Media Fortune Fame & Folly

How Meredith upstaged Time Inc

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.