Exactly three years ago, Time Out magazine promoted its £145m IPO by telling would-be investors that the UK’s star fund manager Neil Woodford would be buying shares. It was a prize endorsement from the celebrated stock-picker whose £32m investment ultimately accounted for 35% of the £90m raised by the IPO. But the price was at the lower end of the target range, and the shares have been under water almost ever since.
In three years, Woodford’s investment has lost 40% of its value and Time Out Group’s market cap has fallen to £120m. That’s a sideshow for Neil Woodford, whose stellar reputation from 25 years at Invesco Perpetual has recently been trashed by the dismal returns of his own five-year-old company. This week, he has even refused to let panicked investors withdraw their funds.
Time Out hardly figures in a Woodford Investment Management (WIM) portfolio once worth £17bn. But Woodford remains Time Out’s second largest shareholder (with 16%), behind the 57% held by Oakley Capital private equity, owned by Time Out chairman Peter Dubens. It gets better. Neil Woodford joined Oakley in 2014 and digital entrepreneur Dubens funded the ‘infrastructure’ for the fledgling WIM which, in turn, became a 19.8% shareholder in … Oakley Capital. This neat little funding circle, inevitably, shades the publisher’s ambitious diversification plans – just as it hopes to attract new investors.
Time Out was launched in 1968 by drop-out student Tony Elliott. Its distinctive entertainment listings, attitude and passion for London life inspired residents and visitors, and became an almost global phenomenon, the cult of Time Out. The magazine and its books scaled the heights of media success for almost four decades – before becoming a victim of all things digital.
It is now five years since Time Out (then largely owned by Oakley Capital) found an unlikely new direction by turning a historic Lisbon market into a branded food hall which brought together “the best of the city under one roof: its best restaurants, bars and cultural experiences”. By 2018, 3.9m visitors were coming to the Time Out Market, arguably Portugal’s largest tourist attraction. After false starts with events and e-commerce, it became the break-out strategy.
Lisbon was followed last month by markets in Miami and New York, with 2019 openings planned for Boston, Chicago and Montreal and 2020 in Dubai, London (2021) and Prague (2022). Of the eight Time Out Markets operating in six countries by 2022, six will be owned and operated by Time Out, while those in Montreal and Prague will be managed on behalf of independent owners. It’s an ambitious strategy for Time Out which is finally swinging away from the heritage of magazine and books which “curate the best of 315 cities in 58 countries” with a claimed audience of 21m in digital and 7m in print. Not a moment too soon.
In 2018, Time Out grew revenue by 10% to £44.8m, 20% (£9m) from the Lisbon market. Operating loss was almost halved to £11.5m. Media and publishing revenues fell 3%. In the UK, magazine revenues rose 2% but events revenue was 40% behind and nobody talks much anymore about e-commerce, which was also down.
Despite claims about digital advertising (+12%) and the brand’s global all-channel audience of 144m people, Time Out’s future is all about restaurants and retail. The four US markets are forecast to generate £12m revenue this year, and £9m EBITDA from £43m revenue in 2020 – when the group expects to be profitable. As CEO Julio Bruno says: “2019 will be a transformative year … Time Out will have markets totalling 185,000 sq ft with almost 4,000 seats and offering food from 120 of the best chefs in these cities.” A very big plunge.
Everything now depends on the markets and Time Out’s ability to recruit the “best” restaurants in each city and to come up with small, reasonably-priced menus they can cook and serve on-site. The restaurants sign contracts for a minimum of one year, with Time Out taking a 30% share of revenues, while it also pays most of the restaurant costs including equipment and marketing.
Time Out makes a big play out of how its media and markets teams collaborate: in addition to identifying which restaurant owners should be in the market, magazine editors also determine which should keep their place, and they keep an eye on the food and performance. A nice theory.
At the very least, it’s difficult to see how the company will be able to sustain its loss-making, £40m-revenue publishing operation (40% still in print) at anything like current levels, let alone give editors the right to veto commercial policy. Once the markets have become established, will publishing really fit? Will it be divested or licensed out? The growing competition for the Time Out markets will require focus and, presumably, more investment.
Almost two years before Time Out launches its first “home” market at London’s Waterloo station, a “communal eating” rival – Market Hall – is operating in Victoria and Fulham, with a major West End opening this summer. Good ideas tend to get copied.
Julio Bruno says “Time Out Market does not exist without the Time Out brand.” Of course. But he probably doesn’t mean all those magazines and books. After all, his investors may now get a lot more demanding.