Media Fortune Fame & Folly

What’s next for Dennis?

The global lockdown is accelerating the shift from traditional media to digital. It may (or may not) be comforting to recall “Riepl’s Law”, coined more than a century ago by a former German newspaper editor, who said: “New media do not replace existing media. Media progress is cumulative, not substitutive. New media are constantly added, but the old ones remain.” 

What does get replaced, of course, is the business model and the sheer scale of any one media “channel”. So, in magazines, multi-sector conglomerates are being increasingly replaced by specialist, integrated media companies and many audiences are being served more by digital media than print. Magazines do survive but much of the profit goes elsewhere.

Only the very best legacy companies will be able to transform themselves to become leaders in the “new” world. That’s why we should watch the UK magazines market where Future, the country’s largest group which has spent the past few years diversifying away from print into e-commerce, events and B2B, is acquiring the former longterm leader, the print-heavy TI Media – with a view (of course) to moving away from the dependance on print.

At the same time, Dennis Publishing is getting great growth from current affairs in print, and is investing in e-commerce. Two sprightly traditional media companies on a journey, both with investors which want quick results: Future is a longtime listed company and Dennis is now owned by Exponent private equity.

Future’s £140m acquisition of TI Media is expected now to complete next week (a challenge in lockdown). Dennis is nearing what might (in normal circumstances) be the mid-point of its private equity ownership.

It is almost two years since Dennis was sold by the estate of the late Felix Dennis, the singular publisher turned poet who had dedicated his legacy to growing the “Heart of England Forest” which will become the largest deciduous, broadleaf woodland in England.

What is the UK’s fifth largest magazine-centric company has some 30 print and digital brands across four sectors: Technology (Alphr, PC Pro, ComputerActive), Automotive (Buyacar, AutoExpress, Evo), Lifestyle (Cyclist, Coach, Viz), and Current Affairs (The Week, Money Week, The Week Junior). Significantly, for a media company outgrowing its print traditions, it has digital-only as well as magazine brands in every sector. Dennis is a digital media company, although it still sells more than 2m magazine copies every month.

Dennis has some £200m revenue and 600 staff (20% in the US), and has been able to sustain relatively high growth rates even during the past decade of magazine industry turmoil. In 2019, it may have increased operating profits by at least 25% to more than £30m.

The results have been powered by The Week whose profits may have increased by at least £5m, as a result of three key decisions implemented under Exponent ownership:

  1. A 16% increase in the UK subscriptions price to £127.49
  2. Scrapping the large volume of free “promotional” copies which, in 2017, had accounted for no less than 25% of the magazine’s 200k circulation
  3. Integrating the management of the UK and US editions

That “private equity dividend”, together with the growth of The Week Junior and the $30m acquisition of the $30m-revenue, 100-year-old Kiplinger subscription financial newsletters in the US, may now mean that the “current affairs” segment generates almost 80% of the Dennis profit. It’s a stellar performance in a world where most news profits are under pressure.

But Dennis executives might have shivered at the recent threats to the US postal service by President Trump. In trademark style, he is blaming the service’s continuing losses ($8bn last year but set to more than double in 2020) on – among others – Amazon. Founder Jeff Bezos also owns the Washington Post which has been consistently critical of the US president.

Among the possible “remedies” for the losses is the scrapping of preferential rates under which US magazines pay some 50% of the rate for first class delivery. Cutting that concession would hurt many publishers and could reduce The Week’s US profits by almost $5m (50%). Maybe.

But, even amid the COVID-19 crisis, Exponent is thrilled with its investment in the company built by Felix Dennis.

It is six years since the founder died from cancer, age 67. It was the tragic end of a career which had begun with the 1960s launch of Kung Fu Monthly. He followed-up with opportunistic acquisitions and launches of magazines on bikes, cars, music, computer games and gadgets. In 1978, he struck gold with Personal Computer World, the UK’s first ‘microcomputer’ magazine, bought for £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 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. In 1985, he launched Mac User in the US – just 21 months after the world was introduced to the Apple Macintosh computer. Within three years, he had sold the magazine’s US and worldwide rights to Ziff Davis for a cool $23m.

Dennis continued his audacious Anglo-American strategy by launching Computer Shopper magazine in 1988. He had neatly secured the UK rights for the magazine – for free – in exchange for advising its US founder how to sell his magazine to Ziff Davis. By the 1990s, the UK Computer Shopper was selling over 120,000 copies and regularly publishing 500-page issues.

For his next trick, he jumped into the ‘new’ men’s magazine market which had been created in the UK by IPC (now TI Media). Dennis’s Maxim was no.3 in the UK (behind FHM and Loaded) but became America’s most successful young men’s lifestyle magazine. Its 19 international editions built 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 reported $300m.

By then, he was already on his way to a new publishing fortune, courtesy of The Week. The stylish 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 to rescue the venture after early losses and became a major investor.

He bought the magazine outright in 2006 and 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. He had launched the US edition in 2001.

The irony of The Week’s success in the US (now with 560k subscriptions) was never lost on Felix Dennis who had launched there in typically bullish style: “The Week is going to be a huge global brand. Cross my heart and hope to die, I have already been offered hundreds of millions of dollars for it. If Henry Luce <founder of Time magazine> were to come back from the dead and was offered any magazine as a reward for coming back from the dead, I think he’d say he’d take The Week, because his first idea was doing exactly what this magazine does. His original idea was offering readers a précis of what was happening around the world in a given week.”

But nobody needs reminding that The Week’s US edition has never had more than 50 staffers, whereas the venerable magazines Time and Newsweek each had teams of up to 1,000. Dennis learned his subscriptions skills in the US but his publishing economics back in London.

Then – the year after his death – along came The Week Junior which was launched in the UK in 2015. The much-acclaimed “weekly magazine for curious, smart 8-14 year olds” is the UK’s fastest growing children’s magazine. It’s bankrolled by parent subscribers and became profitable after just one year.

Last month (yes), it launched in the US.

As if to demonstrate the Dennis brand of media chutzpah, they went ahead with the planned launch on March 20, despite the lockdown. Although Dennis executives conceded it was “an unusual environment in which to launch a publication”, in many ways it proved to be the perfect one.

CEO James Tye says: “Children (and parents) are looking for reassurance and a strong sense of direction and we help them make sense of the world, no matter how disrupted or worrying it is. Our US launch plans also centered around digital and social, which has been a strong channel for us in the UK. Unsurprisingly, this is working well in the current climate.”

With the editorial team of 10 working remotely, it’s been a perfect opportunity to demonstrate why families need The Week Junior. At a time of stress and worry, the debut issue focused on acts of kindness and how Massachusetts families raised funds to feed children who would lose meals to school closures.

It was a thoughtful, even inspired launch. The upshot is that the US edition of The Week Junior has already sold 24,000 subscriptions @ $75 for a magazine that will (like the UK edition) depend on readership not advertising revenue.

As if to reinforce the point about how new business can be developed during lockdown, the UK edition of The Week Junior has also added no fewer than 10,000 subscribers during the past five weeks. It now has 84,000 subscribers (x3 in three years) paying some £85.

Full-priced subscriptions (i.e. subs priced to generate profit not merely to achieve a ‘rate base’ for advertising sales) have been a hallmark of Dennis whose founder always criticised rival UK publishers for refusing to see beyond the sugar-rush of newsstand sales. During the 1980s and 1990s, most were blissfully hooked on booming retail sales, not least in the UK’s fast-growing supermarket chains. But not Felix Dennis.

This core subscriptions skill has now given his company stability at a time when magazine-centric revenues elsewhere are in free-fall.

Despite fact that Felix Dennis died in 2014 and his company was sold in 2018, many staffers say that little has changed in the transition to private equity. It even still supports the late founder’s forest-growing charity.

Dennis continues to be a young, innovative company, still launching print magazines, but more genuinely digital than most of its peers. It’s a cheerful place – and with 25% underlying EBITDA margins. But the 2019 profit growth will show the difference.

The Week’s powering profitability on both sides of the Atlantic might, on its own, now justify the £166m price Exponent paid for Dennis in 2018. But a good part of the company’s growth potential is the Buyacar e-commerce site (acquired in 2014) which is now almost 50% of the revenue. It could become a game-changer.

Buyacar sells new and used cars, managing the whole customer relationship with buyers, rather than delegating it to the kind of affiliate arrangement common to most media company e-commerce. With the first profits of maybe £750k last year, from an estimated 3,000 car sales (the majority of them “nearly new”), this is neat integration for Dennis which takes a commission on each car sold. But the real profit comes from extras like finance deals and insurance policies. Buyacar may now account for almost £100m or of almost 50% of Dennis revenues – trebled in three years.

But it’s a market with lots of UK competition, including from the gutsy startup Cazoo launched in December by Alex Chesterman. It has investment from the Daily Mail Group (DMGT) which had also collaborated with him also on Zoopla, the soaring property digital. He is forecasting sales of more than 200k cars a year (by Year 5) and has raised more than £80m in funding.

It is an ambitious target but one that (if achieved) might create some challenge for Dennis, even though the UK market is very fragmented and Buyacar has been able to thrive on the trusting relationship with magazine subscribers. The competition could, though, help Exponent to find the next buyer for Dennis.

Enter the cashed-up DMGT.

The UK’s most profitable national news provider has been a winning investor in media businesses over the last 50 years (notably with Euromoney and Zoopla). DMGT was an under bidder for Dennis in 2018, with Bauer which would have taken the non-news magazine brands. It was also known to have been interested in acquiring TI Media before Future agreed its £140m deal late last year. The company is hungry for a strategy that can create longterm growth beyond its national and international news brands.

DMGT may be more interested than ever in acquiring Dennis, because of the growing fit with its own:

  • News services in the UK and US
  • Personal finance content
  • Automotive e-commerce (through Cazoo)

More than that, Dennis would bring substantial new skills and growth potential to DMGT, especially in magazine-like verticals for its digital and daily newspaper audience – and the whole business of subscriptions.

The Dennis brand of publishing seems to offer much to daily newspapers looking for new ways to develop readership and revenue for their content. Then there’s the bigger picture. The DMGT team which, with CBS, produces the Daily Mail TV show in the US, would presumably have some ideas about how The Week Junior could become a mass market brand. There’s a lot to go for.

Dennis