Media Fortune Fame & Folly

Classy problems at The Economist

The Economist this week appointed Lara Boro, CEO of Informa Intelligence and former boss of Middle East Economic Digest (MEED), to succeed Chris Stibbs who has been CEO for the past six years. The Economist is the UK-based media company whose 175-year-old eponymous weekly “newspaper ” is widely hailed as a post-digital success with its brilliantly crafted journalistic offering, functional non-nonsense design, and distinctive marketing. Everybody respects and admires The Economist whose red-box logo confers gravitas on coffee tables in corporations, parliaments and palaces everywhere.

It is a magazine with presence. That’s why its renewed success is so easy to accept. But the numbers tell a slightly different story. Operating profit of The Economist Group (70% of which is the The Economist itself) has fallen by 21% to £47m in the five years to 2018, with margin slashed from 20% to 13%. Much of that profit has been lost in the collapse of advertising (down 25% in the last three years). Of course. But that too is only part of the story.

The Economist is sometimes said to have more than made up for its lost advertising with accelerating subscriptions. But, in its 2018 annual report, chairman (and former Economist editor) Rupert Pennant-Rea reported that even a 33% increase in subscriptions revenue had come expensively: “Revenues increased by 4% to an all-time high, but costs rose even more. The result was a 2% decline in profit…” There was another big increase in marketing, which rose to £50m (compared with £37m in the previous year). And this led to the net addition of a mere 36k full-price worldwide subscribers to its 1.1m total. (In financial terms, the paper showed the full benefits of the 20% cover price rise in 2016, with revenue per copy up 10% on the previous year.)

Pennant-Rea added: “The cost of acquiring new subscribers… rose, by an average of 22%; for the circulation strategy to succeed in the long term, this cost must be tightly controlled.” That amounts to harsh criticism in the measured tones of The Economist. But, in 2017 (when profit had fallen by 13%), the words sounded like a public warning to the CEO: “Last year was painful. The headline figures—operating profit down 11%, even though revenue was up 7%— show the effect of continuing to lose high-margin advertising, but, in other respects, they flatter the Group’s performance. Both revenue and profits benefited from a stronger dollar; without it they would have fallen by 3% and 18% respectively.”

Stibbs’ resignation was announced in November, just three months after he had negotiated the sale to FiscalNote of the US Congressional publisher CQ-Roll Call for a (mostly equity) price estimated to be 6-8 x operating profit. The divestment was an uneasy case of a young upstart buying a profitable, traditional competitor on soft terms. The combination marries CQ-Roll Call’s news, legislative tracking tools, vote databases and analysis with FiscalNote’s technology platform. But The Economist’s anonymous reporters, so good at puncturing egos and seeing through the hype, might have laughed at FiscalNote’s claim to be “a technology innovator at the intersection of global business and government that provides Advanced, Data-driven Issues Management Solutions”.

Whether or not the CQ-Roll Call divestment is good value may ultimately depend on whether an expected FiscalNote IPO gives The Economist an opportunity to cash in its shares. The money matters because, for all the age-old constitutional protections for The Economist, its governance, and editor-in-chief,  it is a business with some large financial family shareholders and a dividend policy that pays out most of the profits every year. It’s not a charity and – three years after the Financial Times sold its 50% shareholding – The Economist Group board has been feeling the heat.

These are tough times for traditional media everywhere and the financials show that the individualism and prestige of The Economist provide no immunity. The challenges are familiar: how to grow subscriptions and and (at least) stabilise revenue for a brand whose profitability is provided by what’s left of print advertising. Last year, another steep decline in revenue meant that only 17% of Group sales came from advertising, compared with 23%  two years before and and more than 40% eight years earlier.

At the recent Digital Media Strategies conference in London, The Economist’s circulation boss presented a stimulating view of its marketing strategy but quoted one of the challenges as subscribers who say: “As a new subscriber, I’m constantly overwhelmed by the amount of content I need to read each week. I can hardly keep up.” It’s a common enough view especially from quick-scan millennials lacking traditional affection for print. But there’s nothing like a pile of unread magazines for prompting even established readers to re-consider whether a brand is really for busy people like them. And the fact that The Economist brazenly claimed 18% new subscriptions last year (even though the actual increase, net of cancellations, came to a tiny fraction of that) shows just how leaky is the bucket it is constantly trying to fill.

That should prompt The Economist to work towards real digital customisation: giving each reader exactly what they want – and, in exchange, charging a proportionately higher price. That’s the challenge for many B2C media and might just be on the agenda for the new CEO – eventually.

Before then, she must turn her mind to more familiar B2B challenges: how to restore growth at the Economist Intelligence Unit (EIU), the research and consulting business which “helps businesses, the financial sector and governments to understand how the world is changing and how that creates opportunities to be seized and risks to be managed.” EIU routinely claims to be the world’s best “for-profit think-tank”. It has a particularly strong position with government and multilateral organisations but has struggled for new consulting business particularly in its healthcare arm.

That should be food and drink for Lara Salameh Boro who comes to The Economist with high-level B2B strategy skills and a general management track record that was burnished by a successful few years running the MEED information and events group in Dubai, after a tech-powered career variously at CPA Global, the Financial Times, and Mondex International. She is currently heading a £300m-revenue division of Informa with 100 digital subscription products and more than 1,000 people. Boro is highly analytical, good with teams and quick to identify growth opportunities. She’s grounded, rounded and a perfectly international leader for The Economist. At Informa, instructively, she is impatient with the reluctant process of divesting unwanted operations. But CEO Stephen Carter has taught her a lot about business transformation.

The new Economist CEO will hit the ground running at EIU and will be keen to build out its B2B media, maybe more deeply into finance, law, commodities, and technology. Why wouldn’t the EIU start to target commodity ‘price reporting agencies’ like Euromoney has been doing? Perhaps her strategy will be to create (and acquire) global information brands in sectors where EIU already has a strong franchise, as well as finding ways to win new research contracts.

Many traditional B2B media groups are still trying to escape their dependance on magazines (in print and digital) by diversifying into research, data and consulting. The EIU is well ahead of that game and could use its high-value subscription business to deepen its immersion in global information verticals. One of the many clever Economist outdoor ads proclaims: “Two thirds of the globe is covered by water. The rest is covered by The Economist.” Watch Lara Boro make waves.

The Economist