Ever since the perennially lossmaking AOL merged with the highly-profitable Time Warner, at the dawn of the internet, dealmakers have been trying to combine traditional media with digital natives. They all want to create media companies that can be the ‘best of both worlds’.
But AOL-Time Warner was a disaster. It inevitably led to Meredith‘s $2.8bn acquisition of Time Inc which also became an investment disaster, born of a tragic under-estimate of the cultural differences between Time Inc, in swanky Manhattan, and the Meredith out-of-towners in Des Moines, Iowa. The upshot is this year’s sale of Meredith to digital publisher Dotdash for $2.7bn – virtually the same price paid just for Time Inc in 2018.
The shaky profits, stuttering growth and unfulfilled promise had been unfamiliar territory for the Iowa company founded in 1902 by farming publisher Edwin Meredith. He had launched Fruit, Garden and Home, soon renamed Better Homes & Gardens. It’s been one of the most consistently successful magazines in the US for the last 50 years. It was the reason why Meredith quietly became one of the magazine industry leaders – and why it was tempted to buy the venerable Time Inc and become the leader.
Just three years ago, Meredith executives were excitedly negotiating the acquisition of the world’s most famous magazine publisher. The transformative deal would “create a diversified media and marketing company with revenues of $4.8bn and EBITDA of $800m”.
When the deal was done, they were euphoric: “It follows a fiscal 2017 in which we posted the highest revenues, profit and earnings per share in our 115-year history. When you combine our strong local television business – which has grown operating profit 15% annually over the last five years – with the trusted, premium multiplatform content creation of Meredith and Time Inc, it creates a powerful media company serving consumers and advertisers alike.”
Meredith’s focus on Better Homes & Gardens and “service” magazines had been a key reason why it had out-performed Time Inc for the previous decade. Monthly magazines (like those from Meredith) had been winning while weeklies (like Time Inc) faced inexorable decline. These were two quite different companies.
The almost-secret heart of the Meredith story had 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. 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’s a business that continues to thrive. In 2021, Walmart 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 almost $100m of licensing profit – 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 almost everything about Meredith’s acquisition of Time Inc was a miscalculation.
The result was that Meredith effectively paid $2.8bn for only about $100m more annual profit than had been 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. It accounts for a large majority of the whole company’s profit.
But Meredith is the largest magazine publisher in the US and the leader in food, lifestyle and homecare. Its major brands include People, Better Homes & Gardens, InStyle, AllRecipes, and Real Simple. It has also been operating 17 local TV stations reaching some 10% of US homes, whose sell-off is now underway.
Everything must change.
For the good people of Des Moines who – just four years ago – had been thrilled with the hundreds of jobs that transferred from New York, the painful reverse will now happen. Meredith – long one of the largest employers in Iowa – will become a branch office of the New York-based Dotdash.
The story is now all about Dotdash, the nine-year-old digital publisher and fast-growing subsidiary of IAC. The parent company, long known as InterActive Corp, has been a high-performing media-tech-entertainment group chaired by Barry Diller who was managing Rupert Murdoch’s 20th Century Fox in the 1980s. He started the Fox television network which – against all the odds – broke the grip of America’s big three TV networks – ABC, CBS and NBC. In 1992, Diller quit Hollywood and bought the QVC shopping channel.
He founded InterActive Corp in 1995 and has produced a long series of success stories characterised by “patient, strategic capital allocation” and an unrivalled track record for taking offline businesses into the digital marketplace. In the past 25 years, IAC has variously managed, controlled, or invested in Tinder, Ticketmaster, Expedia, Match, Daily Beast, Newsweek, Interval International, Vimeo, Hotels.com, TripAdvisor, LiveNation, Hotwire, Lending Tree, Excite, Ask, and the Home Shopping Network. Nobody does it better.
IAC is a $12bn listed business with $6bn revenue from a fluid portfolio of companies, currently including Angi Home Services, Care.com – and Dotdash.
Dotdash was formerly About. com which was acquired from the New York Times for $300m in 2012. It’s been an all-digital company whose collection of 14 websites (including Verywell, Investopedia, The Balance, The Spruce, Simply Recipes, Serious Eats, Byrdie, Brides, MyDomaine, Lifewire, TripSavvy, Liquor.com and Treehugger) attract 100m monthly users.
The company actually had its first exploratory “merger” discussions with Meredith more than a year before the Time Inc deal. It’s now going out of its way to make the acquisition seem a “friendly” transaction with effusive praise for the Meredith family and its magazine heritage. The deal (due to complete by the end of this month) is rich in promise for a combined business which – over the last 12 months – would have generated more than $1bn from each of advertising and e-commerce. By next year, the “new” company Dotdash Meredith is forecast to:
- Be one of the top 10 internet companies in the US (by audience size)
- Reach 175m US online consumers every month
- Reach 95% of all US women
- Have $450m of EBITDA in 2023 – 70%+ from digital
It will also be selling 560m magazine copies a year. Its workforce of 4,000 will be four times that of Dotdash.
The combined business will have strong brands right across the lifestyle spectrum including Home, Food, Health, Beauty & Style, Travel, Finance, and Entertainment. The largest and most profitable remains People. But it is in the homes and food sectors where the combined portfolio may have the best growth prospects. But you cannot escape from the simple truth that People, Better Homes & Gardens and Allrecipes are worth more than Meredith’s whole 40-brand magazine portfolio.
The obvious question is whether Dotdash’s enviable growth path as a digital publisher (revenue doubled in four years) will be accelerated or obstructed by having thousands of employees (75%) engaged in the production of print magazines. In 2019, Dotdash acquired the 90-year-old Brides magazine from Condé Nast – and promptly stopped printing it. At the time, Dotdash CEO Neil Vogel said Dotdash would become “what the future of Condé Nast should be”. That could have been intepreted as an all-digital, never-print strategy.
But times change and IAC investors have been treated to a presentation that underlines how Dotdash and Meredith will be a “premium Content Powerhouse” across some of the most valuable consumer verticals. Let’s not pick through the differences between print and digital for almost everything including content, systems, people, and monetisation. But Meredith gets almost twice as much digital advertising and Dotdash twice as much e-commerce. Put those two together, and you get…a lot more revenue. So they say.
Traditional media is familiar with the difficulty of sustaining innovative product development when it is dwarfed by the people, profit and power of everything else. It’s at least one reason why print-centric businesses find it so difficult to escape their past. It will be interesting to see how Dotdash manages its business, most of whose people are – suddenly – print magazine teams. It might wish to split the magazines into digital+print market groupings and let the digital natives bleed (at least some of) the magazines to death. But that is not easy to do, especially with teams that are thousands of miles apart.
In 2021, Dotdash will make $88m of EBITDA from $264m, while Meredith will make $358m from $2.1bn. But Meredith’s profit is the lowest for four years on revenue that has grown on average at 8%, while Dotdash has more than quadrupled profit and increased revenue by an average of 18%. Almost 70% of Meredith’s revenue is print – even though the IAC CEO has applauded Meredith for its “record digital growth”.
But why is Dotdash buying Meredith at all?
Flashback a year and the Dotdash CEO, a former investment banker, was busy telling investors why his company was growing so fast. He told a conference that his company was the modern version of magazine groups (like the old Meredith) once called “service publishers making content that helps people do things”. The task was to create content that was valuable “not browsy”. He summarised the Dotdash objectives as to create
- Great content
- Fast sites
- Fewest, most respectful ads
Neil Vogel was underlining the way that too much digital media (including the online versions of print magazines) had sacrificed trust in order to maximise monetisation – with cookies, paid-content, and popups.
Making the point that he and his senior team were all recruited from outside the publishing industry, he was criticising magazines for being “browsy” while “Dotdash does not care about time spent” but about the audience getting the information they want to make “critical life decisions”. He was blunt about why Dotdash was winning the battle for audiences in “service journalism” from the magazines which had once been so dominant: “We’re a lot different to a traditional media company”.
But there is more.
Vogel had also said “We don’t do sports, politics or news”. Meredith itself might have said that before seeking to acquire Time Inc. It then realised that – although it could sell-off Time, Fortune, Sports Illustrated and Money magazines – it could not hope to get anything other than a dilutive price for the mighty People. It is tempting to suggest that Meredith sidestepped its exclusive focus on food, family and lifestyle media to take on the celebrity-packed People magazine, so it could buy Time Inc for what seemed like a bargain price. Has Dotdash done the same? Have the temptations of a few brands and lots of short-term profit diverted Dotdash from its all-digital strategy?
There is, of course, a wider context to Dotdash Meredith. The best media companies will believe they can leverage traditional brands and content, either to create new online services or to provide a cash-generative runway to their ultimate (digital) business – despite the challenges of self-competition.
Across the Atlantic, Future Plc is the 36-year-old magazines group which has been investing heavily in digital media. The listed UK company’s ratings have soared in the past few years through strong profit growth from highly-effective systems, energetic management, and diversified revenues. The company has been able to maximise the benefits of increasingly ambitious acquisitions, including the price comparison/cost saving site GoCompare which was bought for £594m in 2021.
Future’s diversification success is reflected in its almost equal three-way revenue split between digital advertising, e-commerce, and print magazines. But it has also spent more than £400m on some 50 print magazines from TI Media (Time Inc’s former UK subsidiary) and Dennis, the Anglo-American publisher of The Week and Kiplinger.
Both Future and Dotdash may, therefore, share the challenge of having bought a mixed magazine portfolio, which tends to include a long tail of brands, once key to the scale economies of print publishing. As a result, these digital-focused companies have taken on some brands they wouldn’t ordinarily have wanted, despite their profitability (like Meredith’s People, and TI Media’s TV listings and women’s weeklies), and also a whole string of other brands that might add little to the overall strategy. Some print-centric brands will, of course, be just right. But you get the picture.
These companies can generate great medium-term profit growth from managing traditional brands more smartly – and cannibalising them to power digital services. But these “new” media companies (perhaps especially Dotdash; Future has been in magazines forever) may come to feel the pain of a workforce and cost-base disproportionately wrapped in print.
They might just be watching a digital competitor which is doing it differently.
Red Ventures (RV), of the US, has built a portfolio of over 100 news and information sites and now claims to reach over 750m reader-users worldwide every month. It has $1.5-2bn revenue and employs some 4,500 people, mainly in the US and UK.
Most RV sites make at least some money through ads, and some have large audiences: Healthline, for example, has 75m monthly uniques. But the real money comes from e-commerce including from high-priced products and services like credit cards, insurance and energy. No print.
While Dotdash and Future are upbeat about magazines and also advertising-funded media, they know that much of their recent success has been a result of upstaging print. And much of the future is in data. Building first-party data can enable higher-value e-commerce and also sales of the data itself to marketers. The merest hint of highly-qualified sales leads being worth, say, $300 each – by contrast with dollars or cents for the ho-hum leads provided by many consumer publishers – is motivating media companies everywhere to build their data expertise.
But Neil Vogel’s Dotdash Meredith also has something else to watch. Perhaps he will be comparing his progress in magazine-digital verticals with the powering performance of the listed Home Advisor/ Angi, in which AIC has a majority shareholding. This increasingly international $5bn “digital marketplace for home services” began in 1995 as the Angie’s List directory of home services. It successively expanded into lead-generation, market matching, pre-priced services, and subscription services to help people “manage” their homes. The RoI of Angi’s service in the US is persuasive: A service professional pays $30-35 per match, wins 1 out of 4 jobs with an average value of $2-3k. Since their investment per job is $120-175, it’s an RoI of 14-17x.
Those focused digital transactions seem worlds away from the “browsy” nature of magazines. Nobody doubts that magazine brands, content and subscriptions can be powerful – and enduring. Look at Better Homes & Gardens’ unrivalled product licensing. And not all consumer marketing will be confined to direct response. Brand advertising still matters to many corporates, and this is where the very best magazines can surely complement digital media. But the emerging print, paper and fuel cost-inflation will accentuate the economic disadvantage reinforced by sustainability issues.
The challenge for Dotdash and Future is how – and when – to face up to the simple fact that they have more print than they need longterm. How will the largest magazine publishers in the US and UK respectively, compare with each other – and with the digital-only Red Ventures – in 2025? Just watch.