What killed Britain’s best media company?

Seventeen years ago, The Independent described a British business as “one of the most admired media companies in the world”. It was a widely shared view of a group which had grown, in 50 years, from humble origins as a regional newspaper publisher to a £1bn turnover public company with fast-growth, vibrant operations in magazines, online information, exhibitions, and radio.

It had scaled the heady heights of the FTSE 100 top UK companies. By 2001, it was making pre-tax profits of almost £200mn and had investment analysts purring over annual growth rates of 30-40%. This was EMAP plc. It was a company on a roll at a time when “media” had become centre-stage, courtesy of the burgeoning internet, mobile telephony, pay TV – and soaring magazine sales.

To investors, staff and competitors alike, EMAP had star quality. In the 1990s booming magazine market, it was Apple, Virgin, and Amazon rolled into one. Its long run of money-spinning new brands, touchy-feely, low-ego management,  thousands of employee-shareholders, and down-at-heel offices defied those who said creative companies couldn’t hack it on the stock market. EMAP was hot, and was frightening its competitors to death.

But EMAP plc is no more. The “media” has never been bigger but the British company which was its brightest star for a cool 25 years fell apart in 2008. So what went wrong?

The rise and fall of EMAP is the stuff of business school case studies.

The story began quietly enough in the mists of 1887 when an east of England aristo politician, Sir Richard Winfrey purchased the Spalding Guardian as the first of a series of local paper deals in Northampton, Peterborough, Norfolk and Suffolk. After World War 2, the family’s collection of 17 newspapers was brought together under the name of East Midland Allied Press.

The single step along a path that would eventually transform the little-known publisher into a major UK company was not much more than a search for work to fill its spare newspaper printing capacity. In 1953, this led to the launch of Angling Times, followed by Trout and Salmon, the acquisition of Motor Cycle News (MCN), and the launch of Garden News. MCN, which had been bought for only £100, went on to make millions for the fledgling business and became the biggest single earner for much of EMAP’s life, still as a newspaper. But the real game-changer came with the 1978 launch of a magazine called Smash Hits.

The new-wave fortnightly, which published lyrics of current pop songs, was itself an instant hit. An initial circulation of some 10,000 soared to a million within 12 months, catapulting magazine and publisher into the big league. And it had a seismic impact on the magazine market. EMAP started creating new titles at a prodigious rate: Q, Mojo, Empire, Looks, Bliss, More, and Just 17  followed in quick succession.

A relatively small men’s fashion magazine For Him was given the EMAP work-over and became the worldwide franchise FHM in the 1990s booming young men’s market, selling almost a million copies along the way, and generating tens of millions of profit.

In the women’s market, EMAP launched Red and revitalised weekly gossip mags with the huge-selling titles Heat, Closer, and Grazia. After years of relatively few major new magazines in the UK, EMAP awoke the market. Even Heat , which initially bombed when launched as a men’s entertainment title in 1999, was boldly transformed into the country’s most profitable women’s weekly by the media company that seemed able to achieve almost anything.

The rush of fresh, glossy titles for young audiences who had tired of long-established magazines inherited from their parents’ generation, would, on their own, have made quite a company. But that was scarcely half the EMAP success story. It kept making industry-best profit margins from its regional newspapers before selling them in 1996 for £200m, virtually at the top of the market.

In 1991, EMAP spotted that commercial radio (then a struggling medium able to grab only 2% of total UK advertising spend) was set to grow and went about snaffling regional franchises successively in Liverpool, Manchester, Leeds, and Newcastle before muscling in on well-heeled London. Within a few years, radio’s advertising share had soared to 6% and, with it, EMAP’s earnings from major broadcasters like Magic and Kiss FM. And magazine brands like Heat, Kerrang, Smash Hits and Q became music TV channels.

The high-flying company had published computer magazines before most people had computers and Internet magazine and online sites (in 1994) when few had even heard of the internet. Now, it went on the acquisition trail, snapping up business information and trade exhibition companies. By the mid-1990s, the company’s business-to-business division (with magazines like Broadcast, Retail Week, Drapers, PC User, Which Computer?, Nursing Times, and Construction News; and exhibitions like The International Spring Fair) was almost as large as its consumer magazines and radio was not far behind.

Everything was bubbling nicely in the company nicknamed “Every Meeting A Party” by sniffy competitors. Thousands of EMAP’s employees were shareholders, who flocked to meetings to hear about the company’s latest successes. It was the place that everyone in media wanted to work.

The City too loved the go-go company that was notching up record earnings year after year with high-yielding organic development and smart bolt-on acquisitions. EMAP’s ground-breaking 1988 deal to form the Frontline consortium (with fellow publishers the BBC, Haymarket and others) to out-muscle the retail distribution of market leader IPC, showed that the hyper-active, try-harder company was more than sizzle: it had a strong strategy and was looking after its costs as well as pushing hard for new revenues.

The success was real. This was no mirage in a media market shadowed by the rise and fall of the never-quite-what-he-seemed Robert Maxwell. EMAP’s magazines were solid bestsellers, its businesses were powering ahead and, in market-after-market, the company was able to dominate reader and advertiser demand for new publications. And, in an era when ‘creative accounting’ was being squeezed out of public companies, EMAP’s profits were real too. Overheads were low and the company outpaced its competitors with cash flows that often exceeded reported profits.

It was a fantastic story burnished by the pop and media stars who breezed through shabby-chic offices in London’s Carnaby Street and Clerkenwell. Stories of executives changing lightbulbs and buying toilet rolls only added to the image of a company at ease with itself and its rising success. But not everything at EMAP was quite so cheerful.

That 1994 Independent interview was prescient. Its headline had been: “They may be the odd couple of business but…Emap’s chiefs are happy to keep on arguing in the Boardroom”. The ‘Odd Couple’ was Robin Miller and David Arculus, respectively CEO and Group Managing Director, the two men who had driven the company forward for more than 20 years. It was an odd relationship alright. Miller, the former Motor Cycle News editor and Arculus, the one-time BBC producer  and “corporate planner”, were the perfect combination for a company low on hierarchy and status but strong on innovation, plain speaking and action. It is easy to characterise the 6ft 7 inch tall Arculus as the ‘big picture’ strategist and Miller as the one kicking the tyres and checking the engine, and it was a bit like that. You can guess which one had a briefcase and which carried their papers in a plastic supermarket bag.

They had been brought together by Frank Rogers, the former head of IPC, the company which in the 1970s (as part of the Daily Mirror group) had swallowed up most of the longtime big beasts of the UK magazine jungle. IPC was a huge, centralised and slow-moving monolith, which journalists labelled “the Ministry of Magazines”. The way this fat and sleepy group could sell and close famous brands almost without noticing was illustrated by Rogers’ 1969 decision to sell what he thought was a dying newspaper, The Sun, to Rupert Murdoch. Within a few years, the Aussie-born publisher had turned it into the UK’s most profitable daily – beating its former stable-mate the Daily Mirror – on his way to conquering the world.

Rogers managed to retire in glory, pausing only to accept a seemingly unpromising invitation to join the fledgling East Midland Allied Press in 1970. The old man came alive, and became determined to turn the Peterborough-based company into an agile, fast-moving, innovation-driven, decentralised business to challenge the mighty IPC he had spent a lifetime building. He chose David Arculus and Robin Miller in whom he saw a formidable combination of skills, experience and attitudes. Years later, the internal scuttle-butt painted a vivid picture.

Arculus was the sometimes under-estimated soccer striker, hanging around on the edge of the penalty area with his hands in his pockets and, every now and then, scoring a fantastic goal, often acquiring highly-prized businesses from under the noses of larger competitors. For Miller, there were insider images of agonising for hours over beer in a Clerkenwell pub, trying to get one of his executives to think about whether his idea was really the best or whether he was right to feel confident about this deal or that.

It sounds odd, of course, but, in a company with a culture of giving maximum responsibility to achievers at all levels, it worked – even though the two chiefs themselves seldom seemed to agree on anything. But the blend of questioning, encouragement and contradiction, was powerful propulsion. Crazy ideas mostly got talked out – or proved to be winners anyway. The 1980s were golden, breakthrough days for EMAP. But nobody could guess just how much would change in the decades that followed, even while the company continued to pile up record profits.

Frank Rogers stepped down as chairman in 1990, having presided over 20 years during which a £200,000 provincial newspaper company was transformed into a £2bn magazines powerhouse.

Graham Ross Russell, its one-time broker, stepped up to become chairman. He resigned three painful years later, rocked by David Arculus who had threatened to accept an offer to become CEO of ITV. In a parting shot, the amiable Ross Russell said: “My job would be a great deal easier without the influence of Banquo’s ghost”, making clear he was referring to Arculus. EMAP’s protracted search for a new chairman culminated in the appointment of Sir John Hoskyns, a former army officer and policy adviser to Margaret Thatcher.

The serious, disciplined ex-military man brought new corporate skills to the company’s board. But he found the Miller-Arculus sparring just too much to take. The boardroom noise grew louder, even though the company still seemed to be firing on all cylinders. Hoskyns moaned to departing executives about the lack of teamwork at the top, resisted a bid to unseat him, and ousted two dissenting, long-standing non-executives directors. Then, things got worse. Arculus (who later said EMAP “always had a pretty dysfunctional board”) left in 1997 after 24 years, to become Chief Operating Officer at United News & Media Group. He subsequently took the helm of IPC under private equity ownership, and (like Miller, after him) a raft of other company chairmanships.

The changes at the top of EMAP started to come thick and fast. In July 1998, Robin Miller succeeded Hoskyns as non-executive chairman. The new CEO was Kevin Hand, fresh from making impressive profits from newly-acquired French magazines.

Hand (who had led the company’s consumer magazines through some of their greatest times) was a man in a hurry. Within just four months of becoming CEO, he embarked on a transformational strategy straight from the business books. In December 1998, he paid a breathtaking $1.2bn for the newly-floated Petersen Publishing in America, publisher of Guns & Ammo, Motor Trend, Sports and Hot Rod and 100 other hobby magazines.

US insiders laughed openly about the price paid for the Petersen business which had effectively changed hands twice in quick succession since being sold by its founding family. Thus, many of the cost savings that investors would have expected under EMAP’s ownership had already been ripped out by enriched previous owners, one of whom was initially chosen to manage it. Reuters reported gently: “Some analysts say EMAP may be paying too much”.

But the new CEO was suitably bullish:”This is a deal that EMAP has dreamed of doing. Together, we want to become the biggest specialist publisher in the world. Our plans are as simple as that. In the fullness of time, say in three years or four years, Petersen could contribute up to 50% or more of Emap’s profits – it’s that big a deal.”

That EMAP’s ownership of the US company didn’t even last three years might have been only one of Kevin Hand’s regrets. The profits never even started as revenue collapsed and the reeling British company struggled to justify the expensive acquisition. The deal killed its long-established reputation for buying smart – and for winning.

The Petersen acquisition was a disaster. EMAP finally owned up to that in 2001 by selling-on the US company for $515mn – less than half of what it had paid three years before. How the deal was ever signed-off by chairman Robin Miller – or the company’s 10-year Finance Director David Grigson – puzzled observers. But it cost the CEO his job. Hand was succeeded in 2003 by longtime deputy Tom Moloney whose fingerprints had been all over the magazine successes Q, Empire, Mojo, FHM,  Heat, Bliss and Just 17  magazine; and, latterly, also over vain attempts to bring the fateful US acquisition under control.

Meanwhile, B2B media became EMAP’s biggest-earning and fastest-growing division. But you wouldn’t easily have found that in the publicity or investor presentations of the time. The company’s default image was as a consumer magazine publisher, ironically at a time when investors were just beginning to foresee the digital benefits for business information providers – and the flipside risks for consumer media.

In 2005, EMAP’s consumer magazines boss was a director on the company’s main board but his B2B counterpart was not. That was probably marginally less irritating to the excluded executive than persistent un-denied investor speculation about a proposed sell-off of the fast-growing B2B division. It was, to say the least, becoming easy for some senior people to feel they were on the outside track.

It all seemed to underline how the once high-flying company had lost its mojo in a spectacular way and at a crucial time. It is difficult not to conclude that the EMAP crisis was directly a result of the premature ‘loss’ of the Miller-Arculus team, the change to a more centralised power structure, and the loss of its can-do ‘creative friction’. The 2006 closure of Smash Hits, the magazine that had started the EMAP gold rush 28 years earlier, seemed sadly symbolic. Everything had changed.

Amid increasing investor criticism of EMAP’s lack of online activity in consumer markets, came the realisation of how great a loss Miller-Arculus had been. Without them, the once gilded group looked like a disconnected media conglomerate, confined (after the Petersen fiasco) to UK markets without the financial muscle or shareholder support to develop beyond them.

The company, whose versatile, over-strong, space-to-grow management had once seemed able to achieve almost anything, started to look decidedly ordinary. As the online revolution started to shake the foundations of media companies everywhere, EMAP looked flat-footed. Its people, used to talking loftily about their company’s ‘flying speed’, were now worrying more about its loss of altitude.

The clamour for corporate breakup grew. Tom Moloney found himself at the mercy of a Board whose non-executive directors had stopped listening to him. With EMAP sagging under the debt from the Petersen deal and spluttering growth in many of its key markets, the new CEO knew he could not win. He quit in 2007, and the non-executives led by new chairman Alun Cathcart kicked off an auction of the group’s businesses.

Against all the odds, it proved to be an astonishing success for shareholders with EMAP securing dizzy prices for the company’s operations: £1.1bn from Bauer for the consumer magazine and radio divisions; and £1.2bn from a partnership of The Guardian and private equity firm Apax for the B2B operations.

The French business, which had hit the buffers after some dazzling early days, went for £380m; and the always-struggling Australian business was sold for £38m. For EMAP’s disillusioned investors, it was their best news for years: an unexpected £2bn payday. But, for thousands of EMAP people, it was a “Where were you when…?” moment.

The privately-owned Bauer bought what they thought in the great EMAP auction – but now know they paid well over the odds for the consumer magazines whose profits quickly halved after acquisition; radio was the best bit of their deal. Apax and The Guardian, which also paid a price at least 30% higher than the business is worth today, wish they had never bought at all. The December 2007 deals are now seen to have been the high-water mark for media company values, even though consumer magazine circulations were already falling sharply in the months before what became EMAP’s ultimate triumph. The digital revolution had arrived and the legendary UK company would not be there to meet it.

David Arculus (by then, like Robin Miller, a knight of the realm) tried in vain to interrupt the auction and become a revivalist chairman of EMAP. But their time had gone.

It is not so much who killed EMAP, but what? Hubris, perhaps. The company had grown rapidly by being bold, taking risks and by being different. But, once its principal architects had quit, the company needed to change substantially even to survive in a fast changing world where magazines would never again be quite so successful.

Arguably, the often brilliant teams and managers below Miller-Arculus under-estimated the strength of this ‘Odd Couple’ partnership. EMAP at its best was a bunch of brave, daring, agile teams nudged, influenced and encouraged by their bosses. A successor might have believed that the vibrant business was still in place and that “only” the dynamic duo had changed. But they were missing the point. So, the once-formidable EMAP plc faced its final challenges with only a fraction of its legendary resourcefulness.

The egregious push into the US (graveyard of many another ambitious UK business) should have had the alarm bells ringing. The $1.2bn price tag was: a 45% premium to the then Petersen share price; three-times that paid for the same business two years earlier; and was a big chunk of EMAP’s total value.

The deal, though, was spurred by a cockiness and confidence which had been undoubted strengths in earlier times. A major transformational deal by a new CEO in their heady first few months is a familiar enough recipe for disappointment. But, then, so are upgraded offices, expanded head office staffing, and senior perceptions of being ‘insiders’ or ‘outsiders’ in a new regime. EMAP ticked all the boxes. Its once stunning growth had been achieved at the expense of entrenched competitors by taking manageable risks, being imaginative – and by not taking itself too seriously. Now, EMAP itself was the powerful incumbent open to attack by lively new competitors. The company that took smart risks when it had so little to lose, ended up betting – and losing –  the ‘farm’. Success had gone to its head.

The legacy of EMAP remains but, mostly, in the way that landmark buildings out-live the companies and people that built them. The magazines are still (mostly) there on the newsstand. Many are strong-ish. But FHM and Heat, which each sold almost 1million copies, are now struggling at a fraction of that in a dramatically changed market. The impressive Magic 105.4 is arguably the UK’s best commercial radio network – and is winning in London, a tribute to EMAP’s inspired 1990s makeover of the quaintly-named Melody Radio. The EMAP ‘brand’ lives on as the over-priced, private equity-owned publisher of B2B magazines, events, and information businesses.

It has become easy for nostalgic EMAP people to feel: “If you were there, enough said. If you weren’t there, enough can never be said.”

The final verse of a celebrated, feel-good 1960s musical seems a fitting epitaph for a mere media company that left a large footprint on UK popular culture across the last 25 years of the 20th century:

Don’t let it be forgot,

That once there was a spot,

For one brief shining moment,

That was known as Camelot! 

 

EMAP was Camelot.