The era of media consolidation is well underway. The Vox Media acquisition of New York magazine, and Vice’s purchase of Refinery29 were just the start of deals which will endeavour to turn huge digital audiences into real, lasting profit.
This week, Group Nine Media – owner of animal site The Dodo, Thrillist (food-drink-lifestyle), and Now That (viral videos) – disclosed it is paying $300m for the 150m-audience, 13-year-old PopSugar. The price is said to be 3.5 x revenue.
Like Refinery29, PopSugar brings a valuable female audience to a largely male-oriented group; unlike Refinery29, it’s profitable. The deal reportedly gives Nine Media a valuation of $1bn – two-thirds of it accounted for by Group Nine. The company is 35% owned by Discovery Communications. Axel Springer is the second largest shareholder.
CEO Ben Lerer said: “This has been the best month in digital media since maybe the beginning. The deals are great for the space. These are strong companies getting stronger and building enduring, lasting, profitable businesses.”
When will BuzzFeed (whose CEO-founder Jonah Peretti has long advocated consolidated) do a deal? And will it be with a traditional news provider, says News Corp or the New York Times or CNN? Or with a broadcast group?
Meanwhile, legacy media is also consolidating, and potential deals in the US, Australia and the UK show how traditional regulatory hurdles have been knocked down by the impact of collapsing media profits and the Google-Facebook steamroller.
So it is that the two largest US newspaper publishers, Gannett and Gatehouse, are set to ‘merge’ with scarcely a whisper of opposition from industry and politicians.
Aussies bring it all together
In Australia, the largest free-to-air TV network Channel 9 now also owns Fairfax, one of the country’s largest newspaper groups, the Macquarie radio network, and the Stan streaming service. Bauer, the country’s largest magazine publisher, is conducting due diligence on a deal to acquire most of the brands of Pacific Magazines, its principal competitor, for A$40m from the troubled SevenWest Media.
There has been a left-field suggestion from Mumbrella that the consolidation will, however, be just a prelude to Bauer’s sale of its Aussie magazine business in which it has invested more than A$650m since 2012. Such a sale might not actually be that unexpected and the possibility is not being dismissed at Bauer’s Hamburg headquarters. The former ACP Magazines squeezed a post-tax profit of just A$6.3m last year, after a $11.2m loss in 2017. Across-the-board cost cutting, including a 20% reduction in editorial expenses, helped to mitigate the 14% fall in revenue to $224.3m. Compare that with the A$100m operating profit in the year that Bauer acquired ACP or with the A$275m it had made when James Packer sold to CVC private equity in 2007.
It is believed that Bauer’s New Zealand subsidiary remains soundly profitable, so it is disconcerting that even the largest publisher in a country once considered the richest of all magazine markets cannot make a decent profit. Last year, Bauer stopped publishing the Australian edition of Cosmopolitan and has been said to be considering closing Elle and Harper’s Bazaar, which would bring to an end the Sydney-based company’s 40-year relationship with Hearst Corp, of the US.
The combination of Bauer and Pacific, Australia’s two largest magazine publishers, should be easier to sell (perhaps to private equity) than either company on their own. Or perhaps the new laissez-faire on media regulation would encourage News Corp, the other big magazine publisher, to bring almost the country’s whole mag market together under its ownership?
It also seems possible that News Corp, as Australia’s largest newspaper publisher and owner of Foxtel pay TV, may merge with all or part of SevenWest’s newspaper and TV business. The Kerry Stokes-controlled group is looking financially fragile and exposed in the wake of the Nine-Fairfax combination and also CBS’ acquisition of Channel 10. They must want to do a deal before Disney’s new 2020 streaming service, presumably, compounds the damage already done to Aussie free-to-air broadcasters by Netflix which, with 8.5m subscribers, has more than twice the reach of Nine’s Stan.
UK regionals on the ropes
In the UK, where it is less than two years since Future Plc was blocked from bringing together two 40k-circulation monthly gadget magazines (yes), the country’s second largest national newspaper group, the Daily Mail Group (DMGT), is tipped to buy the i tabloid from the bankrupt JPI, giving it three national dailies. JPI is the former Johnston Press (founded in 1767) which went into administration in November 2018 and was momentarily rescued by lenders in a ‘pre-pack’ refinancing deal that spun-off the company’s pension deficit. But even that wasn’t enough to save the company.
Meanwhile, Reach Plc (publisher of the Daily Mirror, Daily Express, and the largest group of local papers) is tipped to buy all 200 of JP’s battered regional portfolio, apparently for about £50m. The UK newspaper market is bursting with speculation. Insiders expect the Gannett deal in the US to lead to the sale of its £200m-revenue Newsquest subsidiary in the UK.
In Norwich, in the east of England, the 174-year-old, family-owned Archant, publisher of the Eastern Daily Press, is in crisis with revenue that has fallen 30% in the past four years. It too may become the subject of bids and deals. Hearst, Immediate and Future may be interested in Archant’s specialist magazines.
To beat all that, there has been investor speculation not so much that DMGT is in talks to buy the privately-owned Telegraph Media Group (which is denied), but that it should be. The tabloid Daily Mail could not be more different to the broadsheet Daily Telegraph. But they share Conservative political views (including both being stridently pro-Brexit) and they even share leadership positions in financial services and travel content/ advertising and e-commerce. So it’s not a crazy idea. Even a likely valuation of some £150m (down from its £665m purchase price in 2004) would be a pushover for DMGT whose balance sheet has £200m of net cash and is hungry for investment opportunities.
Enter… David Montgomery
There’s no sign yet that Rupert Murdoch’s News Corp is ready to participate in the current newspaper deals even though the company now has a substantially lower share of all-media than previously, without its former Sky TV network (bought by Comcast this year). DMGT could become a larger publisher of UK national dailies than News Corp.
The auctions may be spiced by tabloid editor-turned-CEO David Montgomery who is said to be cashed-up and geared-up variously to bid for JPI, Archant and perhaps even the Evgeny Lebedev-owned (and deeply loss-making) London Live TV, and Newsquest.
But could Montgomery’s surprise move actually be to bid for Reach Plc ? The listed company has bulked up with print (including buying his own Local World group for £220m in 2015) and renamed itself twice since he was CEO of Mirror Group Newspapers Plc during 1992-99. Keep watching.