Media Fortune Fame & Folly

What’s behind the Future ‘miracle’?

Meredith is haunted by its acquisition of Time Inc. But Future Plc, which bought Time Inc’s UK subsidiary, is on top of the world…

Next month, Britain’s largest (and fastest-growing) magazine-media group will announce its results for the year ended 30 September 2020. The highlights are expected to be:

  • Operating profit up by 79% to £93.4m (2019: £55.2m)
  • Revenue up from £221.5m to £339.6m (+53%)
  • Profit margin up from 24% to 28%
  • Better than expected £20m annual cost savings from TI Media (compared with £15m expectation)
  • Covid-fuelled soaring e-commerce (+58%), now 23% of total revenue)

It will be a confident, upbeat announcement. Not what you expect from a company whose revenue is 35% from magazines like Country Life, Wallpaper, Guitarist, Woman & Home, What’s on TV, Homebuilding & Renovation, Decanter, Total Film, and T3. The majority of revenues come from Future’s “media” division comprising digital services like TechRadar and Tom’s Guide, exhibitions – and e-commerce. Some 60% of all revenue comes from the US.

It’s a great story of reinvention in a market where magazines everywhere have been shredded by lost readers and advertisers.

Future has more than 150 brands, a total audience of 250million (many of them gaming, tech, sports and music enthusiasts), cutting-edge proprietary technology, and a multi-platform strategy.

Next month, it will recite the successful integration of TI Media, characterised by: the transfer of operations to Future’s tech platforms, overhead cost savings, and the launch of digital-only services linked to former TI brands that had been starved of investment.

It’s only six months since Future acquired TI after trying vainly to revise the terms of the £140m that had been negotiated six months before Covid. But it had to be content with some quick “wins” on costs and new digital products linked to some of the UK’s best known media brands. And that’s before you get to the expected profits from introducing TI audiences to Future’s e-commerce “machine”. The post-acquisition plan has been made more challenging during lockdown when most meetings were conducted by Zoom et al. But even many of those executives who lost their jobs have been surprisingly positive about Future’s efficiency, fairness and transparency.

But not everyone is so confident about the ‘miracle’ turnround of Future Plc, a listed company that has a longtime track record of periodic boom and bust.

It was founded 35 years by Chris Anderson in the decades before he created the ubiquitous TED Talks. Anderson built Future into a sprightly specialist publisher which he sold to Pearson Plc for £52.5m in 1993. The founder decamped to San Francisco in the early days of Silicon Valley and set about building a US version of the business.

When private equity bought Future back from Pearson, Anderson merged his new US publishing company into the UK business and, with a clutch of international acquisitions, they IPOd in 1999. Future was an instant hit on the London Stock Exchange in the halcyon days of the first Dotcom boom. Within a year, it had a market cap of £1bn, although turnover was just £250m and the company was stubbornly lossmaking. But breached bank covenants, rising debt and falling revenues almost killed the company just two years later. Anderson quit again and went off (armed with the fledgling TED conference) to carve out his new role.

That was the first ‘bust’ for Future Plc which subsequently burned no fewer than three CEOs with erratic M&A, volatile newsstand sales, and successive profit warnings.

But the crises all seemed to evaporate with the 2014 appointment of Zillah Byng-Thorne.

Future’s milestones under her leadership are the market cap which was a mere £25m on her appointment, £29m when it acquired Imagine Publishing in 2016, £1bn when it bought TI Media this year, and £2bn now.

But the history of financial mishap inevitably sustains some sceptics even now. One recent investment report is headlined “Here’s Hoping The Past is Not Necessarily An Indication of the Future”. It’s a catalogue of alleged accounting inconsistencies and snipes at members of the management team which is remunerated generously and – my goodness – have worked together previously. But this is a complicated story.

The rise and rise of Future Plc is easily defined:

  1. It has acquired no fewer than 14 businesses in the past four years for a total of £470m
  2. The acquisitions are a mixed bag comprising some digital businesses with clear growth potential and also some ho-hum print assets, including, curiously some B2B media in the US
  3. The financial success of the deals reflects the company’s robust tech systems, its management efficiency, and the impact of an ever stronger share price and continuing low interest rates. The 5 x EBITDA acquisition of TI Media was expected to be no less than 50% earnings accretive
  4. Revenue is more or less equally divided between the UK and US
  5. Some 20% of revenue still comes from print-centric brands
  6. The £79.3m of e-commerce (70% in US) reflects Future skills in exploiting “lead-generating content” (with rankings of tech products, for example), and content-rich relationships with free-spending millennials. But a lot of the traffic will come through Google search (where Future placings benefit from its heritage of authoritative content) and Amazon. Future aims to use its tech increasingly to build “direct’ e-commerce with its own audiences

Future has transformed itself in five short years from a print publisher to a digital media company. It has more than quadrupled revenue, and halved its dependance on magazines since 2017.

But this is not the whole story. You can compare the strategy with, say, newspaper companies which seek to maximise their print-centric earnings in order to build a “runway” to the future (some more effectively than others).

Companies tend not to admit they have acquired a business only for financial reasons, not strategy. But, presumably, Future might have made some acquisitions primarily to generate cash to build the “runway”.

The post-acquisition success – notably now with TI Media – has depended on strong systems and good management. You don’t get great returns just by buying, say, print magazines and standing back.

However, the company’s over-riding vulnerability is one that generations of previous Future executives would recognise: shareholder exhuberance. The CEO does not control the share price. Indeed, she even sold 1million of her own shares last year when the price was some 30% lower than today.

The doubling of the share price in the last six months is a reminder that, while shareholder exbuberance can be valuable currency in M&A, relatively minor trading slips can shatter confidence and derail the strategy. But, for now, it’s all positive.

Indeed, Future’s appointment of Goldman Sachs as a co-broker may signal a planned step-up in M&A (especially in the US). Perhaps much larger targets? But medium-term prospects still rest heavily on: the continuing growth of e-commerce; cost savings; and on digital successors to magazine ‘communities’.

The real question is: what is Zillah Byng-Thorne actually creating? Where is the runway leading? The best guess is that Future will become a multi-channel international platform for special interest, enthusiast communities, with two principal activities:

  • Specialist content via online text, broadcast, streaming and short-form video. The £23m acquisition of UK factual programme producer Barcroft Studios moves Future into TV and video. We might expect specialist TV-streaming like Discovery whose motoring, cycling, science, sports, food, travel and history channels might inspire Future.
  • Increasingly sophisticated e-commerce channels, perhaps including subscriber clubs to maximise revenues. They might even help to re-balance what always risk being uneven and vulnerable relationships with the mighty forces of Google and Amazon

Since this story was posted, Future has announced the £594m recommended acquisition of GoCo Group (the UK listed Go Compare price comparison site). 25 November 2020

So, we might expect Future’s growing emphasis on Members and Channels and even the eventual divestment of print magazines.

It’s still a high-risk strategy, underlined by the large number of print magazines on which Future still depends. But there’s something else.

The forty-something Zillah Byng-Thorne is undeniably impressive: energetic, focused and driven. But some of her biggest fans are investors who worry whether the creator of the Future ‘miracle’ will be lured away by a yet bigger corporate challenge. They also worry about the absence of an obvious successor to the woman they call God-Zillah. What next?

Additional analysis by Alex DeGroote

Future Plc