Flashes & Flames http://flashesandflames.com Serious Media Fri, 20 Jul 2018 09:30:00 +0000 en-GB hourly 1 https://wordpress.org/?v=4.9.7 Why Reed Exhibitions may be sold http://flashesandflames.com/2018/05/24/why-reed-exhibitions-may-be-sold/ http://flashesandflames.com/2018/05/24/why-reed-exhibitions-may-be-sold/#respond Thu, 24 May 2018 17:06:30 +0000 http://flashesandflames.com/?p=38671 Reed ExhibitionsEverybody loves exhibitions. They are the traditional media which have been growing revenue at an average of 6% for the past 10 years, thriving as an antidote to the virtual world for business people everywhere. It’s a highly-competitive £30bn global industry and the signs of success are easy to find: 44% of B2B exhibition companies...

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Everybody loves exhibitions. They are the traditional media which have been growing revenue at an average of 6% for the past 10 years, thriving as an antidote to the virtual world for business people everywhere.

It’s a highly-competitive £30bn global industry and the signs of success are easy to find: 44% of B2B exhibition companies increased operating profit in 2017, 70% expect revenue growth this year, and no fewer than 40% are targeting international expansion, according to trade body UFI. It is fuelling huge growth in global exhibition capacity, especially in large purpose-built venues. And, of course, there’s an M&A boom.

UBM had a 200-year history spanning all UK media including daily newspapers, broadcasting, outdoor advertising, magazines, market research and B2B, before it became a pure-play exhibitions company in 2015. It consolidated its position as the world’s second largest exhibitions group during 2014-16 by splashing out almost £1.5bn on Advanstar in the US and Allworld in Asia.

Meanwhile, across London, Informa was buying no fewer than 10 exhibition companies during 2015-17, culminating in the £1.2bn US acquisition of Penton. As a result, the UK company, once best known as the publisher of shipping daily Lloyd’s List, became 60% dependant on US revenues.

These two UK public companies have been storming the market. Informa has more than tripled its exhibitions revenue in less than 10 years, while UBM has more than doubled. They reported 2017 revenue growth of 74% and 30% respectively. Then came the bombshell.

In January this year, Informa announced the largest-ever exhibitions deal in a recommended £4.3bn bid for UBM. When the acquisition completes on June 15, Informa will be the world’s largest exhibitions group, ahead of Reed Exhibitions. A decade ago, it was not even in the top 10.

According to analyst AMR, the deal will push the £1.1bn revenue ReedEx firmly down into second place after 30 years on top of the pile. But it is still much larger than the clutch of venue-owning local authorities in Frankfurt, Dusseldorf, Munich and Basel, after which come the fast-growing private equity-owned French group Comexposium, China’s CFTC and the quoted US company Emerald. The UK companies Clarion (now owned by Blackstone private equity), Ascential and the Daily Mail Group are also among the 20 leading exhibition groups.

The rankings underline how B2B exhibitions – once largely owned by non-profit trade associations – are dominated by European companies. But the global industry all but started in the US, in 1970. That was the year B2B magazine publisher Cahners entered the “tradeshow” business with its acquisition of Charles Snitow, owner of national and international expos showcasing automobiles, consumer electronics, food, hardware, photography and home improvement. Some of the events were large. The International Automobile Show in New York, for example, attracted 500k visitors in 1970. Exhibitions were seen as a natural for Cahners which described them as “effectively the same business model as magazines, just in 3D—face-to-face.”

Cahners expanded strongly by buying up a whole swathe of exhibitions in diverse sectors. In 1980, it became the market leader with revenue of $90m. The company which had become the first broad-based exhibition organiser in the US, soon did the same with acquisitions across Europe and Asia. In the 1980s, it merged with Industrial & Trade Fairs, a UK-based organiser started by the Financial Times and the diversified media group then known as Reed International. Cahners had been acquired by Reed.

In the mid 1990s, Reed took what seemed like a radical step – in the US and UK – of separating its exhibitions from the B2B magazines which had largely created them. It proved to be a far-sighted move which gave fresh impetus to launch and acquire new events almost everywhere. By 2001, when the web was beginning to disrupt print media, the then Reed Elsevier’s exhibitions division had increased revenue by 25% to £446m – the only profit growth in its faltering B2B media group. Its once mighty magazines and directories, largely funded by advertising, were under attack.

The company’s Reed Business Information (RBI) still had £1bn turnover back in 2001, more than 50% of it in the US. But fast forward 10 years and profits were down by one-third, with just 25% from the US. By the time, it sold the legendary Hollywood newspaper Variety to Penske in 2012, RBI had divested more than 150 B2B magazines and directories in 14 countries that, just four years previously, had accounted for almost 50% of its portfolio. In the US, Cahners (a pioneer of ‘controlled circulation’, advertising-funded magazines) was no more.

By 2008, RBI was focused on a small number of increasingly global, data-led, services primarily in banking, aerospace, chemicals and property, funded by readers not advertisers. But the consolidation descended into farce as Reed Elsevier abruptly decided to divest the whole of RBI, only to abort the sale process after 12 months of disappointing offers. Reed bosses made a mess of the human relations by saying they would instead try to sell the subsidiary “in the medium term,” when conditions became more favourable. So the talks and scuttlebutt continued for a further year. Then, suddenly, it all changed again and RBI was withdrawn from sale. The reason soon became clear.

In 2011, RBI quite simply became a star performer, with record profit growth. It was the seemingly unexpected fruit of a stunningly successful digitalisation, the switch from print and the development of high-value consultancy in core markets. RBI’s corporate reward for a brilliant transformation was the £343m acquisition of banking database group Accuity, effectively doubling RBI’s value. In 2012, it also netted a windfall £110m by selling its scarcely-profitable Totaljobs digital to Germany’s Axel Springer.

The one-time B2B magazine publisher is now a vital part of RELX’s Atlanta-based grouping of Risk & Business Analytics. The £2.1bn-revenue group – which includes LexisNexis Risk Solutions, Accuity, and FlightGlobal – employs more than 8,000 people and last year made operating profit of £759m. It is RELX’s second largest division behind STM. Last year, it was the fastest-growing. The sign that this is where the parent company now wants increasingly to invest is this year’s $580m acquisition of cyber-security firm ThreatMetrix, its largest deal for more than 20 years. It’s a long decade since the Reed Elsevier annual report dissed RBI as “less consistent” while asserting that its targeted “workflow solutions opportunity is much less clear”.

That same report had eulogised the “fast growth, high-return business” of exhibitions, which it had always planned to retain after selling RBI. Now the tables have been turned. Reed Exhibitions is the RELX division rooted in fourth place. But last year, it made operating profit of £285m on £1.1bn revenues. It operates more than 500 exhibitions in 43 industries and 30 countries. More than 7m people attend its events which are broadly split both geographically (40% Europe, 21% North America, 39% RoW) and by sector (including manufacturing 14%, media 14%, property 9%, travel 8%, healthcare 8%, homes 7%, and jewellery 6%).

It all sounds pretty good and ReedEx owns some of the world’s most successful exhibition brands including Midem, Mipcom, World Travel Market, Infosec, Fibo, and ComicCon. But this is a company under pressure, with:

  • Operating profit margins of 26% – strikingly lower than the equivalent businesses of Informa (36%), UBM (36%) and Ascential (41%). These competitors also have much higher profit growth than ReedEx. Not what you expect from an established market leader.
  • Acquisition expenditure of some £40m on an average of 17 events for each of the past five years. If last year’s acquisitions had, say, 20% profit margins, those “new” events may alone have accounted for almost 50% of ReedEx’s £16m profit growth, revealing minimal organic growth. That continuous stream of bolt-on acquisitions – and also new launches, 36 in 2017 alone – suggests that profits and growth rates are being held back by a long tail of marginal exhibitions. It’s a crude measure but Reed’s average revenue per exhibition, at £2.2m, is one-third less than that of UBM.

Perhaps the subtle weakening of the long-time leader has helped to encourage the challengers. The attractions of exhibitions to media companies have long been clear. The industry’s powering global growth is a reflection of the sheer value of people meeting each other, seeing products or services being demonstrated, and negotiating deals face-to-face. Exhibitions are the original “interactive” media. For organisers, there have traditionally also been the high profit margins and positive cash flow of exhibitors paying upfront, often many months before events take place. But, on the flipside, there are bumpy parallels with the digital world of all-powerful platforms.

The cold fact is that a relatively small proportion of the costs of exhibiting is actually paid to the organisers. Except when the organiser is also the hall owner, the costs of the venue, stand/booth design, staffing, hospitality, and promotion dwarf organiser revenues. Major exhibitions must contend with the monopoly power of large venue owners in major cities. That is why organisers are so keen to arm themselves with must-have global exhibition brands. But it’s a tricky balance between regional, national and international events. For all the successes of exhibition “geo-cloning”, there are many failures to remind the industry that global often doesn’t beat local.

Ultimately, exhibition companies must do much more with technology. But the tech to enable visitors to ease their progress through large exhibitions is patchy, to say the least. On the web, many exhibition sites are visually attractive but have limited functionality and provide scant information. There are frequently only half-hearted attempts to build relationships rather than just to achieve a sale.

The online focus is often on helping would-be visitors and exhibitors to do nothing more than submit an email enquiry. There’s little streaming or online video. Would-be exhibitors can’t get the visibility, pricing and booking options so familiar to customers of theatres, hotels and airlines. You can’t help feeling that digital disruption is coming and even UFI says that most exhibition companies expect rapid medium-term revenue growth from as yet unspecified new business models.

Exhibitions are widely involved in conferences, webinars and awards competitions, and have customer databases. But future success must increasingly depend on using tech to: improve the visitor-exhibitor experience, create a remote access for people who can’t get there, and connect events with compelling year-round digital relationships. This connectivity might variously include:

  • Online procurement services and information exchanges beyond the exhibition hall
  • Exclusive industry statistics, indicators and high-value content
  • Complementary media eg streaming and online TV
  • Membership organisations

If that sounds a bit like a route towards 21st century versions of the trade associations and networks which originally spawned so many B2B exhibitions, it may be just the way to go. It’s an agenda that may suit the new market leader because Informa is a seriously-digital business, professional and scientific publisher. So is the mighty RELX, of course. But this really looks like the start of a new era in global exhibitions.

The company that effectively created the industry is slipping behind in so many ways, and its parent company has never been afraid to sell businesses once so proudly owned. That’s how RELX has been able to grow earnings per share at 7-10% for the past five years. So, we should not be surprised by rising speculation about the future ownership of its exhibitions.

There are four good reasons why RELX should sell Reed Exhibitions:

  1. It is the smallest of RELX’s four divisions and, in 2017, was the slowest-growing. Exhibitions are clearly non-core to a group whose business, scientific and professional information is faster-growing and with more dependable subscriptions and transactional revenues. Almost 75% of all RELX revenue is from electronic media. Its 2017 annual report introduction is a giveaway: “RELX Group is a global provider of information and analytics for professional and business customers across industries.” But analysts seeking clues to the company’s continuing commitment to exhibitions have sometimes been persuaded by expansive talk of group-wide technology sharing. More telling, though, is the unconvincing way that ReedEx is lumped into the group’s online “transactional” revenues in professional sectors. That’s a real stretch. Exhibitor and sponsorship revenue are, of course, much more like the advertising that the parent company once aggressively rid itself of. Similarly, it downplays the even less strategic portfolio of B2C exhibitions which may account for at least 5% of ReedEx’s revenue.
  2. Exhibition valuations are hot, with UBM being acquired for 13-14 x EBITDA. Even Ascential’s declining UK exhibitions this month were sold to ITE for 13x. ReedEx might attract a bid of almost £5bn (ie 17x 2018 profit of, say, £300m) – equivalent to 15% of the £33bn value of RELX. The access to funds of private equity-owned Clarion (UK) and Comexposium (France), and the public companies Informa, Ascential and Emerald, would guarantee a juicy auction for ReedEx. Some reckon that China’s fast-growing CTFC might also want to go global. The fragmented global ownership of exhibitions means there should be few regulatory barriers to acquisition by even the largest operators, none of which will have market shares above 7-8%. (ReedEx has long been market leader with just 5%)
  3. ReedEx may be past its best. Intensifying competition and the loss of long-term market leadership may reduce its already-stuttering profit growth – and also increase the cost of future bolt-on acquisitions. Its relatively low profit margins are now unlikely to improve. But prospective buyers know that cutting the long tail of exhibitions will increase profits –  as Informa will soon demonstrate with UBM.
  4. RELX could use an exhibitions windfall. Its acquisition of ThreatMetrix shows the company’s renewed appetite for substantial acquisitions in B2B, Legal or STM. Or it could pay-down its £5bn borrowings.

That’s why exhibition groups and investors alike have been energized by the £9bn Informa-UBM combination. A year of consolidation in exhibitions has only just begun.

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Is FT really the model news brand? http://flashesandflames.com/2018/04/25/is-the-ft-really-the-model-daily-news-brand/ http://flashesandflames.com/2018/04/25/is-the-ft-really-the-model-daily-news-brand/#respond Wed, 25 Apr 2018 08:47:48 +0000 http://flashesandflames.com/?p=35724 Financial TimesThe daily newspaper best known for its ‘salmon pink’ newsprint wants the world to know it is unique in other ways too. The Financial Times (FT) is feeling pleased with itself. It is celebrating its 130th anniversary with 910k paying readers across print and digital in what is now “a majority digital content business”.  Even the...

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The daily newspaper best known for its ‘salmon pink’ newsprint wants the world to know it is unique in other ways too. The Financial Times (FT) is feeling pleased with itself. It is celebrating its 130th anniversary with 910k paying readers across print and digital in what is now “a majority digital content business”.  Even the financials have never looked so good. Revenue in 2016 was £310.8m – almost 40% up in 10 years. It also made a (small) profit of £6.6m after years of persistent losses.

Those results were a first-year gift for Nikkei which, in 2015, had bought the FT from its long-time owner, the troubled UK education group Pearson. Nikkei is publisher of the eponymous 3m-circulation Japanese daily, whose dizzy £844m bid for the FT was reported to have been preferred ahead of an expected, even higher offer from Axel Springer.

Nikkei is delighted with its purchase of a news brand whose digital subscriptions now account for more than 75% of its paying audience. Last year, it claimed “a record paid-for print and digital readership”, boosted, perhaps, by the Trump and Brexit news frenzy. The FT said content revenues were almost two-thirds of total revenues in 2017, which is “double the share of five years ago”. It increased branded content revenues by 64% and continued to grow its global portfolio of events, business information, corporate education, research and consulting services.

CEO John Ridding said: “Despite the constant disruption in the media ecosystem, the Financial Times has had another strong year. The demand for our quality, independent journalism has never been greater and this business performance underlines the dynamism of our global business and brand.”

This unfamiliar optimism from a daily newspaper has been the mood music for a slew of industry awards for the FT and for its 13-year editor-in-chief Lionel Barber whose polarising anti-Brexit crusade has given it a greater prominence in stormy UK politics.

Understanding its audience

The FT was one of the first major daily newspapers single-mindedly to push readership revenues to compensate for the cataclysmic loss of advertising, using analytics exhaustively to understand what its audience wants, who’s reading what, when to charge and when to give content away for free. At the time of the Nikkei takeover, US news media guru Ken Doctor described the FT as “the best example of a journalism company that has seized the advantage of the digital age…and is really figuring out its customers. They’ve got more than three dozen people in analytics. They’re a knowledge farm as well as a publishing company. And putting those two together have put them in the forefront of global journalism.”

For almost five years, it has been measuring everything from the sign-up of trial users to the speed of its mobile site against the effect it will have on converting new subscribers and minimizing churn. Like Jeff Bezos at the Washington Post (and many others since), the FT found that slower web site loading speeds affect the amount people read as well as subscriber retention. By artificially slowing down the site for some readers, it managed to calculate precisely how much an increased page-load time affected engagement and retention.

But it is also working hard with newsletters and video including a substantial YouTube presence through which the FT is growing reach and referral traffic, where it can point the viewer to additional relevant text or video content through links to related articles. High-traffic videos tend to be those explaining dense topics, like blockchain or cryptocurrencies especially for female and younger audiences. It operates vertical channels on YouTube including FT Life, FT Transact, FT Industrial Tech, many of which are sponsored.

Like so many quality dailies, the FT’s readership has traditionally been 80% male and it is thinking more than most about how to fill the gap: “Women tend to use business publications and financial journalism as personal development and career networking tools. They want more of a catch-up product, something accessible when they’re commuting, that they have access to on demand. In general, women are more time-poor, and being time-sensitive was one of the principal barriers to having the time to read the FT or the news in general.” A new newsletter subtly aimed at women reportedly has the highest open rate of any FT newsletter but the publisher knows that is only the start.

The FT’s current experiment with many text stories being converted into audio illustrates how this hyperactive news brand is leaving no stone unturned in its search for more readers. Staffers say there’s no reason why all the FT’s 300 daily articles can’t, eventually, be converted into audio when users want to listen to them. And it is giving high school students around the world free web access, expansion of a scheme rolled-out previously through 1,400 UK schools and colleges.

A work in progress

So the Financial Times is in the early stages of proving that the success of print-centric news brands depends on consistent investment in technology, analytics, understanding the audience and meeting their requirements via print, online text, video, audio and events. In doing so – like its globally-focused counterpart the New York Times – the FT has substantially increased readership revenues and sharply reduced its dependence on advertising.

But it’s hard work. The FT’s trumpeted return to profit was an operating margin of only 2%, after years of losses. The global trends are, though, more reassuring. Almost 60% of revenues now come from outside the UK, compared with 45% just three years ago. But only time will tell whether the FT’s high subscription prices (now £754 a year for print-digital combined in the UK) are sustainable. The price is more than double that of the Wall Street Journal. Then there are the FT’s high costs which may partly reflect the rising price of being a worldwide digital player. It is, however, surprising that the company’s 1,300 headcount has been rising (not falling) for the past five years.

The FT – for all the plaudits – is still wrestling with the systemic challenges faced by newspaper brands everywhere:

The inexorable decline of print: Ironically, as quality newspapers condition their readers to pay more for print, publishers become more dependant (not less) on print profits. The FT – with print editions in the UK, Continental Europe, Asia and the US –  is a classic case. After five years of selling for £1 in the UK, the weekday newspaper is now priced at £2.70, having increased almost three-times in little more than 10 years. But newspapers still need all the advertising they can get, and some 50% of the FT’s 58k average weekday circulation in the UK and Ireland comprises “multiple” free copies distributed at airlines, rail stations and hotels – in order to boost ad revenue.

The success of the “FT Weekend” edition is even more telling. Its single-copy UK sales, at 62k, are almost three-times those of the weekday edition – at an audacious £3.90 cover price which has almost doubled in seven years. But the latest audit shows that, even this edition, with its advertising-packed magazine sections, is now padding its weekly circulation with 28k free copies. The FT Weekend has almost three-times the total revenue of all the newspaper’s UK weekday editions combined. More than that, this single weekly edition – devoted much more to leisure, personal finance and property than business – generates substantially all of the FT’s profit. It demonstrates that the Financial Times is actually more dependant than ever on a newspaper whose underlying copy sales decline is masked (and maybe even boosted) by aggressive pricing and all those free copies.

The eventual need to ‘unbundle’ content: Newspapers everywhere have eschewed the idea of allowing digital readers to pay only for the categories of content they actually want. Instead, the traditional ‘department store’ approach of the printed newspaper has been largely transported to digital media. For now. This bundling of digital content allows publishers to avoid the tough questions about the distinction between exclusive coverage (like columnists, data and opinions) and the (more or less) commoditised general news which is freely available elsewhere. This traditional business model obviously still supports whole newspaper companies. But, in the long run, it must become competitively unsustainable. For all the assumption that it largely publishes exclusive high-value, must-have news and information, even the FT could one day be disrupted by the trend towards the unbundling of content.

The FT sees itself as a global ‘total’ newspaper for people in business. That is the message of the two-section printed newspaper. The smaller second section is Companies & Markets, a good slice of which is padded with stock market prices, a legacy of times before they were freely available live and online. The FT is high-quality journalism and a serious contender in the ranks of news brands which cover everything-that-matters globally. But the pink newspaper has sacrificed some of its traditional (and, arguably, exclusive) territory as a commentator on the financial results of companies. Even disregarding the relatively small amount of space given to company results in print, the online coverage of quite significant businesses sometimes seems arbitrary. But that’s what you get when such ‘core’ content has to compete for space with world news events. The newspaper’s own PR even describes its transformation into “a multi-channel global news organisation”.

It leaves you to speculate about how much the FT will have to change its approach when readers everywhere are able to get into the habit (through some kind of intermediary channel or technology) of paying only for the categories of content they want and cannot get anywhere else. The FT may relish its long-term chances of competing with the New York Times, the Washington Post, The Times of London and – of course – the BBC, CNN and CNBC. But it might one day regret not being able also to depend on those readers who once relied on it principally for business and finance. That’s what Axel Springer (which bought the powering, digital-only Business Insider on the rebound from the FT) is surely hoping.

Printing profits

But that’s for another year. The FT in 2018 is a reminder that most newspaper companies still depend on print for their profits. Its assertion that “our print business continued to defy industry trends, seeing especially strong performances in the US and Europe” is a bitter-sweet reality. But it must push towards a sustainable future by continuously:

  • Building content that readers really can’t get anywhere else
  • Using data to deeply understand readers
  • Evolving continually in line with technology and reader appetites
  • Managing costs to cope with future price pressures

The 130-year-old Financial Times is a great newspaper and, unarguably, one of the most digital-savvy. It is fortunate to have been acquired by Nikkei, an employee-owned financial news company that’s even older, is solidly profitable, gently long-term, and will never be sold to private equity. Those may be the precious conditions that will allow the FT time to turn its investment into long-term success, despite the systemic challenges. But it’s a long journey that has only just begun.

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How Meredith upstaged Time Inc http://flashesandflames.com/2018/01/26/meredith-upstaged-time-inc-everyone-else/ http://flashesandflames.com/2018/01/26/meredith-upstaged-time-inc-everyone-else/#respond Fri, 26 Jan 2018 19:04:18 +0000 http://localhost:8888/?p=23943 MeredithWhile the British were founding the BBC and jailing Mahatma Gandhi, 1922 became a landmark year in magazines. Reader’s Digest was launched. Henry Luce and Briton Hadden left their jobs at the Baltimore Daily News to launch Time magazine. More than a 1,000 miles away in Des Moines, Iowa, farming publisher Edwin Meredith launched Fruit,...

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While the British were founding the BBC and jailing Mahatma Gandhi, 1922 became a landmark year in magazines. Reader’s Digest was launched. Henry Luce and Briton Hadden left their jobs at the Baltimore Daily News to launch Time magazine. More than a 1,000 miles away in Des Moines, Iowa, farming publisher Edwin Meredith launched Fruit, Garden and Home which – two years later – would become Better Homes & Gardens.

That was really the beginning of “The Magazine Century”, an era all but dominated by the successes and failures of Time Inc, the most famous publisher of all. From its long-time headquarters in Manhattan’s Rockefeller Plaza, the company prospered through the launch of hugely successful weeklies including Fortune, Sports Illustrated, People, Entertainment Weekly and Time itself. For more than 70 years it was the aristocracy of magazines and also the pioneering developer of pay movie channel HBO.

Then came the corporate drama.

It all started in 1990 with the Warner Communications merger. Ten years later, Time Warner rushed into a disastrous tech-frenzy merger with AOL. A year later, it splashed out $1.7bn for IPC Media in the UK. In 2014, Time Warner pushed Time Inc into an unwanted IPO.

Meanwhile, in the American mid-west, Meredith Corporation was quietly building a diversified media group across magazines, TV and digital media. It was worlds away from Rockefeller Plaza.

Once a colossus

In its heyday, Time Inc. was a publishing colossus, delivering weekly magazines to millions of people around the world. It influenced the way people digested news, sports, leisure and entertainment. The Warner merger certainly created America’s largest media company. But insiders remember just how the deal was driven not so much by a search for scale or synergy as by the fear of being taken over by Rupert Murdoch or Robert Maxwell. How times change. And it’s been downhill pretty much ever since, as Time Inc has continued to lose subscribers and advertising dollars. Periodic attempts by a succession of executives to reduce sky-high operating costs have – at every stage – been too little, too late.

Time Inc had revenues throughout the 1990s of more than $4bn – almost four times that of Meredith, which always had much lower costs. Even now, Meredith’s 4,000 people are not much more than 50% of the workforce of its gilded New York competitor whose $400m profits it matched for the first time in 2017. That was the year the Des Moines company made the biggest splash of all – by agreeing to acquire Time Inc for $2.8bn. Everything about the acquisition (due to complete in the next week or so), emphasises the stark differences between the two companies.

Time Inc’s biggest brands include People, Time, Fortune, Sports Illustrated, InStyle, Real Simple, Southern Living, Entertainment Weekly, Food & Wine, Travel + Leisure and a diverse portfolio of 50 magazines in the UK. It also organises headline-grabbing events like the Time 100, Fortune Most Powerful Women, People’s Sexiest Man Alive, Sports Illustrated’s Sportsperson of the Year, and the Food & Wine Classic, in Aspen. For all the sharp decline in profitability, Time Inc exudes power and prestige. Its whole reputation has been based on the clutch of major magazines that, even now, have circulations of 3m: Time, People, Sports Illustrated, and Southern Living. It claims a ‘social footprint’ of 250m followers. The corporate message seems to be: “Everyone knows us”.

Meanwhile in Des Moines

It’s all so different at Meredith, the 116-year-old under-stated, publicly-listed group whose claim to be “a media powerhouse” even seems to come with a smile. But its operations in local TV and in magazines-digital are serious. The company increased EBITDA profit to $369m in 2016-17, up 50% over the past four years on revenue that grew by 17% to $1.7bn.

The growth engine has been the TV group whose operating profit was up 36% on revenues increased by 15%. It comprises 17 local channels reaching more than 11% of US homes principally in the large, fast-growing markets of Atlanta, Phoenix, St. Louis and Portland, with digital and mobile media focused on news, sports, and weather. The rising heat of US politics – and its TV advertising – have been good for business. TV broadcasting, tellingly, last year accounted for 40% of Meredith revenue but 60% of all profits.

Even so, Meredith’s magazines and digital have fared much better than its competitors. It publishes more than 20 subscription magazines, including Better Homes & Gardens, Shape, Parents, Family Circle, Martha Stewart Living, Rachael Ray Every Day, FamilyFun, and Allrecipes, and nearly 140 special interest publications.

They reach 110m women every month, including more than 70% of US millennial women, second only to BuzzFeed and more than double the reach of The Food Network. Additionally, Meredith’s database of 125m individuals now represents 80% of U.S. homeowners.

Meredith’s largest magazine (by far) is Better Homes & Gardens (BHG) with a so-steady circulation of some 7.5m and a total readership of 40m. It has international editions in Australia, China, India, Russia, Italy, Ukraine and Turkey. The Better Homes & Gardens New Cook Book (known as the “Red Plaid”), first published in 1930, is now in its 15th edition and has sold some 40m copies. BHG currently has 190 books and 75 bookazines. It has 12m monthly uniques on digital and mobile media, gets 100m uniques for its video channel which publishes 500 videos every month, and its blogger network attracts 25m visits. For eight years, the company produced a US television program Better, with a mix of content from Meredith magazines. The BHG magazine licensee in Australia still produces a top-rated Better Homes & Gardens programme. But, for all the growth in digital, Meredith continues to find new growth in print.

It struck a partnership with the Magnolia home furnishing brand, to launch a magazine which became the company’s most successful launch, now selling more than 900k copies. Three years before, it had launched the 1.6m-circulation Allrecipes magazine to complement the digital service acquired from Reader’s Digest in 2012. Meredith has certainly had to pedal hard in order to achieve profit growth and revenue stability in a shrinking magazine market.

But Meredith is an unmistakably long-term business which has been digital for 20 years. It had some ironic good fortune in 1993 when massive regional flooding ruined its mainframe computer system. As a result, it was forced to acquire $400k of Mackintosh computers as part of Apple’s then new desktop publishing network. It moved into digital media ahead of the game. Its skills today are burnished by Meredith Xcelerated Marketing (MXM). Originally a custom magazine publisher, MXM is now a content-powered digital agency with some $100m revenue, 500 people and clients including Kraft Heinz, Bank of America, Volkswagen, NBC Universal,Allergan and TGI Fridays.

Branded success

It is easy to believe that Meredith has “beaten” Time Inc because it has been much better at making digital profits. Its earnings have held up while Time’s have been sliding inexorably. Insiders credit the success to former CFO Steve Lacy who joined Meredith 20 years ago and became CEO in 2006. During Lacey’s first 12 years, Time Inc has had five different CEOs. Inevitably, Meredith’s lifestyle “service” journalism has fared better than most areas of media content (especially news) and now there is a boom in food, fitness and home furnishing. And the company has – until now – stuck mainly to monthly subscription magazines, without exposure to the volatility of news-stand weeklies.

But, for magazine-media everywhere, the most interesting part of the story is the least well-known: brand licensing. At a time when magazines everywhere are fighting hard to bolster revenues with ‘brand extensions’, Meredith has quietly become a world-beater. It generates royalties through multiple long-term licensing agreements with retailers, manufacturers and service providers in the US and globally. It began way-back 25 years ago when the world’s largest retailer Walmart started to sell Better Homes & Gardens-branded products in its home-ware and garden centres. It was a speedy success. Today, Walmart stocks no fewer than 3,000 BHG products in more than 4,000 stores and online, in the US and also in Mexico and China. It is an amazing relationship.

Meredith also has a long-term agreements with Realogy Corp, which continues to develop Better Homes & Gardens Real Estate. The 10-year-old network now includes 300 offices and 11,000 agents across the US, Canada, and the Bahamas. Other licensing agreements include BHG floral arrangements with FTD.com, Shape active-wear and sunglasses for women, and the EatingWell branded line of “Better for You” frozen food dishes distributed by Bellisio Foods in 10,000 US grocers.

Products are marketed across Meredith’s media platforms, including magazines, online and television, and are frequently sold alongside its magazines and books. But no editorial content is used to sell the products.

Allrecipes coup

When Meredith bought Allrecipes, it launched branded cookware and a TV show. That acquisition was a real coup which doubled the company’s digital reach and established it as a world leader in digital food content. The finding that more than 50% of Allrecipes’ reader-users were ‘in store’ within 24 hours has fuelled the company’s burgeoning e-commerce operations. In addition to being the largest food digital in the US, it is also a strong player in 17 international markets which will, surely, propel further licensing growth.

Meredith-licensed products now account for a massive $23bn of retail sales  – which has doubled in the five years since buying Allrecipes. That makes the company second only to Disney ($57bn) as a global licensor, measured by LicenseGlobal magazine.

Meredith scrambles its reported earnings for brand licensing. But the “robust brand licensing activities” may generate some $100m of profit – almost two-thirds of all magazine-linked operating profit. It’s a far cry from the $5m of annual royalties it first earned from Walmart in the 1990s and underlines the strength of BHG as a 96-year-old magazine which now earns the majority of its profit from merchandising. Even after the Time Inc acquisition, brand licensing is expected to account for up to 10% of Meredith’s total profit.

Brand licensing by magazines still has a long way to grow. But,so far, Meredith’s rivals are billions behind. Playboy is said to have $1.5bn, Hearst $500m and Condé Nast $150m. It gives Meredith three strong (and growing) profit streams:

  1. Print, digital and e-commerce
  2. Local broadcasting
  3. Product licensing

The global swing towards streaming and online video will give the predominantly US company new opportunities to spread content across all media and internationally. Meredith is well-positioned with high-quality content, brands and retailer relationships. Its long-term growth record has given the investor ratings that have enabled it to swallow the much larger New York company. But many observers wonder why (or whether) it would ever have wanted to acquire the whole of the Time Inc portfolio. And, of course, it didn’t.

Meredith is taking on serious debt and is borrowing $3.6bn from an assortment of lenders, including the very-political brothers Charles and David Koch who are assumed to have agreed to buy Time, Fortune and Sports Illustrated. These are the legendary but digitally-threatened magazines that, in an earlier negotiation with Time Warner, Meredith was determined not to acquire. If not Koch, perhaps Rupert Murdoch’s News Corp or, perhaps, a series of individual owners is waiting in the wings to buy these media trophies? Perversely, nobody is speculating about People. The celebrity magazine is highly successful but – again – miles from Meredith’s track record.

What next?

Time Inc certainly has some magazine and digital brands squarely in Meredith’s space, including Real Simple, Travel & Leisure, Food & Wine, ExtraCrispy, My Recipes, Health, Southern Living, and Money. The deal will make it the no.1 magazine-media company in food and lifestyle, with 10bn video views a year, and 174m monthly uniques – almost 70% ahead of Hearst. In 2016, Meredith-Time would have generated EBITDA profit of $800m from revenue of $4.8bn – before the $400-500m of cost and job savings that have been promised to investors. Those ‘synergies’ underline the undoubted potential in dismantling Time Inc but also the scale of the task Meredith is taking on.

The sheer level of those cost-saving targets are scaring Time Inc’s 7,500 employees. But the company’s UK teams are being rattled by the separate six-month process which was meant to have ended in a private equity buy-out before now. Ironically, some of the UK magazines would fit well with Meredith, although there are others (in TV listings and women’s weeklies) that it would not want. It is assumed, however, that the protracted UK deal will eventually be signed – and will save Meredith from having to sort out yet more of the historic mess of Time Inc. They’ve got quite enough to do in the US.

The real promise of Meredith-Time is that it will produce market-leading women’s print and digital media and create the opportunity for another leap in product licensing revenues. Meredith executives were appetised by Time Inc’s outgoing CEO Rich Battista, who said in his last annual report: “We believe brand licensing is an area with large-scale potential. Two of our larger licensing programs are Real Simple’s partnership with Bed, Bath & Beyond, where we currently have hundreds of products, and our partnership with Dillard’s, which carries a line of Southern Living products. We intend to focus more closely on this potentially high-margin area, particularly by pursuing opportunities across more of our brands.”

That is the hidden potential of this stretching acquisition.

The air in Des Moines is thick with excited talk of the “transformative deal”, even though the sheer diversity of Time Inc sits uneasily with Meredith’s long-standing claim that “Our cornerstone is knowledge and understanding of the home and family market.”

Steve Lacy and his team have no need to be dazzled by taking over some of America’s best-known magazines because – in Better Homes & Gardens – they already own the country’s most profitable one. And their global leadership in retail licensing says it all.

In a year when media consolidation will never be far from the minds of investors and executives alike, competitors will be watching Meredith closely. If the quiet achievers from Iowa really can unlock the digital and retail riches of Time Inc, there will be plenty of other candidates for consolidation. Could Hearst, whose magazine-media is now a challenged mid-portfolio operation, be motivated to merge its magazines with those of frenemy and sometime partner Condé Nast?

If Meredith-Time makes it, even Condé-Hearst could be a cake-walk.

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What now for ‘world’s biggest’ magazine? http://flashesandflames.com/2017/12/30/now-worlds-biggest-magazine-brand/ http://flashesandflames.com/2017/12/30/now-worlds-biggest-magazine-brand/#respond Sat, 30 Dec 2017 19:13:03 +0000 http://localhost:8888/?p=23223 Cosmopolitan MagazineTwenty-one years ago, the world’s most successful magazine editor stepped down. In a dazzling 32-year reign, Helen Gurley Brown had transformed the pre-internet fortunes of Cosmopolitan and its publisher, the Hearst Corporation. It was a stunning second career for the former advertising copywriter who had written the 1962 bestseller “Sex and the Single Girl”. She...

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Twenty-one years ago, the world’s most successful magazine editor stepped down. In a dazzling 32-year reign, Helen Gurley Brown had transformed the pre-internet fortunes of Cosmopolitan and its publisher, the Hearst Corporation. It was a stunning second career for the former advertising copywriter who had written the 1962 bestseller “Sex and the Single Girl”. She had no journalistic experience when she pitched her idea of a new-style young women’s magazine to Hearst. You can imagine the rolling eyes as the 43-year-old Brown told the buttoned-up group of grey-haired executive men: “Before I wrote my book, the thought was that sex was for men and women only caved in to please men. But I wrote what I knew to be true—that sex is pleasurable for both women and men.”

Her vision morphed into a plan to turn the 80-year-old former literary magazine Cosmopolitan upside down and pick up where her book left off. It was a radical idea for the magazine then best known for its family-oriented novels and short stories. Like many general interest publications, it had suffered from the 1950s growth in TV audiences and advertising revenue that marked America’s consumer boom.

Once so profitable

The old Cosmopolitan had once been super-profitable, with a circulation of 1.7m and $5m of advertising back in the 1930s. It had even branched out into Hollywood movies. Those were the halcyon days when the intensely-political Randolph Hearst made more profit from his magazines than from his infamous newspapers. He had bought Cosmopolitan for $400k in 1904.

But the early-century success, when Mark Twain, Somerset Maugham and H.G. Wells were regular contributors, was worlds away in 1964 – 13 years after the founder’s death. The legendary magazine was now losing $1.5m a year and circulation had dipped below 800k, the lowest in half a century. Symbolically, even as Brown was lobbying Hearst’s sceptical CEO Richard Berlin and his colleagues, Cosmopolitan was being shunted from Hearst’s New York headquarters to rented space above a car showroom, to make way for more successful magazines.

So, unbeknown to Brown, her revolutionary vision for a “new” Cosmopolitan actually became the company’s only realistic alternative to closing the magazine altogether. But she still had to fight for her plan to turn it into a publication that spoke to the changing attitudes and appetites of young women. It would be a magazine for people like her: women with strong desires for men, independence, sex and equality. No mention of families or children.

In July 1965, Helen Gurley Brown became editor-in-chief of Cosmopolitan – and launched it into publishing history.

Taking over what had been a magazine stuffed with novellas and book-length novels, she had a clear view of how television drama and inexpensive paperbacks had replaced magazines in meeting the fiction needs of most Americans. She also knew how to capture the hearts and minds of readers with “How to Make Good at the Beach”, “How Girls Really Get Husbands”, “The Ostentatious Orgasm”. The magazine instantly set itself apart by discussing sexuality upfront for women who could and should enjoy sex without guilt. Her first issue in July 1965, featured an article on the contraceptive pill (“Oh, What a Lovely Pill!”) which had become freely available five years before.

An instant hit

The “new” magazine was an instant hit. Just three years later, copy sales were up 50% to more than 1m, and advertising had doubled to 64 pages per month on the way to more than triple that within 20 years. What had been America’s biggest loss-maker was on the way to becoming its most profitable magazine ever. It quickly became Hearst’s biggest earner, tapping into an America which had seen an 80% rise in single households, mostly in cities.

By 1972, Brown had more than doubled the circulation – from 780k to 1.7m. What spoke loudest to her anxious bosses, though, was the way that advertisers too became captivated by the magazine’s ground-breaking content. Ad revenues rose spectacularly from $60k to $430k per month in that first seven years. She was Cosmo’s tireless, workaholic, across-all-the-detail editor-in-chief, tripling the monthly magazine to 300-400 pages. Total advertising revenues leapt from $600k in 1964 to $3m in 1969, $9m in 1974 and $48m in 1985. Its average advertising yield was said to be 10% above traditional women’s magazines as advertisers paid a premium to reach the highly-valued readership. Ad pages soared from 354 in 1965 to 2,300 twenty years later.

Cosmopolitan’s dynamism was cemented by the way it became one of the few US monthlies to generate the majority of its circulation through single-copy sales on news-stands. It emphasised the way that Cosmopolitan had become a personal (and badge-wearing) purchase for the fast-growing group of working young women in an era when most US magazines were delivered to family homes with the mail. Copy sales had reached 2.5m by 1976. Ten years later, they were 3m. All this for a magazine whose cover price had increased by 50% (from 50 to 75 cents) in Helen Brown’s first five years. The news stand sales created huge momentum and profits at the start of what became a 30-year, pre-digital golden age for magazines everywhere.

Few magazines have ever been as closely identified with a single editor-in-chief as Cosmopolitan was with the woman who became known as “HBG”. But, despite its obvious success, the seeming obsession with sex provoked consistent opposition including from young Hearst family shareholders, politicians and even feminist organisations.

Brown mixed humour with serious advice and tub-thumping as she told readers “Good girls go to heaven, bad girls go everywhere”. She was unapologetic about her own brand of sexy-feminism: “Cosmo is feminist in that we believe women are just as smart and capable as men and can achieve anything they want. But it also acknowledges that, while work is important, men are too. The Cosmo girl absolutely loves men!”

Millions of readers identified with her controversial encouragement of women to use both brains and sex to make it to the top. She told them over and over again: “A job is where the money, the success, and the clout come from. It doesn’t matter where you start, what matters is starting and hanging in.” She spoke from the heart: “I’ve never worked anywhere without being sexually involved with somebody in the office.”

But Brown always had to contend with Hearst executives who were constantly on edge over what they saw as the risqué content – even after Cosmopolitan had become their most profitable magazine. Brown’s 1972 decision to introduce a male nude centre-fold gave them sleepless nights. But their own Esquire magazine understood it better: “If, at times, Helen Gurley Brown and her magazine are offensive, it is only because almost every popular success is offensive. She is demonstrating, rather forcefully, that there are over 1 million American women who are willing to spend 60 cents to read not about politics, not about the female-liberation movement, not about the war in Vietnam, but merely about how to get a man.” The Times of London described Cosmo as “bigger than a magazine… a brand, an empire, a state of mind”. And the money kept rolling in.

Going global

In 1972, the magazine went global. While Hearst had had a magazine business in Britain for decades, the company’s decision to launch Cosmopolitan in London kicked off a determined campaign to internationalise its magazines. The first UK edition sold-out its 350k copies at 20p. And the following year, it launched in Australia on the way to a sprawling international network which peaked at 65 magazines.

In 1997, at the age of 75, HBG was forced to step back from the US magazine, instead, to become editor-in-chief and cheer-leader of the international editions and their editors. She made the most of her almost “advisory” role and left it to her friends publicly to lament the decision to push her upstairs, ending a reign which had begun before most of her readers were born. With circulation of 2.5m and annual US profits of $50m, US newspaper columnist (and former Cosmo staffer) Liz Smith said: ”It wasn’t broke; why did they try to fix it? This woman is a legend. I think the Hearsts are nuts.”

But, nine years later, Frank Bennack, Hearst’s most successful chief executive and only the fourth since the founder’s death, set the record straight. He described the company’s new Manhattan headquarters – brilliantly built on top of Randolph Hearst’s Art Deco building at a cost of $500m – as having been paid for by Helen Gurley Brown. It was not really a joke: ‘her’ magazine had made some $1.5bn of profit for Hearst in the 42 years since it had been ignominiously moved it out of the headquarters. Now, it was the company’s flagship, with pride of place on the 38th floor of the Norman Foster-designed Hearst Tower – and tens of millions of worldwide readers.

The first ‘billionairess’

Brown had finally been recognised as Hearst Corp’s first “billionairess”. As Bennack said when she died in 2012, aged 90: “Helen Gurley Brown was an icon. Her formula for honest and straightforward advice about relationships, career and beauty revolutionized the magazine industry. She lived every day of her life to the fullest and will always be remembered as the quintessential ‘Cosmo girl.’”

Cosmopolitan had become not just Hearst’s most successful magazine, often making more profit than the dozen or so other magazines combined, but also the engine of corporate growth. Its profits helped to fund the investments in TV, digital and business information which would propel the media group into the future.

The magazine’s US copy sales grew every year before peaking at 3m in 1983 and then levelling off at 2.5m. In 1996 – the year before Helen Brown stepped down – its US advertising revenue was $156m. But that was only part of the story. Cosmopolitan also became, arguably, the first global magazine brand, published all over the world in dozens of languages.

A few of its international editions (like the UK) were wholly-owned but most were published either in joint ventures or under licence to local publishers in countries large and small. The international partners were able to benefit from the Cosmopolitan brand, high-quality photography and content, and international advertising deals especially with fashion and cosmetics companies. It was an international licensing model which had been pioneered more gingerly by Conde Nast’s Vogue right from the early decades of the twentieth century. But Hearst’s famously light-touch management powered the Cosmo expansion in the 1990s to make it a global brand, alongside hundreds of editions of sister magazines including Good Housekeeping, Esquire, Harper’s Bazaar and Elle. In 2005, its advertising-packed Russian edition became the country’s first international women’s magazine in the post-Soviet era, with a circulation that quickly reached 1m.

Good partners

In some ways, the magazine’s international success mirrored Hearst’s easy approach to partnerships, alliances and joint ventures that would characterise its expansion across all media. Diverse partnerships with the likes of Disney, Oprah Winfrey, Verizon, Gruner & Jahr and Scripps have helped to define the modern Hearst Corporation.

Cosmopolitan still has a global audience of 120m across print, digital and social platforms. It is published in 56 countries and 26 languages, including two digital-only editions in Japan and Taiwan, and has almost 80m monthly uniques and 49m followers on social media. It’s heady stuff but profits of the legendary magazine (like most others) are now shrinking, as illustrated by fading fortunes in its first three countries:

US: The engine of Helen Gurley Brown’s success was the news-stand. It gave her ultra-quick sales growth and – equally important – the high-margin profits denied to most other American magazines. Indeed, for Hearst, it felt like the return to earlier times before low-price TV promotion, postage and subscriptions helped scale-up magazine advertising revenues throughout the US. Low-cost subscriptions of many magazines have since been used to sustain a “rate base” and the chase for advertising. This is clear enough with Cosmopolitan whose advertising in 2008-13 fell by 22% to 1,400 pages. (source: Statista). The US magazine’s news-stand sales have collapsed from 1.6m (53% of the total circulation) in 2010 to just 227k (8%) in 2017 (source: Alliance for Audited Media). The consistent rate base of 3m during the past seven years clearly only tells part of the story. Beyond the public statistics are the ways that the decline of Cosmopolitan is revealed by Hearst’s own management. In his annual letter to staff last month, Hearst Magazines’ president David Carey’s only mention of Cosmopolitan was to record that the company had “re-acquired” its tiny edition in Spain. Even the bold claims about Hearst’s explosive SnapChat scores failed to mention Cosmo whose 3m+ daily views had started it all. The Cosmo-free manifesto came after Hearst Corp’s CEO Steve Swartz (who succeeded Bennack in 2013) had noted that Hearst Magazines (still delivering more than $200m of profit) “needs more change”. He hoped the magazines division – once all about Cosmopolitan’s own profit – would get “a shot in the arm” from the $230m acquisition of the Rodale portfolio including Men’s Health, Runner’s World, and Prevention. Again, no mention of Cosmo among the comments on magazine success. To reinforce the point, the headline-grabbing Cosmopolitan 100 annual luncheon of power women in New York was renamed the Hearst 100.

UK: The Hearst insiders who commented on their bosses’ Cosmo-free annual letters also latched onto Swartz’s assertion that Hearst magazines “need readers to pay more for the product”. Perhaps that is why the company’s executives are much less inclined now to boast about the claimed progress of Cosmo’s UK edition. Just 18 months ago, Hearst UK was trumpeting a 60% increase in circulation for its revamped magazine “smashing the overall trend of decline for monthly women’s magazines”. But, like so much of the try-hard euphoria in disrupted media, it was not even half the story. In the decade up to 2014, the magazine had declined even faster than its peers among glossy women’s monthlies: circulation almost halved from some 450k to 250k. The radical ‘turnround’ plan was to reduce the cover price from £3.80 to just £1 and then to pump out up to 100k free copies to health clubs, shopping centres, universities and travel outlets, a process described artfully as ‘dynamic distribution’. The result was a return to an audited circulation of more than 400k, but a reduction in copy sales revenue of more than £4m – a lot to make up in a declining advertising market. In the event, the magazine has succeeded in killing off (in print anyway) its close competitor, Conde Nast’s Glamour. But it has, perhaps, also ensured its own unending losses. A bitter pill after 45 years of publishing in the UK.

Australia: The Sydney-based edition is an interesting history. It was launched in 1973, a few months after media titan Kerry Packer pre-empted it with a new competitor, Cleo, after Hearst had snubbed him and granted the Cosmo licence to a rival. Ultimately, Hearst was forced to accept Packer after he bought Cosmo Australia, which he continued to publish alongside Cleo. Awkward. The Aussie relationship was eased, though, by Cosmo copy sales that reached an amazing 300k – greater market penetration and also better profit margins than in either the US or UK. But it all came crashing down in 2016 when the Aussie circulation fell to just 43k – 75% down on the previous year. The upshot was the unravelling of the joint venture with Bauer, which had bought the former Packer magazines group for an over-the-top A$500m in 2012. Hearst was forced expensively to compensate the German publisher so it could switch the Aussie edition of Cosmo from a 50:50 JV into a no-risk licence.

Going down

Those are the creaking realities of the world’s biggest magazine brand. It’s a long way from the 1960s when Cosmopolitan dominated the agenda of its readers with original content and a style all of its own. That’s why its current challenges are so instructive for a magazine market now being crunched by falling revenues and readership.

In a world where there is more media than consumers have time to consume and more places to put advertising than there is advertising, the Cosmo disruption is far from self-inflicted. But print media everywhere is certainly paying the price for over-estimating its value to readers and simply not understanding the extent to which many have become mere aggregators of content that is either more freely available or not highly-valued anyway. Digital services, starting from iTunes, have conditioned media consumers to pay only for what they actually want, rather than mixed-up bundles of content that most suit the provider.

As with newspapers, magazine readers increasingly value only distinctive and exclusive content. This will drive advertiser polarisation towards the extremes of either mass market or specialist, targeted media. Many mid-size media brands will be squeezed. That – rather than technology – is why so much online content will never be profitable. Traditional media must face up to the reality that their heritage may give them few in-built advantages in the digital era. It’s a case for reinvention not for aimlessly transferring printed content to the wide-open web. The sheer level of digital competition will inevitably shrink the profits even of relatively durable magazine businesses.

Digital split

The $11m-revenue Hearst Corp, which has long since ceased to be dependent on print, has a clear view of the trials of legacy media and has the strategic patience of a private company. Three years ago, Hearst Magazines re-located its digital developments to a separate New York building under its own disruptor Troy Young, who had become global president of Hearst Digital Media in 2013.

Young, who was previously president of tech and advertising firm Say Media, created a new digital team for each magazine, with the site editors reporting to him, not to the magazine editors-in-chief. You can imagine the gnashing of teeth. Ahead of most of Hearst’s publishing rivals, he also built an impressive unified content management, ad sales and data analytics platform. This facilitates content sharing and also the creation of new multi-source products and services. Recently, Hearst opened a 26,000 sq ft video and multimedia studio. It is notable that the content of the so-slick web sites (like Cosmo’s) little resembles that of the printed magazines. Troy Young predicts that a full 50% of all Hearst Magazines’ content will soon be video, 30% already is.

For all the big-scoring web initiatives (15bn video views last year, for example), Hearst’s digital people would argue that, in many cases, they could do just as well by creating new pure-play brands with none of the baggage of print, and they have started to prove that with digital-only brands Sweet on SnapChat, and the hugely successful Delish recipes. The fact that Hearst Digital Media has reportedly been profitable for three years serves only to underline the systemic problems of the print-based Cosmopolitan magazine:

  1. Many of the international editions are now losing money or close to it. The UK’s apparent swing towards eventually being a free magazine is unconvincing. Its new emphasis on events is interesting, even if some seem suspiciously like camouflage for the magazine’s ‘dynamic distribution’ (free circulation). Insiders suggest the US magazine will eventually be the only profitable version of Cosmopolitan. Hearst UK has been saying it wants to generate 20% of its revenue from product licensing, compared with 5% currently. But, for all the diversification into licensed merchandise like cars, lingerie, hosiery, bags, swimwear, bedding, soft furnishings and eyewear ranges, books and events, the brand’s long-term success will depend on its media. In disrupted times, it is logical that Cosmo bosses should encourage scatter-gun diversification, but it risks distracting them from the task of reinventing the indispensable core business.
  2. The Cosmo brand has always been a bit confused, not least by publishing editions in all kinds of countries, many of which are less tolerant of the magazine’s trademark sexual content. But the challenges of the brand might best be illustrated by its star UK editor Farrah Storr who says: “Sex is not just what this brand is anymore.” She has banished all those cover lines on “100 ways to get an orgasm”. Try telling that to the US team whose cover this month is awash with “Sex that rocks” and “Sex toys for him”.This emphasis on sex has long been a live debate for Cosmo publishers who, for example, use the word ‘love’ (rather than sex) on the web site’s top page, not least to placate the cosmetics advertisers on which the magazine depends. Further, the feminists who were always uneasily critical of HBG’s upfront approach to sex, might be more decisive at a time when such content is, well, almost everywhere on the web. Cosmo’s recent strategic response in the US and UK has been to get political. But the whole idea of backing election candidates in diverse countries creates obvious risks to the brand. Closer to home, Victoria Hearst (grand-daughter of the Hearst founder) has been leading long-standing campaigns to get retailers to cover-up displays of what she describes as a “pornographic” magazine, and to stop selling it to under 18s. It’s a recurrent theme that now stings a little more.
  3. If you want another little measure of how difficult it will be to rebuild Cosmopolitan more broadly in a post-magazine world, just Google it. You will get an unrelated Las Vegas casino, some restaurants and hotels, and a popular cocktail among the listings. It highlights the challenges for a brand which was once content with its role only as a printed magazine.

But Cosmopolitan can be fixed. It is still a strong media brand. Its future must be in the provision of practical information, entertainment, e-commerce, and self-improvement through the whole range of digital services, events, and packaged digital (and even print) information. However, the list emphasises the need now to turn upside-down a magazines division that, like so many others, remains dominated by the shrinking world of print.

Hearst Corp is one of the world’s largest diversified media groups and generates profits of more than $1bn. Its rising success signals a determination now to turn its magazine brands into strong future-proofed businesses. Perhaps the clue comes again from CEO Swartz who is calling for Hearst Magazines to be “re-set”. Some insiders believe that this pressure to cut traditional costs and start magazine brands growing again will lead the company now to reinvent its brands as “digital first” so that print becomes an ancillary service – after a century of being the only thing that mattered. Nothing now seems so logical as to anticipate a world where, in so many cases, printed magazines will become (more or less) the ‘content marketing’ for expansive digital and retail brands. Hearst’s 2013 decision to separate digital from print was key to creating the skills and resources necessary to create competitive new businesses. Now, there is an even better reason to bring them back together – under fresh-thinking digital management. They should start with Cosmopolitan.

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Forget Oscars, here are ‘The Dinkies’ http://flashesandflames.com/2017/12/22/forget-oscars-come-dinkies/ http://flashesandflames.com/2017/12/22/forget-oscars-come-dinkies/#respond Fri, 22 Dec 2017 14:32:16 +0000 http://localhost:8888/?p=23207 Welcome to the first ‘digital-from-ink’ awards (“The Dinkies”), to recognise the successful transformation of primarily consumer print-centric companies. The first winners are three long-established companies from Europe and the US which started life as newspaper publishers. They have all succeeded in stabilising their traditional media brands while creating expansive digital operations beyond their home markets....

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Welcome to the first ‘digital-from-ink’ awards (“The Dinkies”), to recognise the successful transformation of primarily consumer print-centric companies. The first winners are three long-established companies from Europe and the US which started life as newspaper publishers. They have all succeeded in stabilising their traditional media brands while creating expansive digital operations beyond their home markets. All are growing strongly at a time when many of their peers are still in shock.

The Gold Dinky for “Reinventing the traditional news business”
Winner: Axel Springer

In 2009, the Berlin-based Axel Springer (best known for the racy 65-year-old tabloid Bild, that has long been Europe’s bestseller) seemed like any other troubled newspaper group. That year, it suffered a 40% cut in profits. Even strong digital growth could not stop the rot. But, within five years, almost everything had changed. In the following five years to 2014, revenues increased by 50% and profit by 90%, with margins steady at 17%. It was just the start.

Fast forward to 2017 and EBITDA profit of €473m increased by 13% in the first nine months, with a profit margin of 18%. The performance is turbocharged by increasingly sophisticated digital classifieds which have, crucially, helped Springer become the disruptor in international markets (including the UK, France, Israel and South Africa) where it has no traditional media to defend. But

Döpfner: Axel Springer’s golden CEO

its German classifieds are also achieving double-digit growth. Digital revenue now accounts for 71% of revenues (87% of all advertising) and 77% of profit. Some 49% of revenues are generated outside Germany, and the company is a significant investor in digital ventures in the US and Europe. In less than 10 years, Axel Springer has become truly digital and global.

This is not how it’s meant to be for a company still best known for the newspapers Bild and Die Welt and which, 16 years ago, had been dismissed as “an internet midget” by the Financial Times.

The transformation has been wrought by an impressive and remarkably stable team led by former journalist Mathias Döpfner who became CEO in 2002. It had been 15 years since the eponymous founder’s death had ushered in a succession of bosses and disastrous strategies. Döpfner was an unlikely saviour. Having studied musicology, literature and theatre science in Frankfurt and Boston, the 6ft 7 inch-tall editor had begun his career in 1982 as the music critic of the Frankfurter Allgemeine Zeitung. After working as a news correspondent in Brussels and also as manager of a classical concert agency, he moved to Gruner + Jahr magazines in 1992.

Four years later, he became editor-in-chief of the tabloid Hamburger Morgenpost. In 1998, he joined Axel Springer as editor-in-chief of Die Welt, its prestigious – but seldom profitable – national daily. He sharply reduced its losses. Within four years, the seemingly unambitious Döpfner was fast-tracked into the Springer senior management. He became CEO at age 38, not much more than half the age of his predecessor. It was the year after the company had run up trading losses of €200m. He set about cutting costs and, in 2004, managed to increase profits by 23%. He also rid the company of its hostile 40% shareholder, the former TV entrepreneur Leo Kirch, and restored the Springer family’s majority holding.

Döpfner has worked and studied in the US, is a non-executive director of Time Warner, Warner Music, and Vodafone, has won leadership awards in the United States and at the World Economic Forum in Davos, and has lectured at Oxford University. The. breadth of his experience has clearly helped him internationalise a traditional media business that, for its first 45 years, was exclusively German in language, culture and revenue – and totally print.

But the 71-year-old, family-controlled public company retains an idealistic, almost old-fashioned vision: “The soul and spirit of Axel Springer is journalism. We serve our readers with independent and critical information and advice as well as good entertainment. Through our media offerings, we are making a contribution to the strengthening of freedom and democracy.”

In this respect, the true scale of Springer’s achievements may be gauged by the fact that its news media (principally the two German newspapers and – internationally – Business Insider, eMarketer, Politico Europe, and news aggregator Upday) account for 45% of revenues and 6% of profit. US-based Business Insider (to be renamed ‘Insider’ from next month) was acquired for a heady $442m in 2015 and is now growing worldwide revenue by 45% a year. The 9-year-old “online newspaper” has editions in the UK, Australia, China, Germany, France, India, Italy, Indonesia, Japan, Malaysia, Netherlands, Nordics, Poland, Spain and Singapore, many with local partners. The achievement of its forecast breakeven in 2018 seems likely to endorse the Springer reputation for successful growth through major acquisition as well as organically. It will encourage even bigger deals internationally.

This €7bn company and its conservative-revolutionary CEO Mathias Döpfner are the global stars among publishers seeking to escape their inky past and compete in the turbulent world of 21st century news, information and entertainment. They are living the dream of newspaper-centric businesses everywhere.

Axel Springer is the first winner.

The Silver Dinky: Schibsted

The Oslo-based company, whose newspapers Verdens Gang (VG) and Aftenposten have long been dominant in Norway and Sweden, is the global media success few could have predicted. Schibsted has been a public company since 1989 but its independence is protected by a family trust which remains the largest shareholder.

These past 10 years, the 178-year-old company has dazzled its peers by gutsily using its newspaper platform to a build a world-class and worldwide digital business. It has moved fast to strengthen its existing businesses and faster still to launch new ones. The strategy has been crafted by Rolv Erik Ryssdal who became CEO in 2009, having managed many parts of the business over the previous 18 years.

Schibsted’s visionary CEO Ryssdal

Schibsted was, arguably, the first significant newspaper company to realise the potential of becoming the digital disruptor in markets where it had no legacy business to defend – ahead of Axel Springer which has a much broader global strategy.

Schibsted now employs 7,300 people in 30 countries across three continents through its technology-rich digital classifieds. It reaches 85% of the population in Scandinavia every week. In France, Leboncoin is the 3rd largest site after Google and Facebook. It operates many of the leading classifieds sites in Spain, Sweden, Norway, France, Italy, Hungary, Portugal, Ireland, Tunisia and Morocco. It owns Yapo, the digital classified leader in Chile, 50% of OLX, its counterpart in Brazil, and has growing digital operations in Mexico, the Dominican Republic and Colombia. It also jointly owns the 20 Minutes free newspapers in Switzerland, France and Spain. It invests widely in digital startups and operates a highly-successful incubator in Oslo. It recently acquired Kickback, the fast-growing retail awards and e-commerce operation in which it first invested four years ago.

Schibsted grew revenue by 6% and profit by 19% during 2013-16, as Ryssdal’s transformation took hold. Last year, it increased revenue by 13%, with operating profit margins reaching 19%. More than 70% is now digital revenue, and digital classifieds (which account for 40% of revenues and 89% of profit) grew by 17% in the first quarter this year.

The vitality of the €5bn Schibsted can be gauged by two recent successes:

  • Shpock (“shop in your pocket”), the ‘flea market app’, has more than tripled to 41m downloads and 12m active monthly users in the past 18 months, principally in Austria, Germany, Italy, the UK, Norway and Sweden. It is on the way to becoming a serious challenger for eBay. One UK user described Shpock this month as “a cheap alternative to selling with eBay, with some modern functionality to boot.” It certainly seems to be gaining ground almost everywhere.
  • The VG web-TV news channel, launched in 2013 by the VG Norwegian tabloid, now claims an audience of 420k daily unique viewers and more than 25m video stream starts per month on its own platform. VGTV is getting almost 1m video views – in Norway, which has a population of only 5m. VGTV, which now has 70 employees, scored $10m in revenue in 2016 and is running almost 50% ahead this year. In March, its advertising beat VG’s print revenues for the first time. This increasingly effective monetisation of TV-like online video news looks like a perfect role model for media groups everywhere. Especially those, like Schibsted, which realise that the success has been turbocharged by its separation from the newspaper which spawned it. It is clear that online news services like this (and also Scripps’ Newsy in the US) could grow hugely in tandem with video streaming. Given the broadcast profits of CNN and Fox News, there is a lot to go for.

The Schibsted boss says:”We aim to be a global leader in online classified marketplaces and offer the best solutions and services for our users.” And the company’s traditional publishing activities are growing again. This year, it has achieved 600,000 newspaper subscribers for the first time. VG has grown revenue by 7% and has a profit margin of 20%. Print still works.

The Bronze Dinky: Hearst

Hearst can claim to be the world’s first media company. It was created 130 years ago in 1887 when (William) Randolph Hearst transformed his single San Francisco newspaper into a media group with the acquisition of newspapers, magazines and pioneering movie and newsreel productions. Sixty-six years after his death (and long after Hearst’s yellow journalism and infamous political propaganda have been forgotten), his company has become a post-digital role model with more than 360 businesses and 20,000 employees in 130 countries.

The $10.8bn-revenue Hearst is one of America’s largest private companies and among the world’s largest diversified media, information and services companies. Its major interests include cable television

Swartz: Hearst expanding on all fronts

networks such as A+E and ESPN; 80% ownership of global ratings agency Fitch Group; medical information and services; 30 television stations such as WCVB-TV in Boston and KCRA-TV in Sacramento, Calif., which reach almost 20% of US viewers; newspapers such as the Houston Chronicle, San Francisco Chronicle and Albany Times Union; 300 magazines around the world including Cosmopolitan, Elle, Harper’s Bazaar, and Car & Driver; digital businesses such as iCrossing and Kubra; and investments in emerging digital companies such as Complex and AwesomenessTV.

From being a company once known primarily for its newspapers and magazines, Hearst now makes far more profit from its fast-growing B2B information companies. It generates high-value data, analytics and software for the healthcare, finance and transport industries and utilities around the world. Its largest majority-owned company Fitch is its best performer. B2B now accounts for 28% of all Hearst profits – which has tripled in the past decade. B2B investments – and their profit growth – have accelerated strongly since the 2013 appointment as CEO of former financial journalist Steve Swartz. He succeeded the quietly brilliant Frank Bennack, measurably the company’s most successful CEO. But Hearst continues to thrive on a culture of innovation, even-handed partnerships, and strategic patience right across its diverse portfolio. As Swartz says “We are fortunate to be in a host of different media sectors in all different stages of taking on disruptive forces, and those that have been in the battle the longest offer constructive and quite optimistic lessons for those businesses that are newer to the fight.”

It is clear, in Hearst as elsewhere, that magazines are under real pressure, not least because readers are increasingly reluctant to pay real money for them. And the once-easy profit in international editions has declined sharply. In the six years since (early on in his job) Hearst Magazines’ president David Carey paid a dizzy $650m for the worldwide Elle magazine business, he had watched much of the parent company’s recent investment cash going into TV, digital pure-play and B2B data. That was until – pow! – he persuaded the family owners to stump up $230m for the inspired but tired Rodale portfolio of global health and fitness media. Millions more have been invested in a 26,000 sq ft complex of six state-of-the-art multimedia production studios in New York to help grow Hearst’s current 150 videos per week across all magazine brands.

These are further steps in the full-throated digitalisation of Hearst’s famous magazine brands which had started with the separate location of digital from print, a deliberate decision to recruit and develop new skills and make them fully accountable. This non-print adventure has scored some notable digital-only success, for example with Delish recipes which have amassed more than 500m monthly video views in under two years. One of its video hits on “whisky-soaked pickles” has had 11m views since being posted to Facebook in September. Carey says: “We are not afraid to try new things, in print and in digital, recognizing that not all will succeed.” He reported a combined 95m monthly uniques in October, 15bn video views across 2017 and 143m social media followers, reflecting substantial year-on-year increases. Digital revenues have been growing at something like 40% for the past few years and have reportedly made the fledgling operations solidly profitable.

But Hearst still makes more of its profit from broadcasting than anything else, which includes substantial earnings from shareholdings in businesses managed by its hand-picked partners. Its long-established A+E Networks JV with Disney has the cable TV channels A+E, History, Lifetime, Crime & Investigation, Biography, and the new Viceland.

These highly profitable TV interests have often been dwarfed, though, by Hearst’s 20% share of the Disney-controlled ESPN, long the world’s most successful sports cable network. Over the past 25 years, ESPN has thrown off huge amounts of cash for its owners, although it is now under pressure from competition over sports rights and from the Netflix-charged online TV revolution. Some years, ESPN has probably generated 50% of Hearst’s total profit but the company is now more strongly diversified – and more profitable.

As Hearst tirelessly searches for new businesses that can transform corporate profitability like magazines and cable TV once did, its investment policy will continue to concentrate on global B2B media and may also shift in the direction of Complex Media (50m monthly uniques and 300m monthly video views) which is a Hearst joint venture with the US broadband-telco Verizon. Ever since its initial stake 22 years ago in the once-dominant Netscape web browser, Hearst has been one of the most successful media-tech corporate investors with more than $1bn committed to companies including: BuzzFeed, Vice, HootSuite, Caavo, LiveSafe, Roku, Science Inc, LiveSafe, Stylus, Swirl, and MobiTV. It’s a great talent spotter in more ways than one.

But Hearst’s original newspaper business is still there. It may have the lowest profit among the company’s media divisions, but it is doing a lot better than most of its peers. With more than 4,000 employees, the division publishes 24 dailies and 64 weeklies, mostly in Texas, California, and New York state. Its local digital services have been growing fast and print advertising is just 40% of total revenues. The real achievement of this legacy business, however, is that the Houston Chronicle, has become one of the world’s most profitable daily newspapers. Among many other well-worked activities, it has succeeded in dominating the region’s online news by operating two separate web sites, one paid-for and one free. The detailed figures are closely-guarded but the 115-year-old daily may be making profits of more than $60m – or almost 50% of all the profit made by Hearst’s 80+ newspapers. The Houston Chronicle performance is crucial to Hearst’s newspaper group which grew 2017 profits, on a like-for-like basis, for the sixth consecutive year. And traffic to the company’s ‘breaking news’ free websites surged to 7bn page views and 42m unique users.

Hearst Corp total revenues last year were static at $10.8bn but profits increased, due to the increasing skew towards higher-margin B2B. Although revenue in the past two years was only 1% up on 2015, it had grown by almost 140% during the previous decade. Even the realisation that the numbers were flattered by revenues from the $2.5bn+ spent on acquisitions, serves to underline the powering reinvention of a media group whose pre-tax profits are now more than $1bn. For all the disruption of its once-dominant print businesses, the versatile Hearst has scarcely missed a beat.

Next year will see more acquisitions and startups. But it will be intriguing to see whether Disney – Hearst’s favoured long-term partner in ESPN, A+E and 14 ABC-affiliated television stations – turns to Steve Swartz to help it develop any of the global media it is acquiring from 21st Century Fox in its $50bn deal with Rupert Murdoch. Might this also involve Hearst’s newer TV partner, the telco Verizon? Big media assets are in play.

Bubbling under

Financial Times: It has been a good year for the FT, which was acquired in 2015 by Nikkei for a cool £844m. It returned to operating profit in calendar year 2016 making some £6m on revenues of £310m, compared with a small loss the previous year. The 9% increase in revenues reflected the record circulation of almost 850,000 across digital and print – up 8% year-on-year. Digital subscriptions grew 14% to 650,000. In a world where most daily newspapers now realise they must learn to survive on readership revenues alone, the FT has grasped reality more quickly than most: its weekday newspaper is boldly priced at £2.70 and the weekend edition is £3.90. The FT’s information brands including The Banker, Investors Chronicle and Ignites, performed strongly and achieved a profit margin of more than 45%. Print advertising now accounts for only 15% of total revenues. And the FT continues to build revenue and profit from its 200 events in 31 countries, which attract 24,000 attendees. And the FT editor (since 2005) Lionel Barber is receiving The Media Society Award in 2018. A nice start to Nikkei’s (traditionally patient) ownership.
New York Times: It is a full six years since the New York Times erected its (then against-the-trend) paywall. It really is paying off all these years later with a strong 2017 performance. What is one of the world’s best newspapers which has been reporting rapid growth in digital advertising and, more important, a rise to almost 2.5m digital-only subscriptions, including strong growth internationally. These subscriptions include more than 100k only for its cooking content and 300k for its daily crossword. In some ways these adventurous endeavours to unbundle the newspaper content are more important than anything else in a market where most newspaper publishers have been so reluctant to do anything different in digital than they do in print. It also has a major (though still difficult to monetise) hit with its podcast “The Daily”. With the New York Times firmly back in profit, this is the newspaper pace-setter among those, like The Guardian and The Times of London, which are serious about attracting a global quality audience. The new family publisher A.G. Sulzberger says it would be profitable even without any advertising at all. But the overall growth in advertising and in digital subscriptions shows that the New York Times – derided for years by Rupert Murdoch, owner of the loss-making New York Post tabloid – is the one to watch. It must be extra galling that “The Daily” was the name also of News Corp’s disastrous iPad “newspaper” in 2011, and that the stand-out daily news performance comes from Mark Thompson, the Brit who became CEO of the New York Times in 2012. Previously, he had been boss of that other Murdoch nemesis, the BBC. Ouch.

Stand back and watch

Meredith Corp is in the process of completing its $2.8bn acquisition of Time Inc. Insiders can’t stop talking about the distinct cultures of Manhattan-based Time Inc and Meredith from Iowa in the MidWest. Will Meredith’s undoubted success in diversifying its lifestyle brands away from print extend to being able to achieve the same for Time’s troubled and over-staffed mass market weeklies? The fact that Meredith had chosen not to offer for many of those magazines as part of an earlier bid implies it now has some answers and/or has secretly negotiated divestments. We shall see also if the very act of seeking to swallow an under-profitable company as large as itself will prove too much for the gilt-edged Meredith (whose shares have gained 25% in the last three months). Who can know what is the significance of the deal being almost 25% financed by the Koch brothers, whose reputation has been built on fortunes made from petro-chemicals and (partly) spent on conservative political causes? Can’t wait.
Bauer Media: The privately-owned global magazines business is creaking. Things are especially dicey in the (ex Kerry Packer) Australian business which was acquired five years ago for what seemed to be the relatively low price of A$525m. News that Aussie actor Rebel Wilson had won A$4.5m in damages from Bauer’s Woman’s Day magazine coincided with the latest change of CEO during a year when up to six (relatively minor) magazines have been closed. But all this was chicken-feed compared with the losses of A$116m now reported for the years 2014 and 2015. Bauer’s new Aussie CEO Paul Dykzeul (formerly head of its highly successful New Zealand subsidiary) is expected now to slim down the Aussie business and (again) seek to merge with rival Pacific Magazines, owned by TV Channel 7. Dykzeul is the company’s fourth CEO in four years. But that won’t phase him. We might expect to see much closer sharing between the company’s operations in Australia and New Zealand after the production of Good Health magazine was shifted to Auckland. Once the (still dominant) Australia magazine company has been stabilised and focused more on its largest and most powerful brands, the ultimate prize may be high-priced investments in AsiaPacific radio like those that have paid-off so well in the UK and Scandinavia (where the profits and growth rates dwarf Bauer magazines). But, first, more disruption.
Daily Mail & General Trust (DMGT): Equally dramatic steps are due from the UK-based publisher of the polarising UK tabloid Daily Mail and Mail Online. More than 75% of the group’s profit is actually derived from B2B information services and events. It is easy to feel as if the Daily Mail newspaper actually disguises the strengths of the parent company, drags down the financial performance, and distracts the management too. The family-controlled £2bn public company (founded more than a century ago by tabloid pioneer Lord Northcliffe) shocked investors last month with weak performances across-the-board. There is renewed investor pressure either to sell-off the high-rated (but still unprofitable) Mail Online, or to de-merge the primarily US-based B2B operations. DMGT shares slumped by more than 20% after it reported a 13% drop in annual profits to £226m for 2016-17 and warned of a tough year ahead. Revenues were also down 13% to £1.7bn. Hidden away in the numbers were details of £20m of “contract discounts and rebates” owed to advertisers – equivalent to 6% of all newspaper-linked advertising, which cast a different light on ads that were said to have increased by 2%. The spin is everywhere. Mail Online, whose revenues totalled £119m, was said to have made a debut profit in the fourth quarter of the year, though this may have been due only to changes in internal cost transfers. MailOnline’s huge 199m global audience is attracted mostly by celebrity content that is not directly part of the UK newspaper. After 14 loss-making years, it is clear that DMGT might just never find worthwhile profits in global lite news. Reports of advertising slow-down on rival BuzzFeed (which has lower costs and higher revenues than MailOnline) might also help the longtime high-flying UK media group to decide that, as a public company, it can no longer sustain these global ambitions across both consumer and B2B media, let alone its hands-off approach to portfolio investments. Tough choices for another historic media group.

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Is this how streaming will kill TV networks? http://flashesandflames.com/2017/10/25/is-this-how-streaming-will-kill-the-tv-networks/ http://flashesandflames.com/2017/10/25/is-this-how-streaming-will-kill-the-tv-networks/#comments Wed, 25 Oct 2017 09:57:18 +0000 http://www.flashesandflames.com/?p=22610 ‘Media disruption’ is a gentle description of the way that technology expands the choice for consumers and marketers so dramatically that it shatters long-established business models. Tech has given consumers the ability to decide what, when and how they want to read or view, and has given advertisers a huge range of new promotional options....

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‘Media disruption’ is a gentle description of the way that technology expands the choice for consumers and marketers so dramatically that it shatters long-established business models. Tech has given consumers the ability to decide what, when and how they want to read or view, and has given advertisers a huge range of new promotional options. The choice bomb has already wrecked the economics of many newspapers and magazines.

The drive for fresh business models is a challenge for all legacy operators because new media may accelerate the decline of existing profits. Established companies can’t defend and attack at the same time.

Broadcasters ‘in the money’

The dilemma frequently morphs into self-serving denial where operators of each media category, in turn, persuade themselves that existing operations can survive – with just a few tweaks. B2B magazines once believed they were protected by supposedly ‘need to know’ information, consumer magazines by iPad editions, book publishers by e-books, and newspapers by huge (non-paying) digital audiences. One by one, legendary media brands have shrunk. But the largest category of all, TV broadcasters, are still riding high. Their continuing financial success and large (if declining) audiences make them feel pretty smug.

They even wonder whether the runaway Netflix will be a long-term success. The video streamer is currently burning its way through $2bn of losses a year. But it has $11bn of revenue from 109.3m global subscribers

The global TV network

in 190 countries – 50% outside the US. The company, which began life in 1997 as a DVD-by-mail business, has added 4.5m subscribers in the past three months and is almost 50% up in the past year. This year, it’s tripled to 320 hours the original programming for which it is now best-known.

In the US, Netflix subscribers are ‘bingeing’ an average of more than two hours per day of high-quality drama productions funded by a $6bn content budget (second only to ESPN sports networks) and expected to reach $8bn next year. It only started making original programmes in 2013 with Kevin Spacey’s House of Cards. But its 2017 budget is said to be 18 times that of the most expensive movie ever made – and almost equivalent to the combined spending of all the major Hollywood studios.

The swelling budget has created a raft of popular series including House of Cards, Stranger Things, The Crown, Master of None, Death Note, Narcos, Designated Survivor, Orange is the New Black, and Mindhunter. Netflix already has some 200 original productions and this year won more Emmy award nominations (91) than any TV network except HBO. Five of the 10 most searched TV programmes in 2016 were made by Netflix. It is now working with Shonda Rhimes, the creator of Grey’s Anatomy and Scandal, and has also acquired the Millarworld company founded by comic book writer Mark Millar.

The declared aim is to collaborate with the “best creators” worldwide and to own the content so it can continue to offer it to subscribers on a global basis. Having built a reputation for what are effectively serialised movies, it is now pushing into full-length movies themselves. Next year, it will release no fewer than 80 films compared with just eight in the last three months. The company is also ramping up its productions in new languages including Italian and German. This approach to offering original content in a country’s native language has been key to its penetration in emerging markets like Brazil.

Tracking viewers

Make no mistake, Netflix is now a global television network, arguably the very first. It has changed viewing habits almost everywhere by delivering global programming on demand – and without advertising. It has accelerated the shift away from broadcasting systems built along national borders, time schedules, and commercials. Its algorithms know what viewers watch, learn what they like and push new shows and episodes accordingly. CEO Reed Hastings says that “one day we hope to get so good at suggestions that we’re able to show you exactly the right film or TV show for your mood when you turn on Netflix”.

Flat-footed TV broadcasters are slowly getting used to an unfamiliar world where they know little about the viewing figures of a key competitor because Netflix has no advertiser-need to boast about its audience. Although ‘linear’ TV audiences are falling steadily and the digital advertising opposition is cranking up, the real tipping

Hastings:”Long-term + global”

point in broadcast revenues may still be a few years away. But, as elsewhere in media, the yawning gap is among advertising-averse young people who stream video on mobile platforms. Studies show that many 18-24 year olds are spending up to 30% less time per week watching TV than they did just a few years ago. Even before you consider this effect on the networks, Netflix is currently way ahead of Amazon Prime on subscribers, active viewers and programme awards. It is also currently spending 50% more on original content than Amazon’s $4bn, though everybody expects Jeff Bezos to close this gap over the next 2-3 years. In the US, the 10-year-old Hulu (owned by arch-rivals Fox, Disney, NBC, and Time Warner) has fewer than 20m subscribers. But it’s a long game and Apple, Facebook and Google will be major players.

Netflix’s recent announcement of a $1 increase to $10.99 in its monthly US subscription may eventually add an estimated $600m a year to the production budget. The fact that the price is still 50% below some pay TV underlines the challenge for the multi-channel TV incumbents.

Some analysts estimate that Netflix could become profitable in 3-5 years, while still at a discount to cable and satellite TV. But that all depends on the programme budgets. The CEO is predictably optimistic: “We’ve taken the long-term view that we’re in the early stages of the worldwide, multi-decade transition from linear TV to internet entertainment. We have a good head-start but our job is to improve Netflix as rapidly as possible to please our members by earning their viewing time and to stay ahead of the competition in the decades to come.”

A measure of that ‘head-start’ is the seemingly unique loyalty of US Netflix subscribers, 80% of whom currently do not subscribe to any other video streaming service (source: Statista).

Among established cable TV operators, Time Warner’s HBO is showing that on-demand viewing is all about content. Its Game of Thrones is a driving force for the company’s own streaming app which was downloaded 500,000 times in the first week of season 7, translating into a massive increase in subscription revenue.

Netflix ‘more than online’

Broadcasters may still believe that they are not facing the same risk of dislocation as, say, print media. They may even believe that their ‘catch-up’ and ‘TV anywhere’ online services are some kind of match for Netflix. Major networks have their own video services on websites and apps for streaming devices like Roku, Google Chromecast, and Apple TV, and these networks could eventually stream their entire catalogues of shows. But Netflix is actually the antithesis of the TV networks and cable channels not just because it is online, but because it is:

  • Funded solely by subscriptions and carries no advertising
  • Dedicated increasingly to exclusive and original content to which it owns worldwide rights
  • Marketed to global audiences
  • Made for viewing on all platforms and devices

This new TV industry is “on-demand and born global”. Described as “Subscription Video on Demand” (SVoD), it gives users unlimited access to a wide range of increasingly-exclusive programmes for a single, monthly ‘all you can eat’ payment. Viewers can decide when to start the programme, and can pause, fast forward, rewind and stop the show as they like. They can also binge on whole series of Netflix originals.

Whatever the pace of switching among viewers, TV’s decline is due partly to SVoD being “better”. The often more expensive cable-satellite pay TV usually involves a contract of one year or more, where up to 30% of viewing time may be ads, and viewing is often punctuated by confusing rules about in-home and out-of-home content access. Some content can be watched on some screens and not on others, and there are strict geographical barriers.

If those obstacles were not enough, the (still) huge advertising budgets may mean TV executives have too much to lose if they get serious about SVoD. You can feel the frustration.

James Murdoch told The Information recently that 21st Century Fox (which knows more than most about global pay TV) is considering whether to sell programming through its various apps without a cable subscription in “the near future”. But the fact that he first said that a year ago implies that Fox too is torn by the same need to defend existing broadcast profits.

Murdoch has been keen to say that media companies have all the cash and expertise to beat back digital companies in the fight for audiences but time will tell if they really have the nerve to risk existing profits by competing globally with the likes of Netflix, Amazon and Apple. And the SVoD competition doesn’t stop at drama.

‘Netflix of non-fiction’

One man who is betting that the established TV players won’t be able to keep up with SVoD is John Hendricks who 32 years ago became a cable TV pioneer with his launch of Discovery Channel. He had been inspired by classic television documentaries such as Walter Cronkite’s The Twentieth Century and Carl Sagan’s Cosmos, and set out to create a 24-hour network of documentary, nature, and science programming.

He first founded the Cable Educational Network in 1982, two years after Ted Turner’s ground-breaking CNN. Hendricks

CuriosityStream’s Hendricks

launched with a $100k second mortgage on his home and the tough early months of cable TV took him to the brink of bankruptcy. But, three years later, he jumped into the launch of Discovery Channel with $5m start-up capital led by investors including Allen & Company and the BBC. Over the past 30 years, Discovery Communications has become a $23bn media empire which now comprises 48 channels (including Animal Planet TLC and Discovery in various guises) across 220 territories with revenues of over US$6bn. This year, it paid $12bn for Scripps Networks, owner of the Food Network, HGTV, and the Travel Channel.

The founder himself had stepped down in 2014 after almost 30 years at the helm of Discovery Communications, which is now controlled by Liberty Global’s John Malone and Conde Nast’s Newhouse family. But Hendricks never planned to retire. Within a few months, he launched CuriosityStream as “the world’s first on-demand, ad-free content streaming service delivering premium factual content in the areas of science, technology, civilisation and the human spirit”. The compelling two-year-old streaming service is now available in 196 countries worldwide on multiple TV, desktop and mobile devices. It hosts some 1,700 titles providing deep dives into science, history, technology and nature, including exclusives by David Attenborough, Jason Silva, Edward Snowden, and Stephen Hawking. It is also exploiting the resurgent interest in space exploration and the proposed manned flights to Mars.

Hendricks describes his brilliant new channel as “the non-fiction Netflix” and identifies SVoD as the ‘third wave’ of TV, after the invention of free-

Leading the ‘third wave’ of TV

to-air broadcasting in the 1940s and multi-channel cable-satellite TV, pioneered by HBO in 1975, followed by CNN, and Discovery: “When I launched Discovery in 1985, it was clear multi-channel TV would sweep the planet and I see the same thing with CuriosityStream and streaming. That’s why we went into originals straight away. It gives us worldwide rights.”

Hendricks has not yet disclosed subscriber figures for the service which has grown largely through word-of-mouth – and a monthly price of as little as $2.99. But he says: “We are on track to meet a near-term goal of 1m subscribers, and we are confident that CuriosityStream will reach a long-term goal of achieving more than 30m subscribers by 2026. In 2026, we project that Netflix will have more than 120m global (non-US) subscribers and I expect that CuriosityStream will have reached about 25% of Netflix’s distribution base, reflecting the long-demonstrated consumer demand ratio, 1 to 4, between non-fiction and entertainment programming.”

In every way, it is just the start.

As if to emphasise the potential of non-fiction SVoD, a popular UK television host is next month launching his own HistoryHit TV streaming service. Dan Snow is a thirty-something Brit whose peak-time programmes have spawned a popular podcast History Hit all about his passion: “We need History more than ever to make sense of our changing world. But

Snow: a passion for history

we’ve got problems. Global TV corporations are slashing budgets for history shows, governments are cutting back on history education, and politicians are making it up to suit themselves. HistoryHit TV is a global video-on-demand history channel. It will be available on all of your devices, anywhere on the planet. Think of it like Netflix, but dedicated to world history. We’ll bring you the best collection of great history documentaries. We’ll also produce original seasons that will cover historical subjects in more depth than you’ve ever seen before.”

Interestingly, Snow’s SVoD channel is distinctly low-cost and under-pinned by a crowd-funded £150k. The subscription price will be £5.99 a month in the UK and $6.99 internationally. It will produce original series covering historical subjects and is in discussions with producers about new shows. It will also feature existing documentaries acquired from distributors. The company has pledged to donate 10% of its annual profits to education projects around the world. It seems to open up the possibility of many more specialist VSoD channels from small companies, sports clubs, professional associations, educational organisations and even charities.

Meanwhile, there are many new video streaming apps and channels all over the world and the global subscriber numbers show what’s coming. There were some 263m of SVoD subscribers in 2016 and this is expected to more than double to 546m within five years. The estimates cover 621 platforms in 138 countries which means SVoD revenues are expected to reach $41bn in 2022 (up from $17bn in 2016). And it is a truly global phenomenon, with AsiaPacific subscriptions expected to overtake North America next year and to account for 43% of all global SVoD subscribers by 2022.

Here comes Disney

Traditional broadcasters can’t help but feel the heat. Many have streaming services. But how many will have the nerve of US giant Disney (powerful owner of the eponymous studios and also ABC, ESPN, and Pixar) which recently announced 2018-19 plans for full-scale SVoD with exclusive programming. It’s launching streaming services on sports (through ESPN) and its own movies (including some of those recently cut-off from Netflix). It’s two years since Disney started to experiment with streaming in the UK. But the lessons of its ho-hum DisneyLife app are that such subscription services must have new or exclusive content. Netflix could have told them.

Disney’s decision to withdraw its content from Netflix (which had reportedly been paying it some $300m a year in licence fees) marks a watershed in SVoD. Netflix’s early streaming success had clearly come partly from Disney’s popular children’s offerings and

Micky Mouse joins the streamers

Disney-Pixar films. It was giving Disney a revenue stream to complement the company’s own cable channels and movies. But now Netflix has become a direct competitor by spending heavily on its own programmes, including in the children’s market where it has a new animated series based on Dr Seuss’s “Green Eggs and Ham.” It also has a deal with DreamWorks Animation for 300 hours of new children’s programming. Netflix has further riled Disney by signing Shonda Rhimes from ABC.

Disney will, therefore, become a mainstream competitor with Netflix, Amazon, Facebook, and Apple, although its new SVoD channels may not be fully operational for almost two years. By then, Netflix may have 140m subscriber homes. It is estimated that Disney will have to get some 32m subscribers just to compensate for the loss of its licensing revenues from Netflix.

Whether or not Netflix can maintain its own financial high-wire act without succumbing to ‘merger’ with a traditional TV player, telco or digital group, it is clear that SVoD is rapidly changing the market.

One US investment analyst said recently: “Free and pay-TV operators (including Telco/Cable) underestimate the power of the Netflix and Amazon models (scale in content, cheaper distribution and operating costs, customer satisfaction due to the lack of advertising, and speed at which the ‘originals’ catalogue is being built). We believe that broadcasting profits… will be under tremendous pressure in the next five years as alternative OTT (online) offerings draw audiences away… reducing incumbent broadcasters’ ability to invest in content and retain audiences.”

Inevitable winners?

Streaming services are only just beginning their assault. SVoD will enable many more paid-for channels including for individual sports, movie genres, documentaries, business, and even news and current affairs.

The relatively low-cost of some launches means that broadcasters will find themselves competing with an increasing number of specialist streamers. If they can somehow navigate the shift across to broadband, some networks will be able to sustain advertising based on their ‘new’ opportunities with data and e-commerce. But, in a broadcasting world dominated by online, the large-scale winners will inevitably include Facebook, Apple, Amazon and Google, and perhaps even some major news brands. Although it seems more likely to be streamed free, BuzzFeed is clearly pushing toward what we might call ‘online TV’ channels with a new UK food series “Worth It” airing weekly on Facebook and YouTube from November. It’s a follow-on from a US version which has scooped hundreds of millions of views and is planned to go global. There obviously will be plenty more online viewing from all kinds of digital players to tempt viewers away from the broadcast networks.

It’s a vision to chill the spine of TV broadcasters everywhere but – like the disrupted print publishers before them – they may still believe they can adapt to a world where almost everything is different. Let’s watch.

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Who will buy Time Inc UK? http://flashesandflames.com/2017/09/25/who-will-buy-time-inc-uk/ http://flashesandflames.com/2017/09/25/who-will-buy-time-inc-uk/#comments Mon, 25 Sep 2017 06:27:56 +0000 http://www.flashesandflames.com/?p=22477 Time IncFacebook and all those bloggers and vloggers have shredded the magazine market. “Me time” used to describe readers’ relationships with their favourite magazines; now it belongs to social media. For enduring brands, print is becoming ancillary to digital services. Many will still prosper, but magazines are becoming a much smaller business. That is why even...

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The post Who will buy Time Inc UK? appeared first on Flashes & Flames.


Facebook and all those bloggers and vloggers have shredded the magazine market. “Me time” used to describe readers’ relationships with their favourite magazines; now it belongs to social media. For enduring brands, print is becoming ancillary to digital services. Many will still prosper, but magazines are becoming a much smaller business.

That is why even non-investors have been captivated by the grisly sight of the disintegration of the world’s most famous magazine publisher. Time Inc brands illuminated the twentieth century in the US and throughout the world. Almost everybody knows the flagship magazines Fortune, People, Sports Illustrated, and Time itself. But this is the company

Time Inc turns off investors

whose revenue has declined every year since 2011 and has constantly been in the news for its profit warnings, cost cutting – and unsolicited bids for the business.

Time Inc’s share price has virtually halved in the three years since its 2014 IPO. But that much seemed inevitable. As one analyst said at the time: “Every stock needs a dream, something to buy into, but what is the dream here? What this company needs is new ideas, and I haven’t heard any coming out so far.” But parent company Time Warner – which had been rocked by its spectacularly disastrous 2000 merger with AOL – was in a hurry to get rid of the ailing magazine subsidiary.

So, 24 years after its merger with Warner, Time Inc again became an independent company. It began with the first of what have become regular profit downgrades as the decline of print revenues continued to outpace the growth of digital. As recently as 2006, Time Inc was producing profits of $1bn. By last year, this had fallen to $400m and it will be even lower in 2017.

The performance has turned off investors and prompted ever-louder demands to sell-up. A reluctant sale process this year was aborted by a newly-confident management team who are now using McKinsey consultants to guide the company’s “re-engineering”. But the financials keep getting worse. The latest Time Inc sideshow is the auctioning of “selected assets” said to account for about $488m or 17% of total Time Inc revenues. By far the largest of these proposed divestments is Time Inc UK, which – until just three years ago – was known as IPC Media. They’re not ready for it.

The UK subsidiary – like its US parent – has been trumpeting an illusory “transformative success”. The publisher of a mixed bag of 50 magazines, including Country Life, Marie Claire UK, What’s On TV, Wallpaper, Ideal Home, Horse & Hound, Yachting World, Uncut, Cycling Weekly, Chat, Decanter and Woman & Home, last year hailed its 2015 results as a “significant milestone in the

Former IPC: too many magazines?

turnaround of the company”. But the figures were clouded by the bonanza £415m sale of the company’s landmark headquarters.

The reality is that operating profit (including heavy reorganisation costs) totalled just £14m – 50% down since 2012 on £260m revenues that had declined by 17%. Profit margins which had been a meagre 9% in 2012, had fallen to just 5%. And most of the UK profits had been swallowed up by a gaping hole in the company’s pension scheme.

The profit slide has cast a long shadow over a company which has dominated UK media for much of the last 50 years. IPC (the International Publishing Corporation) had been formed in 1963 by the merger of three competing companies – Odhams, Newnes, and Fleetway – which later added the Daily Mirror newspapers. IPC became almost a monopoly of UK magazines and popular newspapers.

It was once the publisher of more than 100 magazines, including the country’s four hugely-profitable women’s weeklies together selling some 8m copies. It had magazines across almost every sector, and also business information, newspapers, books, children’s comics, and printing plants. It then became part of the Reed International (later Reed Elsevier) conglomerate, then with sprawling interests across the manufacture of paper, paint and building materials. But serious competition arrived in the 1980s, prompted by new full-colour printing presses, the rapid growth in advertising revenue – and IPC’s own monopoly profits.

Competitive magazines started to come thick and fast, through the expansion of then UK regional publisher EMAP, BBC launches of TV-linked magazines, the arrival of German publishers Gruner & Jahr and Bauer, and the expansion of US-owned Hearst and Conde Nast. It became easy to lampoon IPC as the “Ministry of Magazines” – bigger, richer and slower-moving than its newer, more agile competitors. But it was also the publisher which gave British readers Loaded, Look, NowLook & Learn, the imported Marie Claire and In Style, and the market’s steadiest presence Country Life. 

‘Milked’ by its owners

But, gradually, the new product development slowed up as IPC was milked for profits, first by Reed and then by the Cinven private equity firm which bought it in 1998 for £860m. That was when the company was making £70m profits from £350m revenues. In the sale prospectus, IPC boasted about its market and innovation leadership, having launched its first four “internet sites”. Even then, that didn’t look very impressive.

The real story, though, was that the magazine group’s profit growth for the previous five years had been juiced-up by cost-cutting and minimal R&D funding, not by revenue growth or innovation. Even the modest revenue increases had camouflaged the company’s aggressive cover price increases. Tellingly, operating profit margins had leapt from 17% to 22% during that run-up to the auction by Reed Elsevier. But private equity bought the story – and actually made another killing. Three years later, after having flirted with the whizzy dotcom idea of merging IPC with thought-to-be digital wunderkind Future Plc, Cinven managed to sell the business for £1.15bn (a gain of 35%). The 2001 purchaser was one Time Warner, which had merged a year earlier with AOL. The AOL-Time Warner merger was still being hailed as a perfect marriage of new-old media, with the full scale of the disastrous dotcom deal yet to be admitted.  And Time-IPC in the UK was also considered to be a pretty smart move – but not by everyone.

Time Inc itself had, for over 60 years, been a different kind of magazine publisher. Its portfolio was those major weeklies. It had become the largest US magazine publisher by flying high above the hyper-competitive and fragmenting markets for women’s and specialist magazines. Some good folks at Time Inc clearly did not quite see it that way. In 1995, they paid a then publishing record $498m for Alabama-based Southern Progress, which brought magazines like Southern Living, Coastal Living, and This Old House. That entry into the ‘new’ world of niche magazines led directly to the acquisition of IPC six years later.

But while the original stable of Time Inc weekly magazines had seemed to offer synergies with Time Warner’s core film and cable TV businesses, special interest and women’s ‘service’ magazines in the US and UK were always a stretch. The IPC acquisition was promoted by Time Inc chairman Don Logan, who had himself joined the company along with Southern Progress. So he was all over a strategy to publish lots of magazines all over the world and made IPC’s executives feel right at home. In 2001, he said: “This is the perfect acquisition for AOL Time Warner because it accomplishes key strategic goals for the company. With some of the best-known consumer publishing brands in Europe, IPC provides Time Inc with an important presence in the European consumer publishing sector. This acquisition also furthers AOL Time Warner’s goal of expanding our operations outside of the US.”

But the unbridled enthusiasm for magazines large and small –  did not survive the quick succession of executives then drafted in to unravel the AOL fiasco – subsequently described by Time Warner chairman Jeff Bewkes as “the biggest mistake in corporate history”. He thought the UK magazine deal was pretty dumb too.

Today, Time Inc UK is

  • 50 magazines read by almost 40% of the UK population
  • Web sites used by more than 25m global users each month
  • £250m turnover
  • 1,500 people

The CEO is Marcus Rich, a highly-rated executive with a background in magazines, newspapers, and advertising agencies in the US, Australia and the UK. His energetic three years at the helm of the former IPC have been characterised by: decentralisation into three London

Marcus Rich: smart boss

offices and one in rural Hampshire; £20m of bolt-on acquisitions, notably in events; the launch of TV/video production; and steady, if not spectacular, digital growth. He turned the veteran music weekly NME into a 300,000-circulation free magazine, although nobody is yet crowing about its success.

Rich is effusive about his company’s progress and a fierce advocate of magazines as durable advertising media: “I’m very positive. At the very heart of the business, you have something very unique – you have a relationship with the consumer that other platforms don’t have.” But, as a typical UK publisher vulnerably dependent on retail sales not subscriptions, the CEO would kill to get his hands on the powerful user data generated by those digital platforms.

The trouble is that – unlike at least some newspapers – few magazines can survive without advertising, and the loss of those colourful paid-for pages actually turns off readers. So, for all Rich’s articulacy, mass market magazine profits seem destined to keep shrinking. And his own sprawling company is no better placed than any other to cope with the suffocating rush of digital media.

For a start, Time Inc UK is over-staffed. In spite of a 14% reduction in people over the past four years, its 1,519 workforce (as at end-2015) is some 50% larger than any other UK magazine company. It has the lowest revenue per head of the five largest publishers – well behind the smaller but more profitable Bauer and Immediate. As if to reinforce the lacklustre performance, Time Inc UK has spent no less than £35m on reorganisation and redundancy costs over the past three years. Even if you strip out the £3.5m compensation paid to ousted directors, the average cost of each job saved has been £130k, equivalent to more than two years’ average salary.

Such generosity is good news for more than just the recipients of Time Inc’s largesse. Would-be buyers will see the numbers as a wide-open opportunity to achieve a step-change in costs and profitability.

Magazines can still work

A company called Exponent might just be licking its lips. It is the media-savvy private equity investor which scored a total return of some four times its investment when it sold Immediate Media (largely the former BBC Magazines) to Burda for £300m+ in 2016 after five years of ownership.

That deal is a reminder that magazines can still be an attractive business: the ex-BBC publisher made profits of £35m on revenue of £150m (a profit margin almost five times that of Time Inc UK). Immediate’s main London company has a workforce one-third that of Time Inc UK, per capita revenue is 40% higher, and average staff costs are 15% lower.

But Time Inc UK has other problems. It might be the publisher of lots of weekly and monthly magazines but even some of its better known brands are loss-makers whose continuation owes more either to their contribution to fixed central overheads or to the unwanted costs that would be incurred in closing them. And, like so many traditional publishers, few of the web sites touted as “digital properties” could ever become businesses in their own right. Most are ancillary to magazine brands and may, therefore, decline with the printed editions.

Time Inc’s single most profitable UK magazine has consistently been the 885k-circulation weekly What’s

What’s on TV: biggest earner

On TV.  It once accounted for almost 50% of total UK profits. But that was five years ago when copy sales were 30% higher.

The company, with TV Times (177k circulation), has a 30% share of the TV listings market which sells 3m copies per week and remains a rich, if surprising, seam of UK profit, also for Bauer (TV Choice) and Immediate Media (whose Radio Times accounts for more than 50% of its profit). But even this sector (which so recently accounted for 4m copy sales per week) is also on the slide. All TV listings magazines have declined this year, with circulations variously cut by 3-10%.

That might trouble some would-be buyers. But many will also consider that the sheer scale of the Time Inc UK portfolio and the number of small and marginal magazines is the opportunity  – providing they make the change. They need to be able to drill-deep into key markets rather than struggle to exploit a randomly broad portfolio.

The likely strategy for any buyer (including private equity firms like the UK-based Epiris which is believed to be involved in talks and would probably retain the existing management team) will include a requirement to:

  • Focus on audience groups and special interest sectors in order to develop multi-channel strategies including e-commerce, paid-for information, membership clubs, and events. Magazines are just part of the mix
  • Divest unwanted magazines and target rival brands for swaps in order to generate additional profits
  • Sharply reduce overheads, especially the current 15% of “administrative” staffing

A new owner of Time Inc UK might project a slimmed-down business with some £150m revenues, 750-1000 people and perhaps £25m in pre-tax profits. If it gets there, the company might have a market value of £150m, depending on growth rates and the extent of digital and events revenues. But getting anywhere near that would also involve substantial restructuring and one-off expenditure (net of proceeds from divestments) of perhaps £50m. With this cost and the <£100m of unfunded pension liabilities, Time Inc may actually have to offer buyers a ‘dowry’ to ensure it can sell the business at all. That’s how much things have changed for magazines and for the once-formidable UK market leader.♦

Have you read?

What (or who) is the future for Time Inc?

Time Inc UK web site

Rolling posts on IPC Media, Marcus Rich, Time Inc and the UK magazine market

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What now for UK’s Telegraph Media Group? http://flashesandflames.com/2017/08/07/what-now-for-uks-telegraph-media-group/ http://flashesandflames.com/2017/08/07/what-now-for-uks-telegraph-media-group/#comments Mon, 07 Aug 2017 15:31:56 +0000 http://www.flashesandflames.com/?p=22148 TelegraphDaily newspapers remain the most vulnerable of traditional media. The business model has been broken not so much by print as by the cost and irrelevance of the daily frequency. Newspapers can’t bring themselves to acknowledge the commoditisation of general news. In print as well as digital, freely-available news continues to dominate their output (and...

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The post What now for UK’s Telegraph Media Group? appeared first on Flashes & Flames.


Daily newspapers remain the most vulnerable of traditional media. The business model has been broken not so much by print as by the cost and irrelevance of the daily frequency. Newspapers can’t bring themselves to acknowledge the commoditisation of general news. In print as well as digital, freely-available news continues to dominate their output (and costs) while the prized content of columnists and comment is mostly bundled with it in a single, take-it-or-leave it package. Not because readers want it that way, but because the news brands can’t afford to give them the choice. History is killing these famous news providers. Are they just too old to change?

It is 315 years since London’s Fleet Street gave birth to the world’s first daily newspaper. Within 100 years, Britain’s pioneering rail network had spawned a host of national dailies. Throughout the twentieth century, these newspapers

defined political power and influence in the UK. Publishers like the Lords Beaverbook, Northcliffe and Rothermere, Rupert Murdoch, Conrad Black, Robert Maxwell, and Richard Desmond have variously enjoyed or profited from their ability either to influence British public opinion or scare the politicians to death. Daily newspapers have been formidable.

In 2017 – when the seven national dailies have aggregate circulations some 70% below their peak – television news reviews continually promote the newspapers, even though their real power has been diluted by the savage loss of readers and profits. The pre-digital generation of politicians and newspaper proprietors huddle together and think they are “managing” the decline.

In an era when “media” everywhere has become a much larger industry, the daily newspapers that started it all are shrinking inexorably. Many are still profitable brands with strong relationships and content which could yet become rocket fuel for new businesses. But such cannibalisation risks accelerating the decline. It’s no surprise that newspaper companies – with profits to defend – should find it so hard to compete with no-baggage digital competitors. The problems have been compounded by extended generations of pre-digital management. The battalions of web radicals have been subordinated to the denizens of print.

In the UK, all this changed suddenly in June when the Telegraph Media Group, publisher of the broadsheet Daily Telegraph, appointed Nick Hugh as CEO. The former European VP of Yahoo had never worked for a publishing company before joining the Telegraph as Chief Operating Officer just six months earlier. A self-confessed “gadget geek”, he had been up to his eyes in web business for 18 years.

He has succeeded Murdoch MacLennan, a newspaper technician who has spent a lifetime in UK dailies across the Mirror, Express, Mail, and Telegraph groups. He had been CEO of the Telegraph – consistently one of the country’s most profitable daily newspapers – since 2004. Even after Hugh joined as COO in January this year, it looked, to all the world, as if the veteran would be going on for some years yet. But he and the former Yahoo executive never looked like a

MacLennan + Hugh: the smiles didn’t last long

a double-act. The only thing they shared was an April birthday: this year, MacLennan was 68 and Hugh 42. The abrupt succession announcement two months later signalled, perhaps, the biggest change in the long history of the Telegraph.

The newspaper, which began as a four-page broadsheet in 1855, has a history punctuated by curiosity and innovation. In the 1870s, it co-sponsored an exploration to the Congo which had Henry Morton Stanley greeting David Livingstone with the now famous: “Doctor Livingstone, I presume?”

In 1925, it became the first UK national daily to publish a crossword puzzle which, during World War 2, led to the recruitment of code-breakers for Britain’s Bletchley Park intelligence base. The newspaper had agreed to organise a crossword competition, after which the successful participants were recruited to the wartime intelligence services. In 1935, the paper was the first in the UK to own a television set and its “wireless correspondent” started to cover the fledgling TV, almost two years before the BBC made its first regular broadcasts. In 1939, it scooped the world with the news that Germany was about to invade Poland. Almost half a century later, in 1994, the Daily Telegraph launched Europe’s first web-based daily newspaper, even though the internet was still in its infancy with as few as 10,000 web sites and 600,000 British users.

Despite a succession of ownership changes, the paper has always been an unwavering supporter of the UK Conservative Party for which it has been lampooned as the “Torygraph”. It has long been the country’s biggest-selling “quality” newspaper with a slightly uneasy blend of solid news, right-wing political comment, and distinctively detailed reporting of the most salacious criminal cases. The publishing company itself has sometimes seemed slightly unworldly, something other than a business. In the 1970s, then proprietor-chairman Lord Hartwell was a remote figure who (although driving to the office in a battered mini) was attended by two butlers in his huge office. In addition to a suite of panelled rooms – containing maps of the world as it had been in 1914 – it included a turfed area known as the “Hartwell Lawn”.

The unreality came into focus when the paper blew £140m it didn’t have on new printing plants in London and Manchester. The upshot was that, in 1985, Hartwell was all but forced to sell a 14% share to Conrad Black, a Canadian who was putting together a global daily newspaper empire.

The sleepy Brit consoled himself by thinking he would remain in control of the newspaper which had been owned by his family for the previous 70 years, simply because he would retain the title of chairman. But he was said not to have understood either the detailed provisions of the new shareholder agreement – or the financial pressures bearing down on his newspaper. Within 12 months, it needed a further cash injection. It gave Black the opportunity to take control before, eventually, acquiring the rest of Hartwell’s family shares.

Black: global media boss

For adults from the 1990s, it is as easy to exaggerate the importance of the scene-stealing Robert Maxwell as it is to under-estimate Conrad Black. Both were physically large men. But, in newspapers, Maxwell made a lot of noise in the UK and US, while Black became a real-life global proprietor in the heyday of print. By 1993 – two years after Maxwell’s death in a flurry of chaos and criminality – the Canadian was the global king of big city newspapers which, in addition to the UK’s Daily Telegraph, included: the Sydney Morning Herald, Melbourne Age, Australian Financial Review, the Jerusalem Post, and the Financial Post and Le Soleil in Toronto.

He enjoyed his proprietorial role especially in the UK, where he became Lord Black. The man who wrote a lauded biography of Napoleon played the part. He entertained lavishly and claimed his company was the world’s fastest-growing media empire, the jewels of which were the Telegraph in the UK and the Fairfax group in Australia. In his 1993 book “Paper Tigers”, magazine executive Nicholas Coleridge described him as “the most erudite” of newspaper proprietors “who talks in complex, elaborate paragraphs”. Black’s typically wordy admission said it all: “Let us be completely frank, the deferences and deferments that this culture bestows on the owners of great newspapers are satisfying.” It was not to last.

Conrad Black’s control of the UK Daily Telegraph ended in 2004 when he was dismissed by his own parent company amid allegations of financial wrongdoing. He was eventually imprisoned for three years in the US. Meanwhile, the Telegraph Media Group was acquired (for a UK newspaper record £665m) by the 69-year-old British twins David and Frederick Barclay who had beaten off bids from private equity and from Richard Desmond (whose Daily Express was the Telegraph’s printing partner). Desmond had earlier scared-off Germany’s Axel Springer with calculated invective about Nazis and the war.

Shy billionaires

The Telegraph acquisition highlighted the stunning 30-year success of the one-time candy shop-owning brothers who had reputedly amassed a fortune of billions through hotels, shipping and retailing. Variously described by media as “secretive” and “reclusive”, the industrious brothers have achieved some kind of media notoriety through not much more than being able to avoid publicity.

They came to prominence in the 1990s buying London’s legendary Ritz Hotel, the ill-fated European newspaper, and The Scotsman daily in quick succession a decade before splashing out on the Telegraph. Their deals have been much more visible than the brothers themselves. They live and work – away from prying eyes and journalists – in a mock gothic castle on Brecqhou, in the Channel Islands (a UK tax haven off France). In 2004, the mysterious new Telegraph owners certainly worried Brits who were unsure whether the imperious Conrad Black’s departure was good news after all. Aussies had no such mixed feelings about the departing expat proprietor of the Fairfax group, who had been openly contemptuous of their country’s political and media leaders.

The Barclays promptly recruited Murdoch MacLennan, then in charge of the Daily Mail newspaper group. One of his first actions was to extricate the company from a painful and expensive pension deficit stoush with print partner Richard Desmond – by transferring the Telegraph printing to News Corp UK. It was just the start of a wild ride.

The former production director’s bitter-sweet 13 years as CEO of Telegraph Media Group can be characterised by:

  • Strong profits. Since 2005, the Daily Telegraph has consistently been the most profitable UK newspaper, with aggregate operating profits of some £550m and margins of up to 19%. Some years, the Telegraph has made a full 50% of all “Fleet Street” profits.
  • Staffing upheaval. There has been what has sometimes seemed like an annual cull of journalists. The daily newspaper has had seven different editors-in-chief (or equivalent) in the past 13 years – more than in the previous 80 years. These departures have sometimes been handled in a brutal way, with even relatively junior people escorted from their desks on being made redundant. Some £100m has been spent on severance payments during the past 13 years.
  • Editorial scoops. Despite the upheaval, the newspaper has scored some of the UK’s best investigative journalism of recent years including: the 2009 expose of the expenses of members of parliament,
    Great scoop: UK parliamentary expenses

    which led to a number of high-profile resignations and prosecutions; and alleged financial misconduct in football which led to the 2016 resignation of the England national coach.

  • Accusations. In 2015, distinguished Daily Telegraph columnist Peter Oborne quit noisily after accusing his employer of suppressing editorial content that criticised a key advertiser, HSBC. After questions about whether the Telegraph’s owners would really hold back from reporting important facts “just” for a few million pounds of advertising, Oborne claimed that negative stories about HSBC were being actively discouraged following the bank’s 2012 refinancing of its £240m debt for Yodel, a loss-making Barclay-owned delivery business.

This summer’s management change at Telegraph Media took most by surprise, including MacLennan himself. He found himself “promoted” to the role of deputy chairman, meaningless in a company where the CEO reports to chairman Aidan Barclay.

A week later, the company’s awful 2016 results told the story. Operating profit was down 43% from £49.3m to £28.1m on revenues of £292.5m (9% down). Advertising revenue was 12% down. Operating profit margin was slashed from 16% to 11% which revealed the extent to which the group’s cost savings – while upsetting its 1,130 employees on a fairly regular basis – have not added up. Staffing levels last year were actually flat and payroll costs were slightly up – even though the company again spent £3.1m on redundancies. Even at the super-profligate Guardian, that’s the price of at least 30 job savings.

Even little things like the company’s exhibitions business – which includes the Telegraph Ski & Snowboard Show – have been under-performing. Last year, Telegraph Events made £268k of profit from a turnover of £7.8m. That margin of less than 4% was in a market where operators routinely expect to exceed 20%. But, then, it is only two years since the division ended its long run of losses.

The company’s statutory accounts gave an unwitting clue to more fundamental problems. Alongside the financials, its filings included a neat table which showed a reassuring (but financially meaningless) leap to 90m global online users. Crucially, it also claimed that circulation of the Daily Telegraph in 2016 was 475k – a mere 2% down on the previous year. That seemed to illustrate the steadiness of a newspaper whose operating profits have seldom been less than £40m for the past 10 years. The real truth is the real problem.

Free copies everywhere

The Monday-Friday editions of the £1.60 newspaper have a circulation of 441k but only 136k (30%) of these copies are ordinary sales. More than 50% are “voucher subscriptions”, priced as low as £2 for all seven days of newspapers (including the premium priced Saturday and Sunday editions). A further 16% of the weekday Telegraph circulation is distributed free (and left lying around) at airports and railway stations. UK dailies now make most of their advertising revenue and profit on Saturday, selling more copies (with TV and leisure magazines) at a higher price than on weekdays. On that day, the £2 Daily Telegraph has 604k declared circulation – but only 298k (49%) are ordinary full-price copies. The Sunday Telegraph sells just 78k copies on this basis.

The true horror of this copy sales collapse is underlined by the way that the Daily Telegraph has lost 32% of its declared total circulation since 2010 (when multiples and voucher subs were almost non-existent), whereas News Corp’s The Times has lost “just” 11%. Now, both newspapers are padding their figures with free and sub-price copies – but the Telegraph is doing most.

It is the performance of The Times that has helped the Barclay family appreciate the scale of their own crisis. In the years before they acquired the business, Conrad Black was obsessed with maintaining the Daily Telegraph’s totemic 1m daily circulation, and used all kinds of promotions to keep it there. But that was nothing compared to the aggressive methods now being used by most of the UK’s dailies to sustain figures, in the vain hope of halting the drain of advertising revenue which has been declining in double-digits for the past five years.

The Daily Telegraph’s Monday-Saturday average circulation, at 472k, is now at risk of being overtaken by The Times which has 451k on that same basis. That’s big news. But it is worse. If you strip away the voucher subs and free copies, The Times is already out-selling the Daily Telegraph Monday-Friday (173k v. 136k) and even more so on Saturday (342k v 298k). And the Sunday Times out-sells the Sunday Telegraph by six to one – at a 25% higher price (£2.50 v £2). News Corp UK is quietly eating into its long-term rival.

The Daily Telegraph has long had the oldest readership in “Fleet Street”, which helps explain why – for all the talk and state-of-the-art editorial and production systems – it has been anything but a pacesetter in the search for a viable digital future. Its readers have an average age of 61 years, almost 50% are over 65 and only 25% are under 44. But the circulation figures are the ones that, finally, make sense of the atmosphere of crisis which has pervaded Telegraph Media for years, even while the company was making record profits (often twice that of News Corp UK). Now – after more than a decade of endless salami-slicing costs  – the Telegraph’s new CEO must be tough and get real.

Nick Hugh is certain to push even more strongly into e-commerce. His eye-catching prediction that its revenues would overtake Telegraph advertising revenue in 3-5 years struck a chord with his owners who know a thing or two about online retailing. The group has a 50-person travel team (including commercial editorial people, separate from The Telegraph’s journalists) which provides content, advertising, affiliate booking links and reader offers. It is now staffing up a financial e-commerce division. He knows that making e-commerce into increasingly independent businesses will help them grow faster than the news brand ever can. He will also want to find a way to generate more profit from events, perhaps by acquiring or merging with an exhibitions competitor.

No savings

He will be trying to maximise digital revenues. Of course. But the performance of these once so-stable newspapers demand urgent attention. He will be wondering how his predecessor made such a mess of the staffing. Only seven months ago, Hugh was surprised to find that the company had achieved the impossible of wrecking its morale with seemingly continuous waves of redundancies among journalists (reduced from 500 to 380 in the past 12 years) while actually not making any savings at all – because it was staffing up almost everywhere else.

For all the belief that the Telegraph has been losing a lot of experienced people and replacing them with younger, cheaper alternatives, it has – incredibly – increased its total headcount by 13% over the past six years. In 2010, Telegraph Media employed 1,004 people just over half of them in ‘editorial and production’ roles. By 2016, this had increased to 1,131 people. As if to reinforce the point, the 2016 total employment costs of £81.6m were actually 17% higher than in 2009.

It is easy to consider that the the Telegraph Media Group has been living beyond its means (even though it had been throwing off good profits year after year). Moving the cover price up from 65p to £1.20 in the first six years of

Nick Hugh: facing media’s biggest test

Barclay ownership helped. But, now at £1.60, the weekday editions will not be able to repeat the trick: the underlying decline in copy sales and advertising revenue has caught up with them. Indeed, he must fear more pressure on cover prices from an aggressive News Corp that can smell blood.

So the new CEO will have to concentrate on the core business. He may quickly conclude that the Sunday Telegraph is an expensive drain on resources and merge it into a combined Weekend Telegraph paper, on the lines of the successful broad-appeal Financial Times edition. He certainly should save on print and paper by scrapping the 68,000 free copies of the Daily Telegraph and also cut back on the voucher subs. All those free or nearly free copies are not fooling many advertisers and may even be discouraging some readers from buying the newspaper.

Hugh may also beat The Guardian to a long overdue decision to abandon their respective global ambitions. He may, instead, conclude that the only way to monetise the Telegraph’s substantial digital audience outside the UK will be with a partner. He may even seek some kind of global alliance with Jeff Bezos’s Washington Post, with which the Telegraph already has reciprocal access for subscribers.

The new plans for fundamental change at the Telegraph Media Group seem likely also to include the following strategies:


The creation of separate businesses to exploit core resources, separating marketing and exploitation (in print and digital) from “content production”. This would help to make the huge Telegraph ‘machine’ more manageable and identify efficiency savings. The new CEO will want to grasp the nettle of “commoditised” news, perhaps by following his recent deal to outsource copy editing to the UK’s news agency the Press Association, with one covering a whole swathe of (expensive) general news reporting. Nobody doubts that the “healthy future for quality journalism”, which Hugh foresees, depends on investment in exclusive content not general news.

New brands

The development of new brands in news, entertainment, video streaming, events, and e-commerce. Distinct from the existing online operations, we could see Telegraph ‘online TV’ channels devoted to News, Sports, Business and Politics – and new Travel and Financial services brands for e-commerce.


Nick Hugh has been effusive about the “game changer” deal with Apple News, under which the Telegraph is one of 4,000 media outlets which uses the app to push its content to readers. It also has the exclusive UK rights to resell advertising space. As it signed the deal last November, the Telegraph adopted a “premium” pay wall on its website, behind which is 20% of its content. Could we see even more ambitious joint ventures with complementary media brands like Huffington Post, CNN, BT Sport, and Amazon Prime/Washington Post in the production as well as marketing of news and entertainment? Will the new CEO, who recently pulled out of advertising-sharing talks with his UK newspaper rivals, choose instead to do a sales deal with the all-digital operators he knows best?

Ownership doubts

Then there is the question of ownership itself. The octogenarian Barclay twins (and son Aidan) have now managed the Telegraph Media Group for 13 years, during which they have nowhere near recouped the £665m they paid for it. There has been UK speculation about their continued ownership in increasingly challenging times. But their new CEO will give them more options – providing he can stabilise profits. Joint ventures and strategic alliances with other media groups (especially outside the UK) might help accelerate digital progress without the need for substantial new investment.

Alongside all that, there is the need to recognise that journalism and journalists are at the heart of a news brand. Nick Hugh will be treading the crackly line between cutting costs and, somehow, restoring morale and trust in a shaky but still substantial UK newspaper. He is a strong strategist and communicator. But the man who has spent most of his career in digital advertising is now facing one of traditional media’s biggest challenges. That’s why we’re all watching.


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How the spirit of Felix Dennis lives on http://flashesandflames.com/2017/07/10/how-the-spirit-of-felix-dennis-lives-on/ http://flashesandflames.com/2017/07/10/how-the-spirit-of-felix-dennis-lives-on/#comments Mon, 10 Jul 2017 13:40:52 +0000 http://www.flashesandflames.com/?p=21818 Felix DennisDigital disruption is full of contradictions for legacy media. Condé Nast splashed more than $100m on its trumpeted but short-lived plan to become an online fashion retailer. Less expensively, Hearst came to a similar conclusion. But, as magazines everywhere wonder whether e-commerce can ever fill the advertising gap, one UK publisher is quietly selling more...

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The post How the spirit of Felix Dennis lives on appeared first on Flashes & Flames.


Digital disruption is full of contradictions for legacy media. Condé Nast splashed more than $100m on its trumpeted but short-lived plan to become an online fashion retailer. Less expensively, Hearst came to a similar conclusion. But, as magazines everywhere wonder whether e-commerce can ever fill the advertising gap, one UK publisher is quietly selling more than 250 cars every month to its readers.

This is Dennis Publishing which doubled total revenues in the last nine years, has 15% profit margins and keeps growing. The £100m, 430-person company reaches over 50m unique users and (still) sells some 2.5m magazines every month. It has made millions from ‘news’ during a decade when newspapers have lost their grip, and makes 10% of its revenue from international licensing deals with 50 companies in 40 countries.

Going digital at speed

What is the UK’s sixth largest magazine-centric company has 40 print and digital brands across four sectors: Technology (Alphr, PC Pro and ComputerActive), Automotive (Buyacar, AutoExpress, Evo), Lifestyle (Cyclist, Men’s Fitness, Viz), and Current Affairs (The Week). Significantly, for a media company shedding its traditional print bias, it has fast-growing digital-only brands in every sector. Dennis is fast becoming a digital media company, although it still publishes 25 magazines.

It is three years since founder Felix Dennis died from cancer, age 67. It was the tragic end of a truly amazing career which began 50

years ago when he quit his London art college to be a not-so-hot drummer in rock bands. It was the end of the 1960s and Dennis moved from job to job, dressing shop windows, cutting grass and hustling his way from street seller to becoming co-editor of the edgy, satirical magazine Oz. He was momentarily jailed in 1971 after an infamous obscenity trial.

Two years later, Dennis launched Kung Fu Monthly. Bruce Lee was hot but the new poster-magazine (pin it on the wall after reading) had a budget of just £50. He need not have worried: profits reached £60,000 within six months as the fledgling Dennis Publishing racked up 14 international licenses.

The search for more durable magazines led to the acquisition and launch of young men’s hobby magazines in bikes, cars, music, computer games and gadgets. In 1978, he struck gold with Personal Computer World, the UK’s first ‘microcomputer’ magazine, bought for a total of £680k from the news vendor who had launched it. A year later, Dennis sold the booming magazine to Dutch publisher VNU for a cool £3m. He was on his way.

That was the start of a pattern for Felix Dennis of being early into markets, forming long-term partnerships, focusing on what readers most wanted – and never being slow to sell a much-loved asset if the price was right. Another part of the pattern was his relentless enthusiasm for the American market, graveyard of many another UK company. His transatlantic success began with Kung Fu Monthly. In 1985, he launched Mac User – just 21 months after the world was introduced to the Apple Macintosh computer. Within three years, Dennis had sold the magazine’s US and worldwide rights to Ziff Davis for a cool $23m.

In 1987, he launched the US-based MicroWarehouse which rapidly became the world’s leading direct mail catalogue retailer of IT products and services to business. At the height of its dominance in a pre-internet, computerising world, the company had 3,500 employees in 13 countries. By 2000, when it had worldwide sales of $2.6bn, Dennis cashed in on a successful Nasdaq flotation. It made him at least $100m richer.

Global triumph

Meanwhile, he continued his audacious Anglo-American strategy by launching the UK Computer Shopper in 1988 (a clone of Ziff Davis’s winning US monthly). By the 1990s, the magazine was selling over 120,000 copies and regularly publishing 500-page issues.

For his next trick, Dennis jumped into the ‘new’ men’s magazine market which had been created in the UK by IPC (now Time Inc). Its boisterous Loaded roared into life in 1994 and leapt to sales of 450,000. Hot on its heels came EMAP’s relaunch of FHM whose UK sales were almost 50% higher and then added 31 editions around the world. And, in 1995, Dennis’s Maxim was no.3 in the UK but became America’s most successful young men’s lifestyle magazine. Within 10 years, Maxim’s 19 international editions had a total circulation of 3.8m.

By 2007, when “lads mags” were spiralling downwards, Felix Dennis sold his US magazines (Maxim, Blender and Stuff) to private equity for a reputed $300m. By then, he was already on his way to a new publishing fortune, courtesy of The Week magazine. The brilliant news digest (“All You Need to Know About Everything That Matters”) had been launched in 1995 by a former UK newspaper editor Jolyon Connell. Dennis helped rescue the venture after early losses and became a major investor. Years later, he bought the magazine outright. Under his ownership, The Week enjoyed more than 15 years of continuous copy sales growth before, inevitably, becoming becalmed at 200k circulation (with 20% of free copies) and an impressively growing online audience of 27,000 subscribers. It out-sells The Economist in the UK.

Few could have guessed just how successful The Week would become, least of all the former Guardian editor-in-chief Alan

The Week: success against the odds

Rusbridger, who turned down the opportunity to invest, and called it “parasitical”. Twenty-two years later, the upstart magazine has so far racked up some £50m of profits. But it did not always look like a winner.

When he became sole owner in 2006, Felix started investing heavily in it. Total staffing was increased by 28%, mainly in subscription sales.  It paid off handsomely – and quickly – pushing up subs and total revenue by almost 20% in the first year. The Week’s revenues trebled in the following 10 years. It had become a typical Dennis deal. The US edition (now owned and managed separately from the UK company) has also grown strongly, with a current circulation of 500k.

Even with slowing growth, The Week still accounts for almost 20% of the UK company revenues, boosted by the 2015 launch of The Week Junior. The much-acclaimed “weekly magazine for curious, smart 8-14 year olds” has a circulation of 38k. Its success is underlined by the fact that most of these copies are mailed subscriptions, not merely casual sales. It’s the same also for the 46k-circulation Money Week which was re-purchased by Dennis last week, 15 years after being sold as a failure.

The subscriptions strategy has been a hallmark of the company whose founder had long derided UK publishers for refusing to see beyond the newsstand. During the 1980s and 1990s, most UK magazine publishers were blissfully hooked on booming retail sales, not least in the country’s then fast-growing supermarket chains. But not Felix Dennis. Influenced by his US experiences, he always wanted subscriptions. He understood the value of readership data and also the cashflow benefits of subscribers who paid for their magazines months or years in advance. Even today, magazines like Auto Express, Computer Active, Computer Shopper and PC Pro get the majority of their readers through subscriptions, unlike their envious UK competitors.

This core skill has given the company stability at a time when magazine-centric revenues elsewhere are in free-fall. But, then, Felix Dennis built a fortune by being unconventional. He flipped media business backwards and forwards across the Atlantic when publishers as diverse as Richard Desmond, Future, The Guardian and EMAP could warn you of the perils of even trying to be that clever. He took on projects that initially seemed dubious (Auto Express had failed in the UK when he bought the licence from Axel Springer; The Week had been on the edge of collapse). And Felix, forever the ageing hippy, succeeded in motivating ever-younger recruits even while looking after long-term partners, friends and employees.

In 2013, a British Media Awards citation praised his “uncanny knack of being around at the start of every new trend in publishing.” But magazine publishing is only part of the story. In 2006, he wrote a bestseller “How to Get Rich” which, among much else, described his crack cocaine addiction (and abrupt ending of it) and an admission that he had spent over $100m on

Dennis: great at making money + spending it (The Week)

drink, drugs and women. In the book, he also argued that “having a great idea is overrated. You need great execution.” Part of his “secret” was a blunt negotiating style. He said people with whom he was negotiating instinctively recognised his willingness simply to walk away. “They know, in their heart of hearts, that I don’t care,” he told the Daily Mail.

Like many another noisy, blustering entrepreneur, Felix Dennis only pretended not to care what people thought about him. He was described as having “a cackling laugh, roistering humour, ribald in appetite, loyal and immensely generous”. But the insecurities of an impoverished single-parent childhood never left him. It fed his left-leaning politics and, perhaps also, his boastful profligacy, flamboyance and a generosity spelled out in a lengthy will of bequests to individuals and charities. He died leaving a fortune of some £400m including a garage of swanky cars (despite never having owned a driving licence), a 16th century English manor house on an estate near historic Stratford-upon-Avon, an apartment in Manhattan and houses in London, Connecticut, and on Mustique. He was as good at spending money as making it.

He also wrote some evocative poetry which he performed with actors from the Royal Shakespeare Company, throughout the UK and coast-to-coast in the US. Author Tom Wolfe, who once read the poems publicly, likened them to Rudyard Kipling. Dennis’s own readings were exceptionally well-attended, not least because his tours were (factually) titled “Did I Mention the Free Wine?” He penned more than 1,500 poems, including one about his amazing charity, The Heart of England Forest, which he had established in order to create the largest native forest in England. That was his Really Big Idea.

Felix began planting trees in the late 1990s, and sealed his passion for British forestry by setting up a charity dedicated to planting a substantial native broadleaf forest (mostly oak and ash trees) around his home in the English midlands. Over 1,874 acres of woodland have so far been planted, and continues at the rate of 300 acres per year. The target is to see 30,000 acres of land turned back into one huge forest, teeming with wildlife and open to the public. Some legacy.

The game changer

But Felix Dennis was a man of many passions and media deal-making was always one of them. He would certainly have approved of the company’s first deal after his death. In November 2014, CEO James Tye acquired the BuyaCar site. It now looks like a game-changer.

The diversification is especially interesting because Dennis itself sells the new and used cars and also arranges the finance for buyers. It manages the whole customer relationship rather than delegating it to the kind of affiliate arrangement common to most media company e-commerce. With the first profits expected this year from an estimated 3,000 car sales (the majority of them “nearly new”), this is neat integration for Dennis which now generates more than 50% of its revenues from its family of Automotive brands.

BuyaCar employs 25 people in a fragmented market where buyers of cars (average price: £10k) are drawn to trusted media brands rather than through social media and search. This is where a publisher can win. Dennis’s Auto Express, Evo and Car Buyer brands have more than 5m monthly users so they can push a lot of traffic to BuyaCar. “We already had an audience of in-market car buyers and relationships with the car brands,” says Tye. “We saw a change in consumer habit and felt there was an e-commerce potential. The margin is sizeable and we’re leveraging a really important audience through our websites. We are not going to try to compete with Amazon. It just feels like a very hard game. We can either do a small amount of high-value transactions or loads and loads of low value ones – we are definitely doing the former. We’ve got a big audience of in-market car buyers. We worked out that if someone is buying a car in the UK, two-thirds will visit one of our brands. That’s really significant because we can monetise that at a higher rate.”

Dennis takes a commission on each car sold, but the bulk of the profit comes from extras like the finance deals that dominate car buying in the UK. BuyaCar will this year account for more than 25% of Dennis’s £100m revenues – almost double that in 2016. It is by far the company’s fastest growing source of revenue, so Tye will soon be searching for more sectors in which to apply his new e-commerce skills. Presumably, he need go no further than the financial and insurance services for which Dennis is now accredited by the UK regulator.

It seems an appropriate post-Felix direction for Tye who became CEO in 2006, 14 years after joining the company as a computer journalist. In his first 10 years as CEO, he increased revenues by 50% by blending Felix Dennis’s gutsy “why not?”

CEO Tye: solidly ‘media neutral’

strategies and left-field ideas with his own cool analysis of markets and opportunities, and his thoughtful motivation of the team. It’s all a long way from the young journo who met the owner all of four years after he joined the company. He reportedly found himself summoned into the boardroom where Dennis started shouting, telling his editors that all their covers were “crap”. Tye was not the first or last person to see through the bluster and be enchanted by the infectious enthusiasm of a man who laughed as loudly (and as often) as he swore, and had unrivalled business instincts. Working for Dennis was never dull.

When he interviewed for the CEO’s job, Tye told the founder: “I’ll transform the company, taking it from a print-based publisher to a multi-platform publisher. But that doesn’t mean I’m going to throw everything I do in print out of the window.” Felix liked what he heard and enjoyed even more the way his new CEO proceeded to grow profits at a time when so many of their peers were struggling to stay afloat. But that was then.

The CEO clearly misses the noisy interventions and quiet counselling of his mentor. But he is reinventing the company with a conviction and style the founder would admire. Tellingly, Tye likes to quote a TED talk: “Great leaders are not head-down. They see around corners, shaping their future, not just reacting to it. They have diverse personal and professional stakeholder networks, and are courageous enough to abandon a practice that has made them successful in the past.” It guides the management style of the quiet enthusiast who has inherited one of the UK’s most exciting media businesses which aims to be “Brilliantly Different”.

It helps that Tye and many of his people have grown-up professionally immersed in technology. They really do exhibit a hunger for change and innovation that most established companies struggle to create. That readiness to ditch the traditions of a successful past arguably helped Dennis to beat many of its UK peers in the race to become truly ‘media neutral’: “This whole debate, print, digital, it just feels like ancient history. We just don’t talk about it any more. [Instead] I think there’s a celebration of skills. If you haven’t moved on from that you really do need to now, because your consumers don’t think like that, do they?”

The CEO warms to his theme: “You start with the customer and then try to fit the product into how they want to consume it. Plenty of magazines thrive as online brands. We’re not set on having a website for each of our magazines and not every site has to have a print product behind it driving content. I think that approach is what separates us from other publishers. We’re a 21st Century company and we give people the content how and where they want to consume it. I’d much rather focus on activities where we know our readers want to consume content.”

The new product development of some of the smartest companies involves testing parallel products with reverse characteristics. They prepare the logical business model, and then consider the seemingly illogical and unthinkable and try to make that work also. The combination of both approaches is usually the winner. That is more or less how Tye’s team looked into the future of car sales: “Certainly ten years ago, I don’t think anyone would have bought a car online, spent £15,000 and expected it to turn up delivered to their door. I think people are

Profitable after just 12 months

OK with that now, it’s learned behaviour.”

Then there is the way that researchers said young people were not interested in print and that parents were unlikely to subscribe to it on their behalf. Fast forward a few months and Dennis’s The Week Junior is set to become the UK’s most successful children’s magazine. It’s bankrolled by parent subscribers and became profitable just one year after launch. But good ideas don’t always work. The 300k circulation free fitness weekly Coach closed last year after 14 months, due to poor advertising revenues. However, you can’t find anyone who blames anyone for the failure of what most felt was a good launch and a brave initiative.

At the same time, Dennis is that elusive hard-soft combination of an efficient business as well as a creative one. The systems work well, morale is good and nobody complains about bureaucracy.

The company (some 25% of whose people are engineers/techies) has been quick to share content efficiently between brands, which has benefitted from the roll-out of the Slack cloud-based messaging and archiving system. The four-year-old Slack (originally an acronym for “Searchable Log of All Conversations and Knowledge”) has been described by Dennis CTO Paul Lomax as “an internal Facebook with instant messaging. But what’s interesting to us is how you can plug it into lots of different systems. So we have one channel where, when anyone closes an ad sale, it says that deal’s been closed. It allows information to radiate without you explicitly having to go and tell people as you would using email.”

But, for a publisher whose print magazines still account for 50% of revenue, there are plenty of challenges ahead. The walking wounded of legendary companies are a reminder of how today’s winners can become tomorrow’s casualties. Companies need to be testing, trying and turning over all stones in order to find the clues to the unimaginable Next Big Thing. More than anything else, they need to be versatile, agile and ambitious. That means having the “spare” bandwidth of people and resources in order to undertake large-scale new product development. It is significant that Dennis can demonstrate this muscle while having a higher revenue per head than all but one of its five larger UK competitors. This is a hard-working media company which is – to say the least – feeling pretty confident about its future.

Bookazines boom

The significance of online retailing is obvious, and the company which has made long-term profits by licensing its magazine content across the world will surely also find ways to market these e-commerce skills internationally.

But, perhaps, there are other less obvious clues to future growth. For the past 13 years, Dennis (along with many other magazine companies in the UK and US) has been publishing “bookazines”. These are hybrid publications offering high-quality illustrations and typically running to 180 or more pages. They are often said to combine the accessibility and entertainment of a magazine with the authority of a book. It may all have begun with Dennis’s Evo Supercars which, in 2004, rapidly sold-out 12,000 copies at £9.99. Trust Felix Dennis to get in early.

These relatively high-priced publications (with little or no advertising) are sweet and sour for many magazine companies whose bookazines have been padding copy sales and profits but also diverting both consumers and retailers from regular

Bookazines are big money

magazines. In the US, Folio has warned they were “a frightening development” which was cannibalising magazine sales. But, in so many ways, these high-priced packages of content (that were trail-blazed globally by colourful magazine-format recipe books) seem like a perfect response to the decline in magazine advertising and copy sales. In the US mass market, Hearst recently announced that its Dr. Oz The Good Life magazine would become a quarterly bookazine – priced $12. And Meredith is planning to relaunch Condé Nast’s closed House & Garden magazine as a $9.99 bookazine.

But bookazines have been strongest in the tech-lifestyle areas traditionally served by specialist consumer magazines, for which they are much more than ancillary publications. At Dennis, what are marketed as “MagBooks” may now account for some 5% of all revenues (well down from their peak). Although the tech sector may be getting saturated in the UK, the publications are the logical successors to the Dummies series, one-time product manuals, and Teach Yourself books. In the US, it is estimated that bookazines of all kinds are 8% of magazine units sold at retail but 14% of revenues. The UK market –  dominated by Dennis and Future – is said to be worth £45m in retail sales. It increased by 18% in 2016.

Dennis has a portfolio of some 200 bookazines across all its sectors including: “10-minute Yoga Cures”, “The Ultimate Guide to Marathon Running”, “Porsche Classics”, and “How To Be a Hit On YouTube”. The strong emphasis on fitness, self-improvement and technology implies that this publishing activity could morph into online “courses”, problem solving, “remote learning” modules, and even tech qualifications. It is fertile ground for a subscriptions-based media company to find  future growth in online services.

For all the continuing success of his company, Felix Dennis has left a giant hole. He had fickle views, for example, on

Sweet success (source: FIPP Congress 2017)

whether print was finished or would go on forever. But he never lost the competitive appetite that, arguably, made him the world’s best magazine publisher during the decades when that really meant something. Perversely, that was how he created what sometimes seemed like an autocratic company but which has continued to thrive without him. He planned his exit well.

Charity as owner

Dennis Publishing is now owned by the Heart of England Forest charity and is, therefore, generating profits in order to plant trees. James Tye says it gives the company a higher purpose: “As a company we are part of this plan, diverting a share of our profits to create this wonderful and generous woodland. I am often asked if being owned by a charity will somehow blunt our commercial edge? My response is that it will do quite the opposite. The ability to shape the future and create such an epic legacy is a far more exciting purpose than fattening up an investment house, feeding private equity or making an already rich individual, richer. Everyone who works at Dennis has the opportunity to be involved as much or as little as they like, from tree planting days in Warwickshire to just being part of a company that is making the money to help build the forest. This compelling purpose is our secret weapon in a media world dominated by drab institutions, who measure financial success in months rather than years. The Heart of England Forest is the only organisation I know with a 100-year business plan. And we’re part of it.”

The charity, in some ways, helps Tye to replicate the atmosphere of a well-funded digital start-up. Silicon Valley is full of creative companies searching for ways to motivate employees and customers with community projects, but Dennis has it ready-made. Even the towering legend of Felix Dennis and the celebration of his anniversaries create Steve Jobs-like excitement in the company’s zappy new London headquarters where images of trees are never far away.

But increasing digital revenues at the same time as slowing-down the decline of print are only parts of the challenge that may face the sparky management team. On a governance level, there is the change from the founder approving major investments with a wave of his hand, to a board of charity trustees which requires written proposals and formal discussion. Further, UK law dictates that trustees must make decisions solely in the interests of the charity. Some day, this might mean that they (or their successors) decide that the long-term funding of the forest necessitates the spreading of their investments. They may even decide to divest all or part of the media company. While charity ownership might seem easier for executives than, say, private equity, it can certainly be much less straightforward than working for a sole proprietor.

But other challenges may be more certain. For all Tye’s insistence that BuyaCar is not in the mass market, recent reports that Amazon (which has already trialled car sales in Italy) is ready to move into the UK market might bring some shocks. Few retailers of any kind are pleased when Jeff Bezos enters their market. After all, Vogue publisher Condé Nast was scared away from fashion e-commerce by – among others – Amazon.

Those can be the challenging times when James Tye will miss the founder’s phone calls. But he is well prepared.♦

15 October 2017 UPDATE: Quicker than we thought…Dennis Publishing is for sale, The Mail on Sunday reports. A trust set up by the late publisher Felix Dennis has appointed advisers from Livingstone to find a buyer for Dennis Publishing, which is likely to fetch about £150m. The proceeds will go to the Heart of England Forest charity, which was the brainchild of the media mogul who died of cancer three years ago. Dennis Publishing, which has a group turnover of £115m, declined to comment. (www.dailymail.co.uk)

Read more: http://www.thisismoney.co.uk/money/news/article-4980564/Viz-publisher-sale-150m.html#ixzz4vfkUEY1L
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How newspaper brands survive the meltdown http://flashesandflames.com/2017/06/07/how-newspaper-brands-survive-the-meltdown/ http://flashesandflames.com/2017/06/07/how-newspaper-brands-survive-the-meltdown/#comments Wed, 07 Jun 2017 15:34:16 +0000 http://www.flashesandflames.com/?p=21516 Washington PostDaily newspapers were the original ‘media industry’. That’s why executives are so tormented by the shredding of the news. They’ve been waiting for a grateful world to gift them a digital future. Newspaper owners – and a lot of other people too – can’t imagine a world without these legendary news brands. But they get a...

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Daily newspapers were the original ‘media industry’. That’s why executives are so tormented by the shredding of the news. They’ve been waiting for a grateful world to gift them a digital future. Newspaper owners – and a lot of other people too – can’t imagine a world without these legendary news brands. But they get a lot of encouragement.

The UK election campaign is the latest reminder that a whole generation of pre-digital politicians still attaches disproportionate importance to print journalism. The obsession is nurtured by the country’s TV and radio news channels which devote many hours each day to reviewing the content of newspapers and screening the front pages. So, British voters go to the polls knowing exactly how The Sun tabloid is urging its readers to vote – even though its circulation is 70% less than 25 years ago when it pompously claimed the credit for an election victory: “It’s The Sun wot won it”. But the “many see, few buy” state of UK newspapers (which actually might be missed by the millennials who never bought papers) helps to obscure the reality of their decline. They may be only in the first-stage of an increasingly painful disruption:

  • Disruption 1.0: Fragmentation.  The first-stage disruption was the hammer-blow fragmentation of a media market once dominated by newspapers. The technology which has given consumers more media than they can possibly consume has also given businesses virtually unlimited places to put advertising. The realisation that
    “Print still gets much more advertising than it should” (source: Kleiner Perkins Global Internet Trends 2017)**

    print-centric media must adjust to “only” one revenue stream (like almost everyone else) is the wake-up call. But, despite Mary Meeker’s latest assertion (right) that print still gets much more advertising than is justified by its shrinking share of audience time, publishers are in denial. Many of the UK’s national dailies are, for example, currently inflating their circulation figures by up to 20% with free copies, in vain efforts to compete for those vanishing ad revenues. They can’t get their heads or spreadsheets round the fact that spoilt-for-choice readers will increasingly pay only for distinctive content not for the freely-available general news. But that low-value news stubbornly continues to dominates the content – and costs – of most daily newspapers.

The future winners will be those able to exploit the increasingly clear distinction between two broad types of competitive media: 1) Free, mass-market content funded by advertising or sponsorship. 2) Reader-funded content without (any or much) advertising. All types of media (whether in print, digital or broadcast) will be able to thrive as either type of media. Only a small number of exceptional brands will be able to straddle the two.

End of the news ‘department store’

For most, it will be the end of daily newspapers as “department stores” of news, information and entertainment – and of sky-high staffing levels funded by once-booming advertising revenues. If they don’t narrow their focus and concentrate on exploiting distinctive content like political analysis, these traditional news brands risk losing out to digital specialists like the burgeoning Politico in the US and Europe. Sport is another area of traditional newspaper content that risks being lost to specialist providers if newspaper brands don’t give readers the opportunity to buy it separately from the ‘bundle’. It is all part of the need for these print-based ‘product producers’ seriously to become multi-channel ‘service providers’.

But they need a new business model and a fundamentally different approach to costs. The daily newspapers’ traditional luxury of paying for multiple sources – staff, contributors and news agencies – to provide even freely-available general news coverage must come to a grinding halt, along with their out-dated approach to selecting content for publication only after it has been produced. There’s nothing wrong with providing

Disruption has only just begun

general low-value, non-exclusive news to complement high-value exclusive content – as long as you don’t expect readers to pay much for it. The increasingly inefficient  system of casual street sales of newspapers will also disappear along with many of the retailers which once depended on them: only subscriptions and membership will make sense for paid-for news, whether in print or digital. Having a direct relationship with (and data on) readers is valuable whether or not you sell advertising. But the cost squeeze will intensify as these legacy businesses try to hang on to readers that may – for a long time yet – be inconveniently and expensively divided between print and digital.

  • Disruption 2.0: Newscasting. Next comes the accelerating video competition for traditional news brands which have already been struggling to keep up with the smartphone news of low-cost, digital-only operators. The increasingly global TV news channels will upstage most newspapers which are already behind the pace in the consumer demand for video and (coming soon) virtual reality. Moreover, the rapid growth in on-demand TV viewing will help the news-only channels to capture large audiences that have long been ‘locked-up’ by the news bulletins of mass market television networks. So, mass audiences that want news in video and on-demand will not be coming back to newspaper-like content, whether in print or online. But there’s worse.

The news disruption may be accelerated by the growth of voice-activated technology like Amazon’s Echo, Google Home and Apple’s HomePod. These “smart speakers” this week drew the fire of WPP boss Martin Sorrell who identified them as a new threat to the advertising industry. In practice, they will be challenging all media channels. Echo et al will soon offer all kinds of content at the expense of the media brands that have already been air-brushed by social media. Consumers will be able to choose scheduled ‘push services’ like wake-up news bulletins, podcasts, sports news and weather reports via these speakers. Perhaps music will be meshed into it too, to create personalised radio to compete with streamers and broadcasters. Jeff Bezos’s learnings from the Washington Post will not be wasted in this birth of Newscasting. On-demand audio and video could squeeze the life out of all but the best news brands. But the disruption won’t stop there.

  • Disruption 3.0: Journopreneurs. Newspaper executives make much of the supposed risk to the survival of high-value journalism posed by the decline of print. But the rapid growth of not-for-profit digital services – and the reader-revenue success of political magazines and digital ‘explainer’ journalism – is helping to disprove that. Easy-to-use, low-cost tech and the loud-hailer of social media are creating a boom in small-scale, citizen and home-made journalism. But a coming explosion in high-quality blogging and free or low-cost journalism will attack newspaper-centric businesses from all too familiar sources: their own journalists.

These news companies find themselves out-paced by digital rivals whose tech-savvy teams are younger and leaner. For all the salami-slice cost-cutting of recent years (many with staff reductions averaging 50%), most daily newspapers are still heavily over-staffed. The unrelenting squeeze on revenues will ultimately force newspapers to lay-off large numbers of experienced journalists and, as a result, expose themselves to an explosion of Journopreneurs. Blogs, news services and ‘push’ emails everywhere will effectively be funded by newspapers’ severance payments. The legacy news brands will unwittingly be funding their next competitors.

As a result, news will become a much smaller business than it is now. But there will still be plenty of it. The independent provision of news – whether local, national or global – is not going to disappear, even though some of its most profligate providers will.

More than just cost-cutting

It is a whole decade since former Harvard professor Clark Gilbert first urged newspaper companies to separate new digital operations from their traditional businesses, before successfully putting his “dual transformation” theories to work at Deseret Media. Gilbert was proving the point that the quite distinct streams of new and old media require different people, skills, investment horizons and – in each case – single-minded management. The important takeaway was the need for a new plan, not merely a tweak of an old one. The search for a new business model is so much more than merely cutting costs. Of course.

It is clear that the likely winners among major newspaper publishers will be those with the unswerving support of long-term shareholders – and/or alternative businesses to fill the gap left by the loss of news revenues. Prominent among these will be a global clutch of family-controlled companies which are busy digitalising away from the print businesses that had once made them rich and powerful.

Hearst: what disruption?

The world’s first media company was created 130 years ago in 1887 when (William) Randolph Hearst transformed his single San Francisco newspaper into a media company with the acquisition of newspapers, magazines and pioneering

The world’s most profitable daily?

movie and newsreel productions. Sixty-six years after his death, the company has become a post-digital role model with more than 360 businesses and 20,000 employees in 130 countries.

From being a company once known primarily for its newspapers and global magazines like Cosmopolitan, Hearst now makes far more profit from its fast-growing business-to-business information companies. It generates high-value data, analytics and software for the healthcare, finance and automotive industries and utilities around the world. Its largest company is the 80%-owned Fitch credit ratings group.

But Hearst still makes more of its profit from broadcasting than anything else, which includes substantial earnings from shareholdings in businesses managed by its hand-picked partners. It has more than 30 television stations such as WCVB in Boston and KCRA in Sacramento, reaching almost 20% of US homes. Its long-established A+E Networks JV with Disney has the cable TV channels A+E, History, Lifetime, Crime & Investigation, Biography, and Vice Media’s new Viceland.

These highly profitable TV interests have often been dwarfed, though, by Hearst’s 20% share of the Disney-controlled ESPN, long the world’s most successful sports cable network. Over the past 25 years, ESPN has thrown off huge amounts of cash for its owners. Some years, it has generated 50% of Hearst’s total profit (a role now taken on by Fitch, just as ESPN itself fights decline).

As Hearst redoubles its efforts to find fresh businesses that will transform profitability like magazines and cable TV once did, its investment policy may shift in the direction of the acquisition of Complex Media (50m monthly uniques and 300m monthly video views) by a Hearst joint venture with the US broadband-telco Verizon. Ever since its initial stake 21 years ago in the once-dominant Netscape, Hearst has been one of the most successful media-tech corporate investors with more than $1bn invested in companies including: BuzzFeed, Vice, HootSuite, Caavo, LiveSafe, Roku, Science Inc, LiveSafe, Stylus, Swirl, and MobiTV. It’s a great talent spotter in more ways than one.

Buried somewhere in the glowing testimony of high-growth media is Hearst’s original newspaper business which now has the lowest profit among the company’s media divisions. But the quietly reinvented business is doing better than most of its peers. With more than 4,000 employees, it publishes 17 dailies and 57 weeklies in Texas, California, and New York state. Its local digital services have also grown by an average of 14% for the last four years and have more than 30m monthly uniques. The real achievement of this legacy business, however, is that Houston Chronicle, has become one of the world’s most profitable daily newspapers. The figures are closely guarded but the 115-year-old daily may be making profits of more than $60m – or over 50% of all the profit made by Hearst’s 70+ newspapers.

What is the largest newspaper in Texas and the sixth-largest newspaper in the US has successfully developed into a multi-media company producing a portfolio of print and online products serving Houston’s diverse audiences, in English and Spanish. The Houston Chronicle has successfully built and maintained its market leadership by building paid-for as well as free distribution businesses, as follows:

Is this the world's most profitable newspaper?

  • The paid-for flagship daily complemented by local weeklies and branded editions.
  • A market-leading free web site (Chron) which is distinct from the paid-for site for newspaper subscribers.

More than anything else, the two-site strategy is a neat (and obvious when you think about it) way to out-compete the digital-only competition while building a strong digital presence for subscribers for whom the paid-for web site (with its 1m paying viewers) is a bridge from print to digital.

The Houston Chronicle performance is crucial to Hearst’s newspaper group which, despite its shrinking importance to the parent company, grew 2016 profits for the fifth consecutive year. Hearst Corp total revenues last year were some $10.8bn. Although that revenue was only 1% up on 2015, it has grown by 140% in the past decade. Even the realisation that the numbers are flattered by revenues from the $2bn spent on acquisitions during the year, serves to underline the powering reinvention of a media group whose pre-tax profits are now more than $1bn. For all the disruption of its once-dominant print businesses, the so-versatile Hearst has scarcely missed a beat.

News Corp: ‘the other business’

Rupert Murdoch was the successor to Randolph Hearst as a fearsome global media strategist. But more so. He used his once-booming newspapers in Australia, the UK and US to build a conglomerate in movies, books, digital services and TV.

Murdoch’s two public companies, News Corp and 21st Century Fox, have a combined market value of $58bn. But the value of News Corp is scarcely a tenth of the total value of the two companies which together were known as News

Murdoch was once all about newspapers

Corporation, until the 2013 demerger. The company now includes Harper Collins book publishing, Foxtel Pay TV in Australia, US coupon distribution, Dow Jones Newswires, the Wall Street Journal, and largely loss-making metropolitan and national daily newspapers in its three core countries.

News Corp has revenues of some $8bn, almost 25% of which are derived from the Australian, British and American newspapers. But profits tell a different story. The newspaper losses are obscured in the company’s accounts by its powering US coupon company. This company, the digital real estate media (primarily REA in Australia and Move Inc in the US) and book publishing accounts for all the News Corp profit – and all its growth.

These powering businesses, especially the property media (with revenue up 13% in the past year) has provided cover for the core newspapers which are now starting to deliver the required shift to digital subscriptions:

  • Wall Street Journal subscribers are now 53% digital and are up 44% in the past year to an average 1.2m.
  • The Australian newspapers have increased digital subs by 27% to 333,400
  • The switch in The London Times to three editions daily seems to be paying off with viewership up almost 40% on its smartphone app. The Times and Sunday Times now have 185,000 digital subscribers. The Times is launching The Brief, a premium website and subscriber events for legal readers. It signals a new area of paid-for expansion which, in the future, might include B2B vertical media targeting professionals in politics, culture, property and retailing.
  • The Sun’s (now free) digital service reached more than 80m global uniques in March 2017 – up from 36m. This growth, alongside the interesting UK acquisition of TalkSport radio, shows that The Sun could soon be head-to-head with BuzzFeed and Daily Mail Online.

News Corp shares its Murdoch family senior management with 21st Century Fox but News Corp is their ‘other business’ and, despite Rupert Murdoch’s own sentimental attachment, newspapers are right at the bottom of the pile for his sons and heirs who are, increasingly, in charge.

New York Times: ‘all the services fit to test’

The New York Times is the whole business, not a reducing priority in a media conglomerate. It illustrates, therefore, what can be done with an endlessly patient and focused owner. A newspaper that was once all print and mostly casual street-sale readers in the US is now seen to be strongly subscriptions, increasingly digital and global. The company, which now has 3.2m subscribers (2.2m digital) had $399m of revenue in the first quarter of 2017,

New York Times branches out

including a stunning 400k subscribers to the daily crossword puzzle.

So, it is that Arthur Ochs Sulzberger, the newspaper’s third-generation family majority shareholder, told Wired magazine of his plan to make digital subscriptions the main engine of a billion-dollar business, inspired by Netflix and Spotify. The company was investing in its core journalism while adding new online services and features (from personalized fitness advice and interactive newsbots to virtual reality films) so that a subscription became indispensable to paying subscribers in the US and internationally.

The milestones are impressive:

  • In the first quarter of this year, it added 308k digital-only news subs. Circulation revenue from digital-only subscriptions increased by 40% to $75.8m. Its online site has some 90m monthly uniques.
  • “The Daily,” the newspaper’s brilliant daily podcast, introduced in February, already has more than 27m downloads and streams and is on track to exceed 100m this year. Many expect the launch of a business version of the podcast during 2017.
  •  The New York Times now has 13m email subscribers – doubled in three years, on the back of no fewer than 5o newsletters “pushed” to subscribers on a wide range of subjects. These newsletter subscribers are twice as likely as regular readers to become subscribers, and they read twice as many stories per month as the average newspaper reader.
  • The newspaper is about to launch its next big paid-for product: Cooking, a three-year-old hitherto free app and site that currently has 10m monthly uniques. Readers will be able to get 10 free stories per month before having to pay up. Only a small proportion of Cooking’s bank of 17,000 recipes and articles will still be freely available and readers will also have to pay for a time-saving “Your Recipe Box” feature.

Many newspapers (and not just in the US) have benefitted from a rise in readership as a result of the almost daily comments of President Trump, ironically their harshest critic. His tweets and speeches have created huge volumes of news traffic. They have helped the New York Times to grow an international online audience, alongside its print edition (formerly known as the International Herald Tribune).

But the innovations show that New York’s favourite broadsheet is fast becoming much more than a news provider. Its historic slogan “All the News that’s Fit to Print” might almost become “All the services fit to be tested”.

Washington Post: no billionaire’s toy

The 2013 announcement that Amazon founder Jeff Bezos had acquired the legendary Washington Post from the Graham family for $250m was exciting news for forlorn newspaper industry executives and for reporters who dusted off their anecdotes about how Lehman Brothers (yes) had once predicted Amazon would go bust. The deal was a thunderbolt for US media which reacted as if, well, Donald Trump had bought the Smithsonian or the British Museum.

Once the dust had settled, it became clear that, however much the investment seemed very small in relation to Bezos’s $50bn+ fortune, Washington Post would not be a mere plaything for the billionaire who has invested in everything

The Bezos revolution is underway

from space travel to Uber, Business Insider, and Fundbox. The man whose fusion of e-commerce and content has arguably re-defined not just retailing but also media, has been serious in his time-efficient way of searching for solutions to the seemingly terminal problems of daily newspapers. And he has been enthusiastically investing in the expansion of staff and resources. Last year, it started to pay off.

The Washington Post claimed to have become America’s fourth national newspaper, joining the New York Times, the Wall Street Journal and USA Today, to have added 60 journalists (8%), and, most striking of all, to have become profitable for the first time in a decade. It increased subscribers by 75% and says it has doubled digital subs revenue. It also doubled its overall readership in print and online. Bezos is distinctly hands-off when it comes to content and editorials but his fingerprints are all over a strategy that has 80 techies working alongside the paper’s 750 journalists, to produce huge amounts of video, print and digital content.

For the newspaper that made its modern reputation by exposing the Watergate presidential scandal in the 1970s, the Washington Post is making the most of its opportunity with Trump. Reporting has been expanded, not least with a quick-response investigative team, 62 different newsletters and big investment in mobile video and audio/podcasts (built on the success of its 44-episode presidential podcast series). The Post is all over the stories the world is following from Washington and the site has some 80m monthly uniques.

The newspaper, though, is very much still a work in progress. Bezos has ensured his people are working all the time to maximise download speeds and a range of other tech issues. Although Bezos owns the newspaper privately, it is not just Amazon’s launch into video streaming that brings his two main business interests so close together. Recently, the Post signed its biggest contract to sell web publishing tools, mostly hosted by Amazon. The deal, with the Los Angeles Times-parent company, is a boost for the profitable, year-old service, Arc Publishing, which now has 12 clients.

The approach to making money out of tools originally built for internal use, is reminiscent of what Amazon did with the data centres that now form the backbone of Amazon Web Services (AWS). The deal benefits AWS, the world’s biggest cloud-computing business and Amazon’s fastest-growing division, which last year grew sales by 55% to $12.2bn. Arc is a neat opportunity to extend into publishing. Alongside Washington Post subs offers to Prime subscribers, it may also point the way towards a global push for the news brand itself. Alexa and Amazon Prime: you’re going to be in the news business.

Schibsted: who guessed?

The Oslo-based company, whose newspapers Verdens Gang and Aftenposten have long been dominant in Norway and Sweden, is the global media success few could have predicted. Schibsted has been a public company since 1989 but its independence is protected by a family trust which remains the largest shareholder.

These past 10 years, the 178-year-old company has dazzled its peers by gutsily using its newspaper platform to a build a world-class digital business. It has moved fast to strengthen its existing businesses and faster still to launch new ones. The strategy came from Rolv Erik Ryssdal who became CEO in 2009.

Schibsted’s visionary CEO Ryssdal

Schibsted has growing newspapers-magazines-books-TV operations in Estonia, France, and Spain and nearly-global online businesses. It was, arguably, the first significant newspaper company to realise the potential of becoming the digital disruptor in markets where it had no legacy business to defend. The company now employs 7,000 people in 30 countries across three continents. Last year it increased revenue by 13%, with profit margins reaching 19%. More than 70% is now digital revenue, and digital classifieds grew by 17% in the first quarter this year. It also owns 41% of the 20 Minutes free newspapers in Switzerland, France and Spain.

The vitality of Schibsted can be gauged by two recent successes:

  • Shpock (“shop in your pocket”), the ‘flea market app’,  has more than tripled to 41m downloads and 12m active monthly users in the past 18 months, principally in Austria, Germany, Italy, the UK, Norway and Sweden. It is on the way to becoming a serious challenger for eBay.
  • VGTV, the video channel spun-off from the leading Norwegian daily, now produces more revenue than the seven-day newspaper itself. In 2016, the 70-person VGTV generated $10m, and increased revenues by 51% during the first quarter of 2017 from daily unique audiences of 420k. That and also advertising was up almost 30%.  VGTV is getting almost 1m video views – in Norway, which has a population of only 5m. This increasingly effective monetisation of TV-like online video news looks like a perfect role model for media groups everywhere. Especially those, like Schibsted, which realise that the success has been turbocharged by its separation from the newspaper which spawned it.

These fast-moving initiatives are part of the next wave of growth for the once small Scandinavian company that has become such a global force, increasingly head-to-head with its near neighbour in Germany.

Axel Springer: living the dream

The Berlin-based publisher of Die Welt and Bild recently reported EBITDA profit up by 17%, revenues up 7%. It is now generating 80% of its profits from digital and 50% of its revenues from international markets    including the US where it has become one of the most active investors in Silicon Valley startups. Axel Springer is living the dream of newspaper-centric businesses everywhere.

Doepfner: the boss from nowhere

As recently as 2009, the Berlin-based company seemed like any other troubled newspaper group whose sliding print advertising and circulation revenues had slashed EBITDA profits by almost 40%. The publisher, which 15 years ago was described by the Financial Times as “an internet midget”, is now a hyper-active 21st century digital media company.

It is 71 years since Springer was founded in Hamburg by Heinrich Springer and his son Axel, with the launch of the TV listings magazine Horzu and acquisition of the newspaper Hamburger Abendblatt. Their prestige and profitability were transformed by the 1952 launch of Bild, based on Alfred Harmsworth’s pioneering British tabloid, the Daily Mirror. But Bild (“Picture”) became more raunchy and politically right-wing. It has long been one of the world’s largest-selling dailies and is still Europe’s leader, with almost 2m circulation – even after a 50% decline in the past seven years.

Axel Springer founder died in 1985. His company’s controlling shareholder is his fifth wife, Friede Springer. The newly-public company lurched from one crisis to another in the 15 years following its founder’s death, with a succession of bosses and disastrous strategies. Then, along came its unlikely saviour, Mathias Döpfner. Having studied musicology, literature and theatre science in Frankfurt and Boston, the 6ft 7 inch-tall editor began his career in 1982 as the music critic of the Frankfurter Allgemeine Zeitung. After working as a news correspondent in Brussels – and also as manager of the Winderstein concert agency – he moved to Gruner + Jahr in 1992.

Four years later, he became editor-in-chief of the tabloid Hamburger Morgenpost. In 1998, he joined Axel Springer as editor-in-chief of Die Welt, its prestigious –  but seldom profitable – national daily. He sharply reduced its losses. Within four years, the seemingly unambitious Döpfner found himself propelled into the Springer senior management. He became chief executive in 2002. It was the year after the company managed to make losses of €200m. He set about cutting costs and, in 2004, increased Springer profits by 23%. He also managed to rid the company of its hostile 40% shareholder, the former TV entrepreneur Leo Kirch. Friede Springer now controls 57% of the public company’s shares.

In 2016, Springer made EBITDA profit of  €0.6bn (+6.5%) on revenues of €3.3bn (+4% underlying). Profit margin was 18% from some strong performances:

  • World-leading position in digital classifieds for jobs, homes and vacation rentals, especially in Germany, UK, South Africa and France. These revenues are growing organically at 12% and generating profit margins of 21.5%.
  • Growing paid-for international media. Business Insider (a mix of free and paid-for services) was acquired for a heady $450m in 2015 – on the rebound from Springer’s abortive bid to buy the Financial Times. The 50% increase in revenues so far this year – and a 30% growth in video views – indicates the gamble is starting to pay off.  In just 10 years, BI has grown from a three-person tech blog to an increasingly global news organization reaching a claimed 300m people each month. Springer may have similar ambitions for its mobile news aggregator Upday available across Europe exclusively on Samsung devices.
  • Some 430k digital subscriptions for its two German daily newspapers.
  • Its adventurous investment strategy in startups including as a major shareholder, alongside Discovery Communications, in Group Nine Media, a millennial portfolio which claims 3.5bn monthly video views. It also has a 50% share of the Brussels-based Politico Europe, which has 1.5m monthly uniques and a weekly print magazine.

The €6bn company has tripled its value in the past 15 years. The expansion underlines how Springer (like Schibsted) has been able to grow new digital business best by expanding in markets where it had no traditional media to defend. These companies have worked out how to become the disruptors.

Fairfax: Out of the fire

The publisher of the Sydney Morning Herald (SMH), The (Melbourne) Age and the Australian Financial Review – is the archetypal story of newspaper decline. For decades, Aussies looking for a house, car or job in the country’s two biggest cities only had to go to the two most profitable and prestigious broadsheet newspapers, the SMH and The Age. Weekend

Packer and Murdoch revenge

editions once weighed 2kg, some of the heaviest papers published anywhere.

The long-term print classified success bred a familiar complacency. After the inevitable collapse, Fairfax has been widely criticised for passing up early, low-cost opportunities to own what are now Australia’s leading digitals in motors (CarSales), homes (REA), and jobs (Seek). Fairfax executives in the 1990s voted for the continuing supremacy of their print classifieds (once described enviously by Rupert Murdoch as “rivers of gold”)  and passed up repeated chances to take control of the emerging digital companies.

The Fairfax brush-off left the startups to be funded, instead, variously by Lachlan Murdoch and James Packer. The fact that those three digital companies together now have almost 10 times the value of Fairfax Media is the well-publicised “revenge” for the new generation of the families which had long fought to control the 17-year-old newspaper group.

Fairfax’s painful recovery from those sleepy “print classifieds will never die” days are now marked by its own high-performing online property site Domain launched from the Sydney Morning Herald to become the no.2 to the News Corp-controlled REA.

It has been estimated that Domain, as a stand-alone site, would be worth more than the value of Fairfax as a whole, which is why the troubled parent company now finds itself the subject of competing private equity bids. The bidders are appetised by the view that the online property success would be greater still if unencumbered by print operations.

Flakey strategies and investor pressure had led Fairfax openly to flirt with the possibility of scrapping its printed newspapers – until someone did the calculations. Having come to their senses and reaffirmed the continuation of print for some years yet, the next Fairfax plan was to propose an IPO for the Domain site. That would have enriched shareholders but left the company with seemingly with only a half-share in a radio group as offering any growth prospects at all. Predictably, the Domain spin-off plan provoked the private equity bids, from the US-based firms TPG Capital and Hellman & Friedman (whose boss is a former chairman of Fairfax).

It might all have been so different. The A$1.9bn Fairfax Media might have been in the same position as Hearst, News Corp, Schibsted et al. But the founding family lost control in 1990 when an errant 26-year-old son son leveraged the business into bankruptcy. The upshot was a succession of ownership tussles involving disgraced Canadian proprietor Conrad Black, Aussie media mogul Kerry Packer, and mining heiress Gina Rinehart. Twenty-five years of contested ownership, abortive mergers, bungled acquisitions, and six different CEOs would have been challenge enough for a traditional news group even without digital disruption and the loss of its classified wealth. Fairfax had it all.

The once towering media group has found itself under continual pressure from impatient shareholders, who have despaired of the strategic zig-zags. Despite having made more than 2,000 redundancies in the past seven years, the company still looks flabby. Observers cannot understand why Fairfax finds itself unable to make any kind of sustained profit from, say, the 100,000 daily newspaper sales each of the Sydney Morning Herald and The Age (with cover prices of A$2.80 and A$4.40 respectively). As elsewhere, there are even richer pickings at the weekend, and that’s before counting the revenue from pretty impressive digital audiences. If Fairfax can’t make the Australian Financial Review profitable with 50,000 daily sales at A$4.40, surely someone else will. But that will now be down to the sharp-pencilled whizzes of private equity. A few years of private ownership might now, perversely, give these legendary news brands the opportunity of reinvention away from the glare. Just like the others.

Protected by family trusts

These positive developments at family/trust-controlled news companies (sort of) reflect what Clark Gilbert was saying about the need for traditional media to concentrate on its core relationships, unencumbered by the new digital opportunities. What once were newspaper groups have used their power, profits and audience platforms to create substantial new media businesses. Protected from short-term pressures by dynastic shareholding arrangements and alternative growth businesses, these once great news companies are free to experiment in order to maximise opportunities in a shrinking industry.

Other news companies may be able to secure a future, not least in partnerships with broadcasters, tech companies or digital-only news services. Some might become charities. But it will be a very different news business. The clue is in the way that the ‘news’, which once was the main focus of all these companies, is now mostly way-down the pecking order.

So you’re English…

As the ‘inventor’ of national daily newspapers, the UK may again provide some stand-out retreats from global strategies that always seemed to make too much of their supposed ‘advantage’ of the English language. That is how it seems for two more quite dissimilar UK family-trust controlled media companies.

It is exactly 10 years since The Guardian became the first to roll-out a global news strategy which always seemed more a philosophy than a business

Nice paper, shame about business plan

plan. The free-spending expansion (subsidised by windfall profits from non-newspaper investments) started in the United States where then-editor Alan Rusbridger built a considerable editorial reputation with his award-winning coverage of Wikileaks and Edward Snowden. But his New York office, along with an Australia base, may soon become spectacular casualties of The Guardian’s life-saving campaign to halt its £100m annual cash burn – and ensure its survival. Or they may be hived off to the punchy Vice News, with whom The Guardian now has a TV joint venture.

The ads-funded global online strategy never made sense for the charity-owned news brand that (even now) could become safely profitable and reader-funded if it gives up the world and gets back to concentrating on the UK, where it has more than 100,000 paying (something) members. It might even generate ancillary worldwide digital subs revenue without really trying. The trouble is that, even in its most profitable, print-only days, The Guardian was never a major display advertising medium (most of its ads came from jobs classifieds). How could it have expected to do any better across the world in the digital-ravaged 21st century?

But The Guardian is far from the only British newspaper to have wasted money on hubristic, global dreams.

The family-controlled Daily Mail & General Trust (DMGT, founded 120 years ago by tabloid pioneer Alfred Harmsworth, ancestor of the current chairman and controlling shareholder) earns the majority of its profits from high-performing international B2B media, notably in the US. In that sense, it has secured its future. But the company remains best-known for the Daily Mail, the vociferous mid-market tabloid which is still one of the UK’s most profitable dailies alongside its best-read daily, the Metro free tabloid. This is the legacy news business that the DMGT parent group has expanded away from.

Mail Online boasts a mighty 240m monthly audience for its racy, showbiz-focused news service, which shares the branding but little else with a newspaper that still scares British governments to death. Mail Online has digital teams in London, New York, Sydney and Los Angeles, which pump out 1,200 pieces of content and 800 videos a day. It gets some 1.5bn mobile impressions daily. But the lengthening list of controversies, claims and inaccuracies is clearly hampering its commercial development in ways that underline the difference between a national news service and a global one. It is no exaggeration to say that some UK politicians would be simply too frightened to complain about hostile coverage in the Daily Mail. There’s no such apprehension, of course, in the US and Australia.

The controversies (highlighted by an expensive settlement recently with one Melania Trump) are keeping some advertisers away, in print and online. It is more than five years since Mail Online’s promised breakeven date came and went, amid staffing levels that are much more Fleet Street than BuzzFeed. And Jonah Peretti gets a lot more revenue. The Mail just doesn’t get it.

After 14 years of losses, DMGT (which, memorably, hung on to its UK regional newspapers long enough to lose almost £900m on their eventual sale) might just make a gilded escape from global online news and, perhaps, from the whole of its declining news business. Its claim to have “the world’s largest newspaper web site” is a good selling point, whatever the losses. Divestment could more than pay-off DMGT’s £700m of borrowings, create a war-chest for long-term B2B acquisitions and give shareholders something to smile about. Just watch.

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