These are the pivotal years for magazines, during which legendary print-centric brands will find a new role – or not. For the likes of Condé Nast and Hearst whose very identities, if not their current fortunes, are tied up with print, there is the seemingly patient task of finding ways of monetising celebrated brands before they are forgotten even by the generations that loved them most. Hundreds of other magazine publishers, big and small, have the same task but less patience and cash.
Then there are the companies which have strategies worked out and “just” want to find magazine ways to leverage their digital plans.
As we have observed, the largest magazine-rich companies on either side of the Atlantic are going through the same strategic torture, having entered the tunnel from opposite ends. They’re close to meeting in the middle.
In the UK, Future has made and lost fortunes for successive owners and shareholders as a magazines live-wire, able – back in the day – to launch profitable magazines about new software, gadgets and games almost before the products were in the shops. The tech publishing CV helped the company ‘get’ eCommerce and digital ads ahead of the pack – but not before it had swollen its stable of print magazines through seemingly low-priced acquisitions. Just as Future was envisaging a world where ‘magazine’ would usefully describe all-digital brands and not just print. Must it now slimdown its magazine portfolio – including brands acquired in recent years – in order to concentrate on digital growth?
Its US counterpart, Dotdash Meredith, might not want to recognise the parallel with its own once fast-growing, digital-only strategy that was – well – complicated by acquiring a print magazine portfolio. It simply succumbed to the irresistible temptation to acquire the country’s largest print magazine publisher. Dotdash’s $2.7bn acquisition of Meredith in 2021 saw CEO Neil Vogel anticipating the sceptical questions when he said that buying Meredith “was about buying brands not magazines or websites”.
It was an echo of Future which had bought the ‘bargain-priced’ TI Media (ironically, formerly owned by Time Inc whose US parent had been disastrously acquired by Meredith). Vogel knew that – for all the traffic that can be quickly-generated online – building an enduring brand requires the sustained investment of time and money.
That’s why the largest magazine groups, in the US and UK, were so eagerly snapped up by the two companies that had declared their preference for all things digital. That’s how two 21st century alchemists have arrived at the same place in their bumpy experiments to turn leaden print brands into digital gold.
Future’s new CEO Jon Steinberg is under pressure from an unforgiving stockmarket that once rated his company at almost four times its current £1bn value. He’s now treading through the weeds of his sprawling UK-US portfolio wondering whether a ‘kitchen sink’ reorganisation, sell-off and re-focus would be preferable to a preparatory period of calm, unflashy rebuilding, and winning shareholder support.
It’s a tough call but the Future CEO might envy his counterpart Vogel whose company – while part of the listed IAC – is 41% owned by chair Barry Diller, a veritable magician in creating value from media and tech assets. A proven alchemist.
Diller had founded IAC in 1995 and has produced a string of success stories through “patient, strategic capital allocation”, building a track record for taking offline businesses into the digital marketplace. But even he has been haunted by fickle shareholders who provoked Joey Levin, CEO of IAC, to complain: “Our market capitalization is still roughly equal to the sum of the cash and publicly-traded securities we hold, effectively implying no value for all the other assets in IAC” (including Dotdash Meredith).
But digesting Meredith, IAC’s largest-ever acquisition, has been something else, even for the swashbuckling Diller.
Its first exploratory “merger” discussions actually took place more than a year before Meredith itself had bought Time Inc in 2017. So Neil Vogel had plenty of time to persuade his initially sceptical bosses of the potential value of print magazines. On announcing the Dotdash acquisition in 2021, he listed the short-term objectives:
- To be one of the top 10 internet companies in the US (by audience size)
- To reach 175mn US online consumers every month
- To reach 95% of all US women
- To have $2.5bn of revenue and $450mn of EBITDA in 2023 – 70%+ from digital
Everything was alright – except the financials and digital revenues. But it took a while to own up.
It’s only two years since Joey Levin called a premature “victory”: “We are ahead of plan on the Meredith integration and are confident we’ll exceed $300mn of EBITDA this year.” That would have made the $2.7bn acquisition a 9x multiple – toppy but bearable.
In the event, it produced just under $200mn that year (a 14x multiple). Within a few months, he was admitting they got the acquisition “timing” wrong (the closest most CEOs get to admitting a deal was mistaken).
The evidence of distress has been in: the unplanned, successive cuts to staffing and portfolio; differentiating web traffic between “core” and other sites; inflating digital revenue claims by including the very non-digital product licensing income of Better Homes & Gardens; and quoting the acquisition multiple by reference not to the $2.7bn paid for Meredith but to the 50% of it on the subsidiary’s own balance sheet. And there’s been an ultra-sensitive refusal to answer even my simple questions about the number of print magazines and headcount.
But, then, it has been a struggle to make Dotdash Meredith “work”.
Suddenly, last month, the clouds seemed to lift, with the company claiming to have “delivered on the long-anticipated return to growth”. After a fourth quarter, during which both digital and print EBITDA had grown and affiliate eCommerce increased by 54%, the company announced $1.7bn of revenue and $336mn of EBITDA for 2023. It was able to skate past the memory that this “rehab” profit – while it was 50% up on the ignominious 2022 – was nowhere near the $450mn forecast in the acquisition proposal – and almost 25% lower than Dotdash and Meredith had separately generated in 2020, the year before acquisition.
Even the total profits now forecast for 2024 are not much more than might once have been expected just from Meredith’s principal brands: People, Better Homes & Gardens, Southern Living, Allrecipes, Food & Wine and Travel & Leisure.
And what about People magazine?
Under the last years of Time Inc ownership, the powerhouse celebrity weekly had accounted for almost $500mn (80%) of the company’s profit on revenue of $1.5bn. It still has 3mn+ paid subscriptions (average price: $90), 300k newsstand sales and a total print and digital reach of some 96mn. It may, therefore, account for $600mn+ of the $800mn print revenue in Dotdash Meredith. On that basis, People magazine may generate at least $100mn profit – more than one-third of the company’s 2023 total.
It’s something of a guilty secret for the publisher which once said it was all about ‘must have’ information not entertainment and certainly not showbiz gossip. But another luxuriously guilty secret acquired from Meredith is the best-in-class product licensing under which Walmart, for example, has hundreds of Better Homes & Gardens branded products. This long-established program is believed to have generated c$75mn of profit in 2023 (equivalent to 25% of all Dotdash Meredith profit). Similarly, the 400 ‘bookazines’ (price: $14.99), which represent more than 50% of a quietly booming US publishing market, underline just how Dotdash Meredith “print” might be disproportionately important both to revenue and profit, whatever the PR says.
By adding in the former Dotdash EBITDA of $66mn (at a 31% margin) in pre-pandemic 2019, you can account for an estimated 80% of the 2023 profit with a relatively small slice of the c4,500 headcount:
| Dotdash Meredith SnapShot $bn | 2024* | 2023 | 2022** | 2021*** | 2020*** |
| Revenue | 2.0 | 1.7 | 1.9 | 2.3 | 2.2 |
| % digital | 50% | 46% | 42% | 42% | 37% |
| 44% | 48% | 52% | 57% | 58% | |
| % licensing | 6% | 6% | 6% | 1% | 5% |
| EBITDA | 0.4 | 0.3 | 0.2 | — | 0.4 |
| Margin | 20% | 18% | 10% | — | 19% |
Total revenue last year was down 12% but Q4 – at $476mn – was flat. So, on our simple calculation of the sources for the majority of profit, Dotdash Meredith seems on course to get back towards the 25-30% EBITDA margins briefly enjoyed by the former Dotdash. Maybe by 2024-25.
That’s why – after a ‘lost’ two years of post-acquisition struggles – the 2023 results can plausibly be presented as proof that Dotdash Meredith really is becoming the flywheel for generating digital advertising and eCommerce. It’s taking much longer but they’ll get there. That’s certainly the view of Joey Levin who has declared pragmatically that – whereas acquisitions could once prove themselves in two years – the schedule might now be nearer to the 8-9 years of maturity afforded to product launches.
That viewpoint, a stronger Q4 and a relatively buoyant advertising revenue start to the 2024 US presidential election year, presumably confirms that Dotdash Meredith will have the time it needs to get back on track. The jury’s out, of course, on just how valuable is some of the remaining print of a one-time 40-magazine Meredith portfolio to the process of building digital brands. Dotdash Meredith’s 40 mainly-digital brands have a combined audience of some 200mn including more than 90% of all US women.
But even the rising optimism cannot ease the pain of a $2.7bn acquisition price plus almost $200mn of restructuring and reorganisation costs. However, if the company achieves the targeted $400mn in 2024, the 7.5x EBITDA multiple will be more reassuring ahead, perhaps, of $600mn (5x) by 2026 – five years after the deal. (Those multiples do not take account of the pre-existing investment in, and value of, Dotdash itself.)
So, what went wrong in 2021-22?
Neil Vogel’s mistake, arguably, had been trying to catch falling knives. Meredith was a large, print-centric company in a steep decline exacerbated by its ill-conceived, poorly-executed, hubristic acquisition of Time Inc. But it had seemed easy to show that Dotdash’s $2.7bn valuation was justified by the sum of the parts of a still-glittering portfolio – but only if the profit assumptions were not undermined by the time the deal was done.
That reassuring composite valuation would have depended, of course, on forecasting the rate of decline of print copy sales and digital advertising yields during the pandemic, and under remorseless pressure from Google, Amazon and Meta. Being too confident about slowing (or even halting) the decline might have wrecked those breakup valuations. That’s before you get to the point about whether some of the magazine brands (like the majority already turned all-digital by Dotdash Meredith) have anything like the same value without the printed editions for which they are best known.
You would guess that the secret of preserving the brand value in a switch from print to digital-only lies in a planned transition, some of which may have been lost in the post-acquisition panic of a pricey deal.
But, before the hoped-for rebound in the next 2-3 years, we must reflect on People and its irresistibly large audience and profit. It’s the antithesis of Dotdash Meredith’s evergreen content and tightly-targeted brands across health, home, financial services, parenting and food/wine.
The former Meredith executives had never been able to persuade anyone that they should have acquired People and, perhaps, neither has Neil Vogel. But IAC/Dotdash must have estimated People’s value at some 50% of the whole deal. So that seemed like a no brainer – until you try to catch the falling knives.
Vogel, Diller and Levin must have toyed with the idea of recouping up to 50% of their purchase price by flipping People, say, to an entertainment or broadcasting company. But who else wants to try and catch falling knives?
Ultimately, Dotdash Meredith’s huge audience reach – and its competitiveness with the large digital platforms – now depends on People. It makes Dotdash Meredith a major player in digital advertising and eCommerce. But you wouldn’t rule out an eventual, alternative strategy for the magazine that the publisher cannot currently afford to sell.
Before any return to concentration on the type of specialist brands and content that had made Dotdash (and Future) so successful, Dotdash Meredith is now working hard to become a distinctive advertising platform in the post-cookie world. Its impressive new D/Cipher “Intent Targeting tool”enables advertisers to target users with ads based on intent to buy and the topics a person is likely to engage with. The target recommendations are built with aggregated (but anonymnised) user data from across the portfolio. The tool predicts (in real time) what else any website visitor may be interested in.
The publisher says: “D/Cipher makes intent-based ad targeting at scale a reality, without cookies. Best of all, D/Cipher reaches all users on all devices and unlocks Apple (iOS) audiences”. It claims to have been running some 30% of all its direct advertising campaigns through D/Cipher. Its a smart way to build a brave new world for specialist magazine-like content and its plan to roll-out many more live events is another. Dotdash Meredith is starting to move forward with confidence.
But, there’s something else.
Neil Vogel has said: “We have 40 brands in total but roughly 20 of those brands are the vast, vast majority of the business”. The assertion broadly corresponds to the brands (People, Allrecipes, Investopedia, Better Homes & Gardens, VeryWellHealth , The Spruce, InStyle, Food & Wine, Martha Stewart, Byrdie, Real Simple, Southern Living, Simply Recipes, Serious Eats, EatingWell, Parents, VeryWellMind, Health, and Travel & Leisure) whose “core” web traffic accounts for 80% of the Dotdash Meredith total.
That’s confirmation (of sorts) that 80% of the revenue comes from perhaps as little as 50% of the business. We can guess what comes next.
The company has told investors that investment and technology will be concentrated on its core brands. It, presumably, means that up to half of the portfolio may eventually be closed, sold or merged. How else can you hope to motivate employees and customers now confined to the publisher’s darkened corridors?
The solution may be obvious and the admission (finally) that Dotdash expected too much from the sprawling Meredith portfolio. It’s at least partly a result of acquiring a traditional publisher which, like many others, believed in building fleets of magazines in the (usually mistaken) belief that lots of small boats would help to keep the opponents away from their cash-generative battleships. You get the picture.
Narrowing the portfolio to not much more than the “80%” major brands is clearly the best strategy for growth and payback.
That’s when it comes back to the doppelganger on the other side of the Atlantic. Future’s Jon Steinberg has invited (wittingly or unwittingly) would-be buyers for brands excluded from his own list of “hero” brands. He’s also turning down the lights on unwanted print magazines within his 100+ print portfolio. The ads-smart CEO may also be working hard to produce ads targeting tools, presumably involving the data available from his GoCompare price comparison site. (Like People magazine, it’s another highly-profitable, big-impact brand that doesn’t really fit the digital strategy but…)
This seems likely to be the year both for Dotdash Meredith (solely in the US) and Future (in the UK and US) to concentrate on the alchemist’s dream of tech-enabled portfolios, gilded with the best brands from the heyday of magazines – and as little print as it needs to keep. That’s when the real transatlantic race will begin. Or, maybe, the prospects really are brightening for the ultimate transatlantic digital magazine merger. Now, there’s a target for 2025.
