Tuesday, February 9, 2010

Are some B2B mags hanging on in hopes of recovery? or so they can be sold off? An argument in favor of launches

Every January is fascinating in the trade magazine industry. Just as many newspaper people almost feel sorry for non-newspaper people (they just don't understand the rush of newspaper publishing, they think) I sometimes feel the same way about trade publishing . . . in January and February.

This is the time of the year where everyone sizes each other up based on the first couple issues of the year. Because so much business is sold and confirmed with that first deadline, many publishers pretty much know what kind of year it will be by now. From what I have seen so far, 2010 won't be worse than last year, in general, and for some it may actually be significantly better.

☜  Radio & Records, closed by Nielsen in '09

But January 2010 has produced a large number of thin and anemic issues so far -- enough that one has to wonder "can this publisher continue this magazine for another year?"

So why aren't more magazines being folded? According to MediaFinder, there were actually less magazines folded last year than in 2008 or 2007 -- an astonishing fact considering the ad pages lost last year. Not surprisingly, there were also few launches.

Part of the reason for this can be found in the behavior of owners and investors in a recession environment. When ad pages are down across the board it is sometimes harder to judge whether a magazine is under performing as all numbers look horrific. When a magazine like Architectural Digest loses almost 50 percent of its ad pages what does it say about your book when it only loses 25 percent of its ad pages?

The reality is that many magazines have been on a slow decline since 2000. So why are some magazines allowed to continue to spill red ink while others are folded the minute they produce an unprofitable issue?

The answer lies, I believe, in the ownership structure of the publisher.  For companies like Condé Nast or Hearst, business decisions can be a straight forward proposition: is the magazine's poor performance a temporary phenomenon, or is this a death spiral? A magazine not growing can be justified if it is still profitable -- but if a magazine is producing red ink, the sooner it is killed the better (from a strictly financial perspective).

For many, the closing of Gourmet was a shock. But when the WSJ compared Gourmet to its sister pub Bon Appetit, things looked a little different. What we didn't see, of course, were the P&Ls.

It may not be nice to speak ill of the dead, but in the magazine business it is even worse to speak ill of the soon-to-be-dead, so I will avoid naming the names of books I think should be shuttered. But why is it that trade magazines can produce 28-page January or February issues and still be around when legacy titles with loyal readerships are going down? The answer lies with whether the owner sees the value of the publication as a profit generator, or as a property that ultimately will add value when the time comes to sell the whole operation.

There appears to be many owners and investment firms today trying to ride out the storm. If only the economy would turn and we could sell off this portfolio to a PE firm.

If this were the 90's I'd sympathize with the sentiment. But it is not. So I would conclude that those PE owned firms, and those owned by owners only temporarily committed to the industry, are taking the wrong approach during this economic downturn.

Rather than hunkering down and waiting for deliverance, owners should become serial launchers. This may sound counterintuitive, but I would argue that it is the only strategy that makes sense when both ad pages are falling and print magazines are facing increasing fragmentations of their markets.

I am not arguing for a program of print magazine launches, though where that makes sense I say go for it.

But instead, now is the time to launch an aggressive web launch strategy -- you will never have so many things going for you again. First, barriers to entry online are low -- don't assume that others won't choose to compete against you online.  Second, editors will gladly take on new web launches when the alternative is so obvious to them. Third, companies such as Demand Media are driving down the value of content, so expert content, produced by trained editors are a differentiator worth exploiting.  Finally, if you create your online competition you have a chance of controlling your markets -- waiting for others to provide the alternatives to your print products will only put you in the same situation newspapers face today.

During the 90's, B2B media firms like Primedia had launch and acquisition budgets -- mostly in an effort to increase the value of the company. CEOs were rewarded by their investors for being able to increase value both by acquisition and growth. Today, when growth seems impossible, companies have made things worse by stopping product launches. Yet with some much media growth online and going mobile, and with huge holes in the B2B market in these emerging media areas, companies are losing a great opportunity.

I won't go so far as to say this is a golden opportunity. No one can say that.  But I must ask: which strategy contains more risk? One that is dependent on a turnaround in the economy and a return to print? or one that bets on continued web and mobile media growth and involves low costs?

Update: Right on time, as if the intention was to reinforce the above post, Penton Media announced their bankruptcy plans. Penton, which is owned by the PE firms MidOcean Partners and U.S. Equity Partners II, is reportedly saddled with debt close to $1 billion, thus the required action.  In November of 2006, Wasserstein & Company (U.S. Equity Partners is a Wasserstein company) purchased Penton for $194.2 million plus the assumption of at least $530 million in debt. Rolled into all this was another Wasserstein owned property Prism Media.

At the time of the sale, Penton's CEO was David Nussbaum -- he is now CEO of F+W Media. F+W is owned by the PE firm Abry Partners.  The current CFO of F+W is Jim Ogle, formerly the CFO of Cygnus B2B, a company formerly owned by Abry Partners. Prior to Cygnus, Ogle worked for Penton.  John French became the CEO of the new Penton following the acquisition by Wasserstein. Previous, French was the CEO of the Wasserstein owned Prism Media.  In 2008 French left Penton. In 2009 French was named CEO of Cygnus B2B -- a company formerly owned by Abry Partners. Abry attempted in 2008 to sell the company to Wasserstein & Company, but eventually was forced to relinquish control of the company to GE Capital.

None of this, of course, has anything to do with B2B publishing.