digital media, or they are in it for the long term.
Sources: Bnet.com, Interaciveone.com, MSN Money, Quantcast.com, Radio One 10-Q Filing, Reuters
Category: Capital, Digital Media, Launches, Social Networking, Startups, social media, web 2.0 | Tags: Finance, Honey, Investment, Investors, Magazine, social media, social networks, startup, Venture Capital, WomenDid you like this article? Share It!
res says:
FYI, clicking on the link to Honey Magazine gets you a request for a username/password.
Markus Robinson says:
I believe their site is down for development. I will remove the link.
Mr Mecca says:
yet another example of people investing way too much in the promise of a name. Nothing they are doing is novel (a social network, custom content, celeb interviews = done, done, and done). Doesnt take 10 mill to pull that off in a high profile way…most likely going to be a human resource heavy organization…lots of unnecessary personel and lots of overpaid V-level positions (snore)
Lynne d Johnson says:
Before we get to the money, a couple of things. I would say that this is the fourth incarnation of HoneyMag.
The first: Started as a print product by Kierna Mayo and Joicelyn Dingle with Harris Publishing Money.
The second: Bought by Keith Clinkscales and his Vangaurd Media (still print but with much Web potential before the company tanked).
The third: Bought by Sahara with Michaela Angela Davis as EIC and a slew of bloggers. Something of a black glam before a black glam. [This was the impetus for the current sale.]
Now about the ROI for the investors, there’s this, it’s going to be more than just a content site or a community. So it’s not even about the numbers on that old CPM game if that’s what we’re playing here. I’m looking at this shopping feature as a plus. I’m considering the success of Karmaloop and urban gear in general as an indicator.
The comparison of Essence to Honey is like comparing apples to oranges. Not the same audience at all. And if they do the social media and perhaps even a mobile play correctly, the numbers will be hot.
Is $10 million too much. Maybe. But it really depends on what you said in #1. Not having any idea what was laid out in that business plan that was presented to investors, it’s hard to call it. There was some formula that convinced them they’d get that 10 mil back, even if it just ends up being in equity and a losing game for Honey itself.
I’d bet though with this many incarnations and owners, there’s life yet. A lot more competition now, but if they pull the right mix of this biz plan — things could ride.
ljones says:
Well with that type of investment, success for them better be certain. Because I can think of a number of ways to use that in a smart campaign to bring in an audience and keep giving them the content they want to keep them.
Now if it doesn’t do well… then it won’t be a good look. So it should be interesting to see how they approach there new presence. They better bring a good mobile presence too.
Dede says:
Interesting conversation. I am intrigued to see how this will all play out. To agree with Lynne — the market is there.
Ananda Leeke says:
This is gonna be something to watch. Thanks for sharing the news.
Siddiq says:
If you want the full details of the “10 million” you can see their fillings here:
http://www.free-press-release.com/news/print-1224084992.html
http://www.secinfo.com/$/SEC/Registrant.asp?CIK=1131166&View=Sites
Read it yourself but a crude summary might be Honey got some friends to set aside some money for them (Honey didnt get it all). If Honeymag.com isnt launched by march and Thrivespot.com isnt launched by april the people get their money back (20%). Also Honey has till June to get 300k in monthly traffic and Thrivespot.com has till September to get 200,000k registered users. Finally, they have till Dec ‘09 to have 1 million in sales or AR and if they dont folks get 20% back.
Lynne, I think the correct comp is Hookt.com, which tried to do the same old media content layered with commerce back in 2000. It idnt work then and I’m not betting on it magically working now. Commerce is hard to do, the biggest issue being returns in my mind. Looking at the backgrounds in the filings, you’ve got a music producer, a real estate developer and banker getting together to do a commerce website… When the old media guys jump in and think they have all the answers they get their shirts handed to them. Just ask Peter and Chas from Hookt.com
Reading their docs from October they mention “community, communication, career, and connection” as teh core componenets of the site. They dont say anything about commerce. Its never even mentioned or hinted at. So somewhere between October and now they added the store to the mix… not exactly strategic thinking. And not a very long time to plan, build, staff, a significant e-commerce offering. Again this doesnt bode well for the venture.
As I’ve said for years the web aint like hawkin’ CD’s for Loud or sellin’ MacMansion’s to the nouveau riche. You cant just throw up a site with Dream Hampton tales of sleepin’ with biggie and turn around and sell the bed sheets and dirty clothes.
But then again I’m biased. If I’m wrong I’ll bake a cake for the Sahara media team and post a youtube video with me lipsynching to Hypnotize in a shinny P.Diddy suit.
PS: I’ve got NO inside scoop on the team or the project so the above statements are based on the public documents about the venture and my own cynical view point.
Lynne d Johnson says:
Siddiq – I’m glad you found the documents, I didn’t have time to look them up when I made my assessments and analysis. And I’ve heard Peter’s stories, so I know exactly what you’re talking about.
But we do have to consider, that we’re in a new era and that younger generations respond to the Web differently than we did back with the Hookts, Volumes, UBOs, Vanguardes, etc. That’s one thing I’m considering when I assess that the audience is there for them to tap into — if they do it smart. The problem though, is that they can’t rely on the old brand identity to bring in new fans or a new brand identity to sway the old heads to return to the brand.
I did have an inside scoop on this project once, but no more — so I’m not 100% sure where they’re going but I know this, they’re going to tap into every possible revenue stream possible, bc the honeymag.com they had up in 2006 just wasn’t bringing in the traffic or the revenue — and then one of their own ended up at black glam doing exactly what they could have been doing there.
Either way, it’s going to be interesting to see how it all plays out. I’ve got my fingers crossed, just for the simple fact that Essence just doesn’t cut it for a lot of women of color (and though Clutchmag and Interactive One’s Hello Beautiful, as well as black glam are doing their best to fill the void there’s still room out there).
Here’s my PS: I’m not a total expert in this stuff, but like Siddiq having a long history in this game, I can analyze the information that’s presented pretty well. (He’s the expert). And 2: I have no insider information though I know some of the players involved. Basically, I’m waiting to see what unfolds just like everyone else.
James Harris says:
Family,
Lets be clear – We are at a special moment in time. Whether your investors hand you $10 million, $8 million, or $50,000. The art of creating, feeding and growing an online audience is tough, mind-bending work. And all online audiences are not equal – some you can monetize, some just you can’t. The question for Sahara is whether or not they have the passion and character to build a worthwhile audience. The days of “black guilt money” from brands is over. If you’re going to make money in this business you have to earn it one click at a time.
I spoke with Kojo Bentil of Sahara a few weeks ago and he seemed clear minded and enthusiastic about the opportunity. Time will tell whether or not they have the talent to make it happen, but clearly they plan to be in the game.
Since my business partner, Patrick McElroy, and I launched EverythingBlack.Com back in 1997 I’ve seem dozens of Black internet businesses come and go. The primary reason for their failure was not poor strategic planning or lack of funding. They failed for the same two reasons that black offline businesses fail. One, because of some “Negro Foolishness” – like oversized egos internally battling it out; or way to many Chiefs and to few Indians. And secondly, because the never truly were in the game. Most talked alot, but never truly were in the game. Some had great parties, with a huge open bar, but were never truly in the game.
Nick Denton is in the game! Check this link for the proof:http://brownblogbusiness.wordpress.com/2009/01/03/question-3487-why-do-black-people-want-to-be-athletes-when-nick-denton-make-14-million-dollars-a-year/
When is friend Jason Calacanis sold Weblogs Inc. to AOL for $25 million, Nick stayed – wait for it – in the game. Now he is estimated to be pulling in over $1 million a month in profits.
It’s my feeling that Sahara intends to be in the game, in a big way. I for one hopes that they are successful. I don’t know who their investors are, but we need to own more of our own media – not withstanding Sandra Rose! We need to find ourselves with REAL MONEY chasing our entrepreneurs around begging to invest in their digital media businesses. I have been hoping and praying for this moment for over a decade. I hope that we are collectively bright enough to profit from it.
All the best,
James Harris
Elemental Interactive
ListenShare
ClutchMagonline
BrownBlogBusinessJournal.wordpress.com
Markus Robinson says:
Looks like by your signature you might have a dog in this fight. What’s your association with Clutch Mag?
James Harris says:
Brother Markus,
Nice to hear from you. Check with me on Monday for more info.
All the best,
James
Markus Robinson says:
Well if it’s news I hope we get to break it!
James Harris says:
You know that we need to keep it in the family, but this one may be to far gone. I promise you all dibs on the next one.
Question, how do I edit my last post? I hate typos?
Thx
James
James Andrews says:
Well, I had to jump in and add some random last night thoughts on this one. Love seeing all these smart digi folk debating yet another new black online property.
Oh HONEY! This has been a painful movie to watch over the years. What my buddies Kierna Mayo and Joicelyn Dingle created was amazing; Since the Vanguard “takeover” (and even before) it has been like watching a boxer who was the man back in the day struggle to win rounds. However the race is wide open today so Interactive One, Honey and many others have an opportunity to seize a space that I consider to be wide open.
We are living in a day when the business of creating a “media” property creates a huge opportunity for savvy companies Nothing about what I see so far with Honey leads me to believe that what Honey is doing is compelling or interesting. However the space is so wide open, in 90 days that could all change. I remember a time when the automatic “black, urban” print ad dollars either were going to Vibe or Source to reach young progressives. Today I imagine media planners struggle on where to reach progressive African Americans. There is a huge opportunity to reach AA women and the business is big so $10m may as well be a wise investment against a highly coveted consumer.
The race is on for who has the goods to deliver great content and build communities. Do I think Honey can get it? Maybe. Do I think properties like aforementioned ClutchMag have an even greater chance to be successful. Absolutely. I agree with James Harris when he says that he hopes Sahara is successful. I’m a UBO “survivor” and the last thing I want to see is anyone blow thru money and not win. I think in the next 90 days it will be apparent whether they are setting up for success or not. How they are launching a new property and not giving blackweb20.com an exclusive or have called Lynne D, or Siddiq (my assumption) sends cultural cues that they are “building a website” and just don’t get it the larger opportunity.
Nuff rambiling for me
Anon Imus says:
Insider rumor- The plan is to make Honeymag.com profitable and then quickly sell it off. *shaking my head*
James Harris says:
Ok Marcus,
This is story that I was waiting on:
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/12/AR2009011200686.html
I will have more detailed information posted to my personal blog tonight:
http://brownblogbusiness.wordpress.com/
So, how can we make it up to all? In this economy we need all the family we can get.
All the best,
James
Nokware Knight says:
James,
Markus,
What a timely investment. It will be interesting to see who makes the most of their funding… Honey or Clutch.
Does anyone have an opinion on whether they think this is boon that will grow the online women’s market or make things more competitive between Honey and Clutch for now?
Qmobile, Where Are You? | Black Web 2.0 says:
[...] is developing its new website for launch, and given readers’ comments in regards to Black Web 2.0’s post on the women’s online-only magazine, they may very well be depending on more than the usual content and audience for advertisers [...]
Damian Williams says:
My bet is on Clutch. Why? The passion and new media expertise that Dede brings to the table is something that is not matched and attainable by a lot of other online/offline publications out there now.
Celia says:
I agree fully with Lynne in terms of the Essence/Honey comparison — the audience is entirely different — sure, on a surface level both cater to a black female audience, but the Honey audience is younger and way more in tune with and grounded in hip-hop culture and urban aesthetics. It’s like comparing urban adult contemporary to urban radio — not the same.
Having worked with Shanel, I think she’s got what it takes to make the site’s editorial appeal to all the women of color who are currently under served in the media space. She’s got eclectic tastes, a keen eye for fashion and music, and the drive to seek out excellent contributors and to arrange for interesting cross-platform initiatives. Now, I can’t speak on Sahara’s business plan or exactly what features the site will have, but I’m hoping for the best.
One last thing: The Radio One/Interactive One reference also doesn’t add much weight in terms of the argument that HoneyMag.com won’t recoup its investment (or see gains in the end). For one, Interactive One encompasses so many properties — HelloBeautiful.com, TheUrbanDaily.com, MiGente.com, BlackPlanet.com, NewsOne.com, etc., etc., and most of these (barring MG and BP) were launched in the last year to year and a half, so they’re just starting to gain momentum. We can’t really make any sound judgments about black online media based on these sites’ profit margins just yet.
My two cents…
Nokware Knight says:
Some clarification behind the thinking for some of the numbers: Keep in mind that the numbers were used to show, given what information is available, an optimistic look at what kind of profit Honey might bring in compared to its biggest competitors by numbers.
Agreed, the audience for Essence and Honey is different. The reason Essence was used was because it is one of the largest (if not the largest) website specifically targeting African-American women, by audience. Had another website been used the number would have been much lower. Take another look at the post and keep in mind that the actual number used was 1.5 million, the largest audience Honey ever attracted to its print publication. Essence was just a comparison used because, again, it is one of the largest out there according to available information.
Also, it is agreed that Interactive One has a lot that it is managing and businesses that it is just starting, so the discomfort with using its profits as a comparison is understood. However, if you take a closer look at posting, only revenue was considered for Interactive One in its calculation, because it is one of the larger African-American sites on the web by revenue. Had the profit margin for Interactive One been used, the resulting estimate for Honey would have actually been lower (much lower). The profit margin used in the actual calculation was that of myspace, a business has been around for a while.
Regardless of whether the comparison is fair, the calculation still assumes that Honey would start off with a 20% profit margin out of the gate and continue to maintain that kind of margin regardless of whatever challenges it faces. In reality, startups are often given 2-5 years time to even reach profitability, and lose money until then. Again, had the likelihood for starting the first few years losing money been considered, the numbers in the posting would have actually been lower.
The calculation was actually an attempt to be optimistic and give Honey the benefit of the doubt based on information available. Based on what information is available, the only way it seems that Honey could actually do better is to gain more income per visitor than the best of its predecessors, which would likely require a creative or very efficient business model. It’s yet to be determined what that business model is, or if it is even there.
Nokware Knight says:
Excuse me it should have read “The profit margin COMPARISON used in the actual calculation was TEN TIMES that of myspace, a business has been around for a while.”
Nokware Knight says:
And to be clear, this blogger is rooting for Honey as well, and believes that Sahara media can grow a great business. It just looks improbable that they will give their investors the kind of return they may have wanted.
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Marcia Cole says:
I have to add a correction here (was going to post it previously when it first went up, but time slipped away): Honey magazine never had a 1.5 million circulation. It never got past an audited circulation of subscribers and newsstand of 400,000 in its print incarnation. That 1.5 is an estimate on pass-a-longs, which is not accurate. Regarding its digital rebirth, I think we should all be glad for healthy competition in the digital arena instead of betting on which site will succeed and which one will crash and burn (just a pet peeve of mine as doing so produces negative energy). There are more than 20 million African American women online. Certainly there's room enough for more sites and more voices–and certainly worth an investment of $10 million. The success of every site targeting this audience validates that we exist online and should be spoken to deliberately. Sahara's quest to obtain financing has been for nearly four years, so kudos to them for sticking with it and presenting a plan that was investor-worthy.
And fyi: the online audience of a magazine is normally younger than the actual title. So the visitors of Essence.com and the readers/subscribers are not necessarily one in the same. They have their own formula for what increases their uniques and it works for them. At its core it is very different from Clutch, my site, AMBERmag.com, Hello Beautiful, Honeymag.com, and the over 100 different blogs and sites that exist for this audience. And we couldn't be more pleased with the diversity.