When Paramount agreed to buy The Free Press today for a reported $150 million, it raised a simple but critical question: Why pay so much for such a small business?
The startup, which launched in 2021, is generating around $20 million in revenue, according to a person familiar with the matter. That means Paramount is paying 7.5 times revenue for the outlet.
The multiple places the deal outside normal media economics, according to interviews with four digital media M&A experts. In most transactions, both legacy and digital outlets trade at five to 15 times EBITDA, not revenue.
But for Paramount, the tie-up is more of a strategic decision than a strictly financial one, according to the analysts.
The company is not buying The Free Press for its profit stream today. Instead, it is making an investment in an outlet whose positioning, talent, and potential to scale could swell dramatically when plugged into the broader CBS News platform.
A price untethered from the numbers
Beginning in 2022, when federal lending rates surged, digital media acquisitions largely shifted to multiples based on earnings rather than revenue, according to Robert Berstein, managing director at JEGI Clarity.
The fact that The Free Press is valued on its revenue, rather than its profit, suggests that Paramount is interested in the business for its potential rather than its current production.
“The purchase is not based on a financial valuation,” Berstein said. “It’s based on a strategic one.”