Wednesday, January 30, 2013

Evaluating media properties: New Media pros look at legacy titles as starting points for new digital publications

A while back I promised a reader that I would post on the subject of evaluating media properties. This reader was considering buying a recently shuttered property but was at a loss as to what the expected price might be. How would I evaluate the property, I was asked. Well, here we go:

Why, if you are a potential digital publisher, would you invest in B2B?

The reason is simply because this is one area where the existing media companies are less advanced in digital publishing, the competition is weakened, and where the biggest opportunities exist for innovation (at least, that is the rationale I hear and would use myself).

Few B2Bs have made a good transition to the web; transitioning to mobile and tablets is even further behind. The best and most prosperous B2B media companies are now very diverse, often with profitable events, information and custom publishing divisions. The opening, therefore, is in digital media.

In the U.S. the B2B media industry has been incredibly effected by media bankers: private equity companies that invest in properties, and the companies that represent the buyers and sellers when it comes time to get out of those investments. Few media trade journals want to talk much about this because the industry is so dependent on PE and M&A firms.

Because of this, buying a B2B property is fraught with dangers. Purchasing a magazine title that is "on the market" means sifting through the "Black Book", that selling document that contains a description of the property and the financials. Most black books aren't worth the paper they are printed on.

The problem is that they are written to show that the property is a good investment (of course), but are written from the perspective of the owner or banker. Frankly, I could care less what their opinion is of the property, they are dumping it. So why are they written this way? Because many of the buyers are PE firms themselves who really know next to nothing about the markets they are buying into (sorry, but it's true).

New Media pros, looking to buy a property, only are interesting in the markets they want to launch into – at least that is my experience. If someone wants to launch a new B2B digital property they have the whole universe to choose from, launching into a market they care about, or where they see an opportunity only makes sense. Take Rafat Ali, the co-founder of paidContent. His new venture, Skift, is in the travel industry and his posts and tweets show that he is genuinely intrigued by his industry – in this regard he is more like the B2B publisher of old than with his current colleagues.

I once sat in on an investment meeting in NYC concerning a possible big money investment in B2B properties. The bankers were shocked to learn I cared more about what I wanted to buy than simply what was currently on the market. That firm passed on my proposal and instead invested in an old line business that soon went belly up, but not before they were able to sell it to another PE. The game of musical chairs was far more interesting to them than actually learning the publishing business. These firms are the owners of many of the B2B companies in existence today.

Bottom line: if possible, skip the black book and look at the old P&L statements. These will show you the real picture and are a good reflection of how the current owner actually sees the performance of the property.

Then there are four other elements to consider: 1) the list, 2) the database, 3) the clients and 4) the staff.

Next: The List and The Database