Edit 2: I have changed my analysis below. I think it's still a takeaway that GB and WM were balanced more on a knife's edge than not. What I changed were the rent assumptions and pay assumptions. Rent was off by a factor of 12 and pay may have been super low, so I changed the way that works. Also I made my spreadsheet more copy and paste friendly for scenario analysis. I put in scenarios showing what happens if advertising revenue cuts in half (by pageview decline or the rate being cut in half) to represent possible realities. Sorry for the initial gross inaccuracies. This is still painting in broad strokes but at least this might be closer in the realm of reality.
EDIT: So some of my analysis below is inaccurate. Salaries are too low, rent is too high and possibly (imho) I wasn't conservative enough about advertising revenue. In any case I will update later, but my spreadsheet is more or less updated. On advertising, take what's in my spreadsheet and cut the revenue per 1000 views per month and cut it in half. You'll see WM isn't making money anymore then.
Before I get started, one of these is linked below but here it is for reference, my google spreadsheet and the text of the document below. Both are viewable but not editable for what I feel like are obvious reasons. This is not 'is this good'/ 'is this bad', this is an argument for necessity.
Ok so I think it’s important, or maybe necessary to make the point that amidst all this talk about the acquisition we talk some hard (totally educated-ish guessed) figures. I think when talking about money the key factor in this change was not getting Jeff/Ryan/Brad/Vinny/Etc paid, so much as ensuring the website would be around for something like the next 5-10 years.
I have created a google doc spreadsheet (public, not editable) to ‘back up’ some of my claims here. Link
So lets walk through the numbers.
A good ‘average’ salary number to start out at is probably $40k annually. Or not, in my updated scenario spreadsheet, I’ve made an updated assumption. This is that 11 of the 30 major players make on average 80k per year and the 19 other employees make on average 60k per year. You want to do a 1.5 multiplier to account for benefits besides pay (health, dental, 401k, etc). Also I listed out ‘named’ employees and figured there’s probably that many that I couldn’t remember so I counted the ‘whiskey’ head count at 30 people. That’s a yearly salary burn rate of $1.8 $3.3 million dollars. No chump change, but just part of doing business also.
Ok so the next
‘major’ cost is rent. I did some searching and based on that really crappy searching I worked out they’re probably working with 6000 square feet in that basement office. The going rate per sq feet per month in San Francisco (as far as I can tell) is something around $60 per sq foot per month. per year. That is yearly rent of 360,000 and a yearly rent cost of about $4.2 million. So far our non-website burn rate is at like $4.3 Million/year.
I went to Amazon and did a really rough estimate of website costs and came out to $10,000/month. That’s hosting 10TB of data, half that redundant and about 10x the 10TB in traffic. I have no clue if that’s accurate or not, but that’s my best guess. That comes out to a yearly burn rate of about $120k, pretty small compared to rent+salary, which makes me suspect the number but there we are. Annual burn rate about $4.4 million.
No lets talk revenue. Other than capital investment (which I’ll get to) Whiskey seems to have about 10000 subscribers, at a rate of $50/year at a total annual revenue of about $500k. That doesn’t even pay the salary guys, just FYI.
I did some guesswork on the advertising and here’s what I have. Whiskey has about 46 million monthly page views. At a revenue charge of $10 per 1000 page views (a mildly educated guess) you get a yearly ad revenue of $5.52 million. Add in the subscribers and you have a yearly revenue of about $6.02 million.
Lets talk about advertising for a moment. GB counts for about half of the pageviews whiskey gets. If you count just that against all the costs then GB operates losing 250k per year. Alternatively, if you think that the $10 per 1000 pageviews rate is high you also end up with GB losing 250k per year. My first scenario now has GB making 2.5 mil or so/year. There’s two ways to look at this. On the one hand WM may have been doing well enough that long term capital investment is possible (in the form of CBS for GB). On the other hand, my advertising estimates may not have been conservative enough and GB is still burning through capital.
Lets talk the shortfall. That’s a yearly shortfall of $220,000. Round it down to 200k for ease of my maths here. So Whiskey may have been losing money to the tune of 200k/year. I would suspect that this is a historical low number. But for ease of my maths, lets suppose Whiskey always lost this exact amount of money. Let’s suppose Whiskey/GB was seeded with something like $500k. If that seed money was used for nothing but making up shortfalls (it wasn’t) GB would have run out of money in mid 2011. As it was also used for other things they may have run out early 2010/late 2009. I believe they got a new round of venture investment back then maybe to the tune of 1 million (I think). If you put them on the 5 year plan from January 2010, that works out running out of investment capital (again assuming the investment only covered the short) by 2015. Which means, since the capital was most assuredly used to pay other bills and buy supplies (as my financial workout covers none of that) they’d run out of investment money, and begin to not pay bills way before 2015. Maybe later this year. Who knows.
So now lets look at the financials of now. The $10/1000 page views rate I came up with seemed to be for a small website with little ability to sway advertisers. I’d imagine that a large company like CBS works out individual ad deals at a revenue rate of way more than that. Even $20/1000 page views makes GB instantly profitable. Also, as far as losing money goes Whiskey is right now burning something like a million every five years. This is large potatoes to a small investor group, like I imagine they had. I did some searching and CBS’s Free Cash flow for 2011 was 1.4 billion. Yes, with a b. Billion. That means burning through a million in losses every five years is now almost nothing.
Also, my calculations included rent. GB moving to the GS office means that CBS as a whole (GS is probably a similarly miniscule part of all of CBS) takes no rent hit. If you wipe out rent from my spreadsheet, GB instantly makes something like 4 million annually. Thats a huge swing. You may want to halve the advertising as my page views count was for Whiskey. GB works out at about 18 million monthly page views, if you change around things that gets you to GB being a profit center of about 740k/year. That’s still a pretty hard (and good swing).
So look. Here’s my point. All of this should go to demonstrate that the 5-10 year viability of Giant Bomb and Whiskey Media was in question without the financial backing of a much larger company. Without that and another 1-2 million in investment from venture capitalists, they’d probably be shuttering their doors by 2015, if not sooner. With they may only be delaying the inevitable. Plus that’s not how Venture Capital works. You fund a start up, watch and help it grow, then you find them a home in a more stable financial environment. Like what happened yesterday.
And here is my other point. Not to ‘get rich’ as I think alot of you assume, but merely to ‘have a good retirement and stable income’ are pretty damn good reasons for the guys at GB to want larger financial backers. This provides them the financial surety of a company that has been around for 84 years or so. CBS won’t be going under anytime soon, and by proxy neither may the GB guys be going under anytime soon. Get rich or no, that’s a welcome prospect for these guys.