Media Fortune Fame & Folly

The revolution at Bauer

Eight years ago, Yvonne Bauer (the fifth generation head of the family-owned Bauer Media Group) was on top of the world after acquiring ACP Magazines, in Australia. Standing in the Sydney sun, she enthused that Bauer and ACP “share a passion for high-quality and well-produced magazines because we love the printed medium…ACP represents our vision for the future.” The A$525m deal consolidated Bauer’s leadership of the global magazines market with major operations across Europe, the US and now the AsiaPacific.

But that “vision for the future” is no more.

Bauer last year all but gave away its Australia and New Zealand companies, writing off A$750m of investment and losses in the process. Meanwhile, it sold its magazines in Spain, Russia, Romania, Slovakia and the Czech Republic, and most of its US portfolio too.

In three years, the Hamburg-based company has closed, sold or merged more than 200 magazines.The slashing of the portfolio from more than 600 magazines five years ago to less than 300 brands now, marks a decisive shift away from print for the 145-year-old media group which – for the first time – is earning less than 50% of its profit from magazines – and perhaps only 25% from Germany.

It also marks a sharp reduction in Bauer Media Group whose operating profit is believed to have halved in the last five years on revenue that has fallen by 33%, as follows:

€ billion202020192016
Revenue1.551.952.30
Operating profit0.450.500.95
Margin29%26%41%
Based on statutory filings and Flashes & Flames estimates

Significantly, the non-German international businesses, which accounted for 64% of revenue in 2016, may now be more than 80% of Bauer. Total international revenues decreased by just 4% during 2016-19, despite a halving in the US business, the reduction in magazine publishing across Europe, and a sharp fall in advertising. But the lost magazine revenue has been all but compensated by the growth of radio, primarily in the UK, and in Bauer’s fastest-growing business, price comparison websites. Revenue from the since-divested AsiaPacific magazines group dropped 38% during 2016-19. It is believed that Bauer also incurred some €70-80m of trading losses and closure costs in Australia last year.

But the real story of Bauer’s recent performance is that 50% of the €200m international profits (and almost 25% of all profits) in 2019 came from its radio networks in the UK, Scandinavia, Czech and Poland, which had revenue of €470m. And the UK (with magazines as well as radio) may now be the largest market for Bauer, ahead of Germany.

So the world’s largest magazines group has been transformed into a business that (for all the hundreds of magazines it still publishes) is generating high growth and strong margins from radio and price comparison sites, mostly in Western Europe. Goodbye global.

Chief operating officer Veit Dengler, in an interview this week, diplomatically linked Bauer’s challenges more to the pandemic than to any corporate weaknesses: “The crisis has accelerated some of our decisions that we would have made in a few years anyway”. The disposals and cuts had helped the company “to focus our resources on our strengths – so we pressed the fast-forward button during our transformation.” 

The new non-magazine emphasis is, of course, a big change for Bauer which was trumpeting its longterm faith in print longer and louder than most of its peers. The company, which rarely explains itself (and has a web site which quotes revenue totals from 2015), comprises:

  • Publishing: Europe’s largest magazine publisher with 200+ print and digital magazines in Germany, UK, France, Poland and the US
  • Radio: Europe’s largest radio group with 110 stations in UK, Poland, Denmark, Sweden, Norway, Finland, and Slovakia
  • Price Comparison: 10m people use its finance, telcoms, energy and insurance comparison sites in Spain, Norway, Sweden, Finland, Poland, Czech and Slovakia

We can now see that, for all the pain of Yvonne Bauer’s disastrous AsiaPacific adventure, the longterm success of Bauer may have been secured by her father Heinz Bauer’s £1.4bn acquisition of the EMAP radio stations and magazines in 2008. Almost the only thing the two deals had in common was that Bauer made the acquisitions quickly and with its trademark sketchy due diligence. One succeeded, the other failed.

It took the sweet and sour results of those 21st century deals eventually to transform a once so-traditional publisher dating back to 1875. The young Ludolph Bauer had gone into business as a printer on a borrowed press in his Hamburg home. Ten years later, Bauer and his son Heinrich became publishers with the free newspapers Rothenburgsorter Zeitung and Hammerbrooker Zeitung. By 1927, when they had moved to the city address that has been the Bauer headquarters ever since, the family had achieved its greatest success with a circulation of 500,000 for the weekly Rundfunkkritik. They were on their way.

Post-War, Bauer quickly became the country’s largest magazine publisher with the launch of the illustrated weekly Quick in 1948, and the bestselling TV listings magazine Hoeren und Sehen. Along the way, Bauer bought up magazine and children’s comic companies, culminating in the acquisition of Neue Post, still one of Germany’s biggest-selling women’s weeklies. That was in 1961, the year the 22-year-old Heinz Bauer, great grandson of the company’s founder, became CEO.

Heinz, who had trained as a printer, hit the ground running. He set about acquiring and launching magazines, including the women’s weeklies Tina and Fernsehwoche – and built ever more modern full-colour printing presses. In 1981, at the regulatory limit of his ability to expand much further in Germany, Bauer set out to conquer the world. He chose to start in the United States.

The New York media establishment were sniffy about Bauer’s decision to make its base in suburban New Jersey, away from the fashionable publishers of high-cost Manhattan. They were even more sniffy about the company’s first magazine launch: the supermarket weekly Woman’s World. It launched regionally in 1981 and went national three years later. Within 10 years, it had a circulation of 1.5m and revenues of $15m.

Bauer disregarded the fundamental difference between German/UK/Australia news-stand magazines (where most revenues come from readers) and the US where low-priced subscriptions are used to establish a ‘rate base’ for maximising advertising. It ignored subscriptions and became America’s largest news-stand publisher. But the company showed it could follow careful testing and solid success with extravagant folly.

The 1989 launch of First for Women (later known as First) lost a cool $60m within two years, on the back of a $15m TV launch campaign, generous retail incentives, and 8m copies selling at an introductory cover price of 25cents which retailers were able to keep. This was an attempt to disrupt the US women’s “service” magazine market.

One commentator cited First as “an example of how transferring foreign publishing ideas to the United States can be difficult.” But Bauer quickly cracked the soap opera market. And by 2004, it was publishing two celebrity weeklies In Touch (launched in 2002) and Life & Style (2004). It launched Closer Weekly (based on its UK brand) in 2013.

Taking the UK by storm

Bauer’s UK adventure began in 1987 with the launch of Bella which made its mark by mixing real-life stories with classic women’s magazine content like fashion, beauty, cookery and home features. It had low-cost content and production – and a competitively-low cover price.

More significantly, Bella represented the Bauer publishing formula at its best: it was a version of Tina in Germany, Maxi in France and Woman’s World in the US. Another key to Bauer thinking was to concentrate on the content, printing and distribution: for 20 years, they actually outsourced all advertising sales in the UK, US, France, Mexico and Poland.

Three years after Bella, came Bauer’s mould-breaking launch of Take a Break, which quickly became the UK’s biggest selling women’s weekly. The magazine peaked at 1.3m circulation with its formula of puzzles, prizes and dramatically-written real life stories.

Bauer promptly imported the winning formula to Germany. Take a Break helped define Bauer’s success with un-flashy, un-glamorous magazines dependant on copy sales not ads. From a launch budget of just £5m, Bauer managed to build a weekly magazine which probably accounted for more than 50% of its UK profits for more than a decade. By 2000, Bauer was making profits of some £40m in the UK.

The big splashes were long-forgotten and Bauer was profiting from TV listings, real life magazines and puzzle books with the market’s lowest costs and lowest cover prices. Gone were the expensive advertising campaigns. Bauer started growing profits and piling-up cash. But Heinz Bauer was narrowly outbid by private equity in the £1bn 1997 auction for the UK’s largest magazine publisher IPC, which was subsequently bought by Time Inc, then by private equity and – in 2020 – by Future.

It was, though, still a surprise when Bauer swooped to buy the EMAP consumer operations and, then, ACP in Australia.

A new era

The deals seemed to signal a new era for the low-profile company whose most successful leader, Heinz Bauer, marked his 70th birthday – between the two big acquisitions – by handing over control to Yvonne, his second-youngest daughter. He announced he was stepping back from day-to-day management of the company he had lived and breathed since becoming CEO in 1961. Everything seemed to be changing.

Yvonne Bauer’s enthusiasm was projected into a colourful new slogan (another Bauer first) proclaiming: “We Think Popular”. Years of steady and boring profitability had exploded into a brave new world of international magazine brands, digital plans, and global expansion. But the EMAP deal had already gone (mostly) sour with the collapse of copy sales and profits from magazines like Heat and FHM, initially only partly compensated by the resurgent growth of radio. But, compared with what happened in Australia, the disrupted but well-managed former EMAP company was media heaven.

Bauer’s launch into the southern hemisphere had been more reckless than the larger EMAP deal, not least because they were new to Australia, a notoriously challenging market for foreign media companies. Although most observers considered that Bauer over-paid for ACP, the price (5 x EBITDA) seemed to be almost half the multiple of the EMAP deal. But what had been an EBITDA profit of A$100m for ACP Magazines the year before Bauer signed (and was expected to be at least A$70m the year after) became only about A$35m. And it carried on sliding. The fact that Bauer in Australia had no fewer than six CEO’s in seven years tells you all you need to know about the chaotic adventure. But that’s now history.

A touch of McKinsey

The latest Bauer Media Group results show just how far the famously private company has changed in the past two years – since Dengler’s appointment. The former McKinsey executive has substantially changed the company, neatly side-stepping the sacred traditions (like pretending the future is really all about magazines) and pushing fresh investment into radio and price comparison. The company may accelerate its strategy in four ways over the next 1-2 years:

  1. Expand radio to compete comprehensively with Spotify, Apple, Amazon et al in all areas of podcast and audio. We might expect Bauer to strike a major global alliance to turbocharge these efforts at a time of rapid expansion in podcasting and its melting into broadcasting and streaming
  2. Acquire more price comparison sites, perhaps including a first deal in the UK where Future’s gutsy acquisition of GoCompare (approved by its shareholders this week) got Bauer’s attention
  3. Invest in paid-for digital services in women’s and specialist categories once dominated by Bauer’s magazines
  4. Rationalise the legacy magazine portfolio

If the new strategy delivers, a fifth agenda item could be the appointment of Veit Dengler as CEO / president to mark his achievements in saving a traditional media company from itself. It might also mark Bauer’s transformation into another family-owned major media company (like Hearst and Axel Springer) thriving by being managed by professionals not family. Phew.

Additional reporting by Axel Bartholomäus

Bauer Media Group