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.
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
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
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?”
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
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.
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
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
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)