Media Fortune Fame & Folly

How Meredith lost it

InterActive Corp (IAC) via its Dotdash subsidiary, has confirmed its agreement to buy Meredith, the largest magazine group in the US, for $2.7bn – about the same price that Meredith paid for Time Inc in 2018. The combined company will be known as Dotdash Meredith.

The all-cash transaction will bring Meredith’s 40 brands, including People (America’s largest and most profitable magazine), Better Homes & Gardens, InStyle, Martha Stewart, Real Simple, and Allrecipes, into Dotdash, publisher of 14 digital brands including Dotdash, Verywell, Investopedia, The Spruce, Byrdie and Brides. Dotdash was created by IAC after the acquisition of About. com in 2012 and had some $200m revenue in 2020, Meredith had $2bn.

Earlier this year, Meredith agreed to sell its local TV business to Gray Television Inc. The decision to sell the rest of the company (most of whose profit is accounted for by People magazine and the highly-successful Walmart product merchandising by Better Homes & Gardens) is a major reversal for Des Moines-based Meredith. It’s the ultimate result of the hubristic decision to bet big on the future of magazines by agreeing to buy the legendary Time Inc. for $3.2bn (reducing the net cost by some $500m with the subsequent sell-off of Time, Fortune, Sports Illustrated, and Money).

Meredith and Time Inc had been, curiously, joined by events in 1922, the year when Reader’s Digest was launched. It was also the year Henry Luce and Briton Hadden left their jobs at the Baltimore Daily News to launch the pioneering Time magazine. More than a 1,000 miles away in Des Moines, Iowa, farming publisher Edwin Meredith launched Fruit, Garden and Home which – two years later – would become Better Homes & Gardens.

That, of course, seemed a tenuous connection when Meredith swooped for Time Inc. It never looked promising.

Although the combination produced a digital audience of 190m American consumers including a claimed 95% of all women, the upshot was that Meredith had effectively paid $2.8bn for only about $100m more annual profit than it might have expected from its pre-existing portfolio. But that’s where it gets more complicated – because of the monster profitability of People magazine with its 3.4m weekly circulation, 1,900 advertising pages and 155m monthly uniques.

Under Time Inc ownership, the powerhouse weekly had made peak profit of almost $500m – equivalent to 80% of the profit of the whole company – on revenue of $1.5bn. Even now, with revenues of some $750m, People may be contributing $200m of profit. Add the estimated $75m from Better Homes & Gardens and $90m from brand licensing and you have accounted for virtually all Meredith’s $383m magazines profit in 2020. It is the picture of a publisher with 5,000 people and a long tail of under-profitable brands.

Until the Time Inc acquisition, Meredith had fared better than most of its magazine-centric competitors. Its largest brand had long been Better Homes & Gardens (BHG) with a so-steady circulation of some 7.5m, a total print-digital readership of 43m and some highly successful spin-offs.

The Better Homes & Gardens New Cook Book (known as the “Red Plaid”) was first published in 1930, has sold some 40m copies and is now in its 17th edition. BHG publishes hundreds of books and premium-priced “bookazines”. It has 8m monthly uniques on digital and mobile media, claims 500m views for its video channel which publishes 500 videos every month, and its blogger network attracts 25m visits. For eight years, the company produced a US television program Better, with a mix of content from Meredith magazines. Another standout example of Meredith’s digital venturing is Allrecipes’ four ‘omni-channel’ sites serving six countries in two languages with 150m monthly uniques. The bi-monthly magazine has a circulation of 1.4m.

In 2017, it had been easy to believe that Meredith had “beaten” Time Inc because its earnings had held up while Time’s had been sliding inexorably. Insiders credited the success to former CFO Steve Lacy who joined Meredith 22 years ago and was CEO from 2006 until Tom Harty succeeded him in 2018. During Lacy’s 12 years as Meredith boss, Time Inc had no fewer than five CEOs. Inevitably, Meredith’s lifestyle “service” journalism had fared better than most areas of magazine content (especially news and celebrity) and there has been a recent WFH boom in food, fitness and home furnishing. Meredith had – until 2018 – stuck mainly to monthly subscription magazines, without exposure to the volatility of news-stand weeklies. Meredith was winning and Time Inc was fading. That seemed like the obvious flaw in Meredith’s ill-fated acquisition.

The heart of the Meredith story has long been brand licensing. At a time when magazines everywhere were fighting hard to bolster revenues with ‘brand extensions’, it became a world-beater, generating royalties through multiple long-term licensing agreements with retailers, manufacturers and service providers in the US and globally. It began 25 years ago when the world’s largest retailer Walmart started to sell Better Homes & Gardens-branded products in its home-ware and garden centres. It now stocks no fewer than 3,000 BHG products in more than 4,000 stores and online, in the US, Mexico and China. It is an amazing relationship that will generate much of Meredith’s $100m licensing profit in 2021 – almost doubled in the last four years and reinforced by deals in real estate, food, and retail. It’s been the envy of magazine rivals the world over.

But the publisher has still been getting some 50% of its revenue from advertising (much of it from print). It, has, therefore, shared the systemic problems of magazine publishers: the continuing decline of print and the difficulty of getting audiences or advertisers to pay (much) for digital.

The Time Inc acquisition made Meredith America’s magazine leader but it was not long before CEO Tom Harty acknowledged that it was taking longer than expected to turnround the “new” magazines. Advertising and subscription yields had both been much worse than expected. Crucially, Meredith clearly under-estimated the culture differences between the two companies (Manhattan v Des Moines) and also the costs of integration. Its share price tumbled more than 20% and the resulting market cap of under $2bn tells the story of worried investors and a management team under pressure.

Bloomberg had quoted one analyst as saying that Meredith “didn’t know what they were buying with Time Inc.” That was almost the epitaph for Meredith.

That disastrous deal – and the continuing decline in print media values – explains this week’s $2.7bn price tag. It means that 35% of Meredith’s value has evaporated since 2018. That’s the legacy of Time Inc and now of Meredith Corp. They both miss out on what might have been some momentous centenary celebrations in 2022. If only.

IAC