Ad revenue recovery: Different strokes for different folks

Posted by Peter Kirwan on 13 August 2010 at 14:25
Tags: Associated Newspapers, Daily Mail & General Trust, ITV, Johnston Press, Northcliffe Media, Reed Elsevier, Trinity Mirror

The future of trade publishing: niches for enthusiastic eccentrics

Posted by Peter Kirwan on 26 April 2010 at 13:47
Tags: Reed Elsevier, United Business Media

The closure of 23 trade magazines at Reed Business Information in the US seems to have shocked industry commentators.

The closure of titles like Construction Equipment and Modern Materials Handling is part of Reed Elsevier’s long-running plan to winnow down trade magazine publishing to a highly profitable core (or exit the business altogether).

Presumably, RBI’s UK operation in Sutton is next in line for a batch of closures. Over the past three years, despite a change of chief executive, Reed Elsevier’s desire to get out of trade publishing has proved unwavering. What used to be a £1bn-turnover business with operations in Asia, Europe and the US, is rapidly getting smaller.

Yet this doesn’t necessarily mean that trade journalism is doomed. On the contrary, I suspect that new opportunities are opening up on the periphery of markets. At Folio, columnist Ted Bahr pinpoints a persistent problem experienced by large companies running huge trade magazine portfolios. He quotes Bill Ziff, the late guru of special interest computer publishing:

“It used to be that our business was run by enthusiastic eccentrics—people who worked and lived day in and day out in their markets and hardly even realized that they were running a ‘business,’ in the classical sense, at all.”

The big conglomerates reaped economies of scale by buying and merging these small entrepreneurial single-market publishing operations during the 1980s and 1990s.

But there was a downside. Over time, the best sales people became publishers and then publishing directors. As Bahr argues, they were “promoted away from their markets, from their customers, from their street-level expertise”.

These “professional managers” ended up “spending their days in budget and forecast meetings and battling other execs. . . for investment and acquisition dollars”.

Bahr himself worked as a publisher at Miller Freeman. He recalls his “acute embarrassment” at being “paraded around as a high level executive at the key trade shows for these different markets when I barely had a clue what was going on. . . ”

This, I reckon, will ring a few bells for many trade publishers. Falling out of touch has always been the big risk inherent in conglomerate-style publishing (likewise, it’s a risk that confronts those who would like to consolidate local newspaper ownership even further).

The negative effects of centralization work their way through the system in different ways. Recently, I talked with a PR who works in IT, the same market in which Bill Ziff made his millions and Ted Bahr plied his trade. He bemoans the way in which a sharply-reduced number of trade titles has become obsessed with the Goliath-sized US multinationals that have consolidated the IT industry.

At some titles, he suggested, there’s no space for stories about start-ups. Senior writers who used to track new technology now confine themselves to writing about the top ten hardware and software companies.

The reason for this is obvious. As editorial teams become smaller, this is the core area of coverage that editors cannot abandon. The industry’s biggest players, after all, still buy advertising and sponsor events.

Yet within this retreat to the centre, a couple of traps await editors. Most of the giant technology companies seed the web with content designed to render redundant the trade journalist who interprets industry dynamics.

A vision of the future persists in which corporations speak directly unto corporate buyers. Cash that used to be funnelled into trade advertising is being re-directed to PR and social media. Under these circumstances, on mainstream trade titles, the endless rewriting of press releases emitted by the industry’s big players becomes utterly self-defeating.

In addition, of course, innovation frequently occurs first at the periphery of markets. If trade publications aren’t patrolling that periphery, they risk being on the back foot when the dynamics of their industries change.

Yet look down the list of the titles earmarked for closure at RBI in the US. One thing emerges clearly. Most of the doomed publications are niche titles serving markets (engineering, construction, catering) that have been deeply disrupted by recession.

This tells us that the old trade publishing model of a big cash cow surrounded by niche titles has been rendered unworkable in some markets. In others, as UBM observed when it unveiled its full year results in March, sufficient demand exists to maintain “one or two leading titles, a position which each market will reach by means of a ‘last man standing’ process”.

In other words, the big publishers will circle their wagons in an ever-tighter defensive cordon. They will try and fail to make “one or two leading titles” cover vast stretches of vertical market activity.

Thankfully, the results, for everyone else, should include plenty of opportunity.

It’s time for the talent that got sucked into the centre of companies like RBI to move out to niches on the periphery. Here, the carpet-bombing tactics of PR departments lose their effectiveness and the editors of big titles dare not venture. If you can build a business that mixes authoritative insight with data-driven services in places like these, so much the better.

I’m not sure that large companies can manage this trick. (They’ve always been better at buying than building.) But for enthusiastic eccentrics like the late Bill Ziff who are prepared to work and live in their markets on a daily basis, niches, more than ever, represent the future.

Clutching his pay-off, Sir Crispin bids farewell to Cinderella of Sutton

Posted by Peter Kirwan on 15 December 2008 at 10:45
Tags: Reed Elsevier

What’s to say about Reed Elsevier’s decision to pull the sale of Reed Business Information? As far as the eye can see, the result is a mess. 

For RBI’s employees, it’s a case of back to the future. Here’s a backhanded assessment of what’s on the horizon from Crispin Davies, the outgoing chief executive of Reed Elsevier:

“Our continuing ownership of RBI will in no way distract us from our strategic focus on delivering authoritative content through leading brands, driving online solutions, improving cost efficiency and continuing to reshape and strengthen our portfolio.” 

The disdain is almost palpable. No doubt Davies’s disappointment will raise a sardonic chuckle among RBI’s employees. They might work in Sutton, but their psychological state must be deepest Millwall.

Oh, and Reed Elsevier still wants to sell the business — “in the medium term when conditions are more favourable”.

Charming. It’s left to the author of Business Media Blog to spell out what probably awaits Reed Elsevier’s in-house Cinderella in the New Year:

They should also be closing titles, downsizing the scale of the business and its overheads, re thinking how their magazine model works and run the place as if it were owned by private equity. . . This will be very counter culture RBI management.

As BMB points out, RBI’s new chief executive Keith Jones will have every incentive to get his hands dirty -– and soon. He’ll need to demonstrate his mettle to the Sir Crispin Davies’s successor, who is expected to start work in March.

To boot, there will be recriminations. At Paid Content, Rafat Ali describes the atmosphere inside RBI as “horribly depressing”.

The attempt to sell RBI, one of his sources suggests, was also “horribly bungled”. The list of cock-ups is long.

For Crispin Davies, this is a poor finish to a largely successful decade at Reed Elsevier.

Not that he’ll need much cheering up. Next year, at the age of 60, Davies becomes eligible to retire with a pension that equates to 45% of his £1.2m salary.

He may also depart Reed Elsevier with a bonus payment of up to £1.3m under his belt. That’s quite aside from the options to buy roughly 3m shares that Davies has amassed over the years.

No doubt RBI’s employees will be foremost among those who wish Davies well in retirement. 

Footnote: Kudos to the anonymous author of Business Media Blog, who was sceptical from the start about the prospects of selling off RBI. Having argued otherwise, I’m tipping my hat in BMB’s general direction.

UBM & Informa: B2B consolidation just got interesting

Posted by Peter Kirwan on 10 June 2008 at 14:13
Tags: Reed Elsevier, United Business Media, emap

How many ways can you skin a cat?

Johnston Press solved its debt problems by asking investors for cash and accepting the advances of a Malaysian billionaire.

Now comes Informa. After experiencing debt-induced palpitations, the £1bn-turnover B2B publisher is wondering whether it might be best to fall into the embrace of United Business Media.

Actually, the merger-of-equals rhetoric isn’t too far wide of the mark. The markets value Informa at £1.8bn and United Business Media at £1.6bn.

Neither company looks particularly distressed in operating terms. Despite the current signs of a slowdown, both Informa and UBM grew at around 9% last year — not bad at all for companies of their size.

There’s symmetry at the level of motivation, too.

Informa has £1.25bn in debts and wants to reduce that number — fast. Combining with UBM, which has minimal debts, will improve matters. Besides, both companies will benefit from up to £50m of cost savings if they merge.

For its part, UBM will benefit from a deal by reducing its dependence on print and advertising revenues.

The result would be a post-print B2B behemoth turning over £1.7bn a year.

How problematic are Informa’s debts? This, after all, is a company that has grown rapidly on cheap credit. In 2001, Informa was a £300m-turnover company focused on subscription revenue and events.

Just seven years later, its revenues have quadrupled via apparently well-chosen acquisitions in academic publishing (Taylor & Francis), conferences (IIR) and research (Datamonitor).

Last year, however, Informa’s net debts reached a peak of 4.8 times the company’s operating profits.

By comparison, Johnston Press was forecasting 2008 net debts of 3.5 times operating profits before company announced its rights issue. (The multiples involved are similar to the ones used by building societies to assess the size of mortgage they’ll give you. If in doubt, think of your salary as operating profit. In the current climate, multiples higher than 3 aren’t popular among investors.)

How did Informa manage to rack up so much debt? During the naughties, it made big acquisitions. But the company’s fast-growing cashflows easily covered its interest bills.

For most of the decade, Informa looked like a good bet to bankers. It was a publisher with interests in virtually every media format you can imagine, apart from the dodgy no-go sectors of print and recruitment advertising. (In 2007, ads generated just 3% of Informa’s revenues).

Now, however, investors are much more worried by the speed with which B2B publishing profits might decline. Under these circumstances, interest repayments could become burdensome — very rapidly.

That’s why, as with Johnston Press, investors have been shunning Informa’s shares. (During the past year, Informa’s share price has dropped by one-third. The UK media sector as a whole has declined by 25%.)

It also looks as if Informa’s buoyant margins have started to slide in recent months. Helpfully, the combination of UBM with Informa should reduce the merged company’s debts to much more comfortable 2 times operating profits by 2009.

In recent years, United Business Media has avoided mega-deals. But that’s not to say that the company’s managers have been asleep at the wheel.

Far from it.

UBM has sold off Exchange & Mart, its 35% stake in Five and the NOP market research unit.

And since David Levin joined the company as CEO in 2005, UBM has spent almost £400m on 52 acquisitions negotiated by three separate in-house M&A teams in London, New York and Hong Kong.

UBM has been snapping up companies at the rate of one every three weeks. Few, if any, are what you’d call traditional B2B media outfits.

The aim has been to diversify away from the company’s declining roots in print.

But if Informa was self-consciously designed and built as a post-print B2B publisher, UBM still resembles a half-renovated Victorian semi with a skip in the drive and a concrete mixer in the garden.

In 2005, print accounted for 46% of UBM’s revenues. Two years later, the figure is 27.5%. Although UBM now draws four-fifths of its profits from events, databases and press release distribution, there’s still a way to go.

A merger with Informa would propel UBM squarely into the post-print future. The combined company would be largely focused on events, market research, databases and so-called workflow solutions.

In this respect, UBM-Informa could come to resemble Reed Elsevier, whose great leap forward involves selling off Reed Business Information, its magazine division.

If the UBM-Informa deal goes through, and if Reed Elsevier offloads RBI this summer, it will mark a decisive parting of the ways among B2B publishers.

Incisive Media, EMAP — plus whoever buys RBI — would remain as the major players in traditional B2B publishing. Two of this trio are already owned by private equity investors. RBI could go the same way, setting the scene for dramatic restructuring away from the limelight of the public markets.

That’s one scenario.

Plenty of others exist — including a potential counter-bid from private equity investors for Informa. Potential bidders understand investors’ fears that UBM will buy Informa on the cheap.

But by sucking hard-to-find debt financing out of the market, an intervention like this could derail Reed Elsevier’s plans to auction off RBI.

What we’re witnessing is top-of-the-cycle consolidation. By the end of this year, the B2B publishing market will have changed out of all recognition.

Whether investors have sufficient appetite for risk to make the pieces of this puzzle fall to earth in an orderly fashion remains to be seen.

Reed Elsevier bends over backwards to sell trade magazines in a single £1.25bn deal

Posted by Peter Kirwan on 3 June 2008 at 10:55
Tags: Media, Reed Elsevier

On the face of it, this looks like a distress signal.

The Daily Telegraph reports that Reed Elsevier is organizing a consortium of banks to lend more than £750m to the successful buyer of its trade magazine arm Reed Business Information. RBI as a whole is expected to sell for up to £1.25bn.

Real world translation: Imagine that you are selling your house: this is the equivalent of getting a bank to write a mortgage for your buyer. As part of the deal, you agree to pay the buyer’s mortgage arrangement fee.

So what does this tell us? Juliette Garside of the Telegraph interprets it as a tactic designed to keep bidders focused on making one big transaction.

Reed Elsevier, it seems, has been facing “widespread pressure” to break up its sprawling portfolio of 100+ publications.

Garside writes:

By tying up so many major banks when loans are hard to come by, UBS will leave private-equity buyers with limited ability to raise money elsewhere on different terms.

Viewed this way, the company’s move seems relatively aggressive.

The underlying assumption? That there are bidders out there would could bid for the lot, but won’t. So they need a bit of prodding.

The literature suggests that Reed Elsevier might be most interested in prodding trade (or “strategic”) buyers — in other words other media corporations. It’s likely that these trade buyers are the ones agitating for a staged break-up of the group.

Setting up debt financing for buyers like this can also be interpreted as a fairly assertive way of laying out your expectations on price — particularly in a market where sources of finance are constrained.

The key question here is whether Reed Elsevier’s own balance sheet will still be implicated in the structure of the deal after it’s done.

This really would be a signal that the sale isn’t proceeding smoothly. But Reed Elsevier would have been forced to warn its shareholders if that were the case. And that hasn’t happened.

Bottom line: what we’re seeing is Reed Elsevier bending over backwards to make this sale happen on its terms. That’s rather different from saying that a sale — in one form or another — won’t happen.

Footnote: We’ve reached that point in the narrative where the sale of RBI has started to resemble Roman Abramovich’s quest for a new manager at Stamford Bridge. We’re seeing lots of speculation, very little of it informed — and zero hard facts.

The sight of Reed Elsevier pushing for a single transaction strikes Rafat Ali of Paid Content as odd.

Back on 24 April, Ali suggested that the company had decided to sell off RBI’s US subsidiary separately from Europe. Ali called this a “reality check” for Reed Elsevier.

Now, it would seem, Reed Elsevier has gone back to denying “reality” — and insisting on One Big Sale.

Responding to Juliette Garside’s piece, Ali describes Reed Elsevier as presiding over a “rather haphazard sale process”. The loan offer, he reckons, is a sign that Reed Elsevier is “desperate”.

Ali has been continuously skeptical about the chance of a deal — as you’d expect of a blogger-turned-entrepreneur who believes that the old order of B2B publishing is not long for this world.

Back in February, he quoted a source describing RBI as follows:

“It is a poor business gone ex-growth with very poor margins of about 13 percent. And while it has some great brands a lot of what they do is structurally challenged and has seen a huge migration of recruitment advertising online. This business will struggle to go for anything north of 7-8 times Ebitda. They are a year too late selling it in my opinion.”

If you pin your colours to that particular mast, it really is hard to see how a sale can succeed. Somehow, though, I don’t think things are quite so bleak as all that. . .

RBI insider’s blog goes dark: What happened to Divestment Watch?

Posted by Peter Kirwan on 12 May 2008 at 14:14
Tags: Reed Elsevier

Mmm. A fortnight ago, Business Media Blog pointed to a blog called Divestment Watch, written by the web operations manager of RBI-owned Totaljobs.

According to BMB, it was “written by an insider with a brain thinking about what may happen” to Reed Business Information.

Now, it seems, the blog is down. A forlorn notice at Google-owned Blogger.com records:

Sorry, the blog at divestmentwatch.blogspot.com has been removed. This address is not available for new blogs.

What ever happened to this promising exercise in user-generated content?

Google’s cache yields a clue. On 2 May, The Ops Mgr noted speculation that directors of Reed Elsevier and RBI were among the 150-200 unique users visiting the site on a daily basis.

Apparently, the blog had even been discussed in the presence of Reed Elsevier’s bankers (UBS) and consultants (PriceWaterhouse Coopers).

Wrote The Ops Mgr: “It’s nice to know that there are some people interested and hopefully listening.”

We hope The Ops Mgr’s dialogue with management has continued in a similarly bright and breezy fashion. Somehow, though, we doubt it.

Reed Business Information: Redundancy costs and exhibition potential

Posted by Peter Kirwan on 12 May 2008 at 13:13
Tags: Reed Elsevier

The anonymous author of Business Media Blog picks up on my earlier post about Bernard Gray’s comments on Reed Business Information.

If Gray was talking down the prospects of a successful sale of RBI on behalf of an interested bidder, that’s hardly a crime. Indeed, some would suggest that Gray’s fiduciary duties encourage him to make the comment.

Sensibly, however, BMB is more interested in the prospects of a successful sale.

S/he doesn’t find compelling my point that RBI under new ownership would be free to (or required to) develop its own trade shows in earnest.

The trade show market is very crowded and it is not easy to find new niches of any scale

That’s true. No doubt a big roster of ready-made trade shows would make RBI more attractive. But I still believe that RBI’s strong magazine brands possess a natural advantage over many pure-play show organisers. And I’d argue that there’s a lot of untapped potential for events within RBI.

BMB also raises the question of how a bidder might develop RBI’s business in the future if Reed Exhibitions remains within the parent company. In particular, BMB suggests:

In many of its core B2B markets Reed Exhibitions owns the leading show — Hotelympia in the catering sector for example — so I would presume that Reed would require some kind of restrictive covenant on competing from a new owner of RBI.

Interesting thought. But how would such as “restrictive covenant” be structured?

Reed Exhibitions runs 460 shows and conferences. Accordingly, from RBI’s point of view, there’s a risk that any covenant is going to be very restrictive — to the point of placing a restraint on RBI’s ability to trade.

More likely is some kind of deal that involves Reed Exhibitions paying the relevant RBI titles for supporting specific shows and conferences.

Contracts like this aren’t ideal — I’ve lived with them in the past — but they are more plausible than restricting RBI’s ability to enhance its business under new ownership.

It looks as if the author of BMB might be an insider. Among other things, he/she agrees that a successful bidder for RBI would get to take plenty of costs out of the business.

Playfully, BMB suggests that “firing the COO would cost at least half a million alone”.

If that’s even remotely true, one can only admire the negotiating skills of Mark Kelsey — the executive in question.

More seriously: cuts come eventually to every well-upholstered business. The crucial point is that redundancy costs are a one-off exceptional cost. By contrast, the extra profits released by those cuts are a multi-year benefit. Between those two realities, there’s always room for negotiation.

Here’s a final pointer in favour of a successful sale, and one I haven’t mentioned before — Reed Elsevier’s stance. I get the strong impression that Sir Crispin Davies wants to move ahead quickly with the reincarnation of the business he runs. His shareholders like the direction in which he’s going.

Whisper it ever so quietly, but these factors might just result in some room for manoeuvre about price. Arguably, this is a luxury that EMAP’s Alun Cathcart didn’t enjoy.

If RBI doesn’t sell, we’re not in Kansas anymore

Posted by Peter Kirwan on 8 May 2008 at 15:35
Tags: Guardian Media Group, Reed Elsevier, United Business Media

Bernard Gray, the former FT hack and former boss of CMP, caused a bit of a ruckus at the PPA conference this week when he suggested that Reed Business Information might not find a buyer.

“The elephant in the room is RBI,” said Gray. “It’s not going to trade at the value that Emap traded at last year. There’s a significant chance nothing is going to happen to it.”

Coming from Gray, this was more than a bit cheeky.

For Gray is currently executive chairman of TSL, the company that owns the Times Educational Supplement. TSL itself happens to be bankrolled by the private equity firm Charterhouse Capital Partners.

And according to the Indy, Charterhouse is one of the private equity firms sniffing around. . . (yes, you guessed it) RBI.

So Bernard Gray has a motive for talking down the price of RBI. But does his argument hold any water?

The sale of RBI was announced back in February by Sir Crispin Davies, chief executive of Reed Elsevier.

Now before you interpret the ensuing silence as negative, it’s worth bearing in mind that selling a company takes time. In fact, Reed Elsevier only sent out detailed financials — in the form of an information memorandum — to interested bidders this week. (According to the Times, the recipients are all private equity firms.)

Bidders will certainly try to argue that RBI should be valued on a lower multiple than EMAP.

The market’s valuation of pretty much everything has deteriorated during the past six months. In addition, Reed Elsevier is only selling magazines and web sites. It wants to hold on to Reed Exhibitions, and this removes value from the deal.

On the upside (for bidders, if not employees), RBI is a well-fed, well-watered, business.

(How many managing directors does it take to run the UK subsidiary of a £1.4bn-turnover publishing company? Down in Sutton, RBI has four, plus a chief operating officer and a chief executive.)

The value engineers of private equity must be licking their chops. To the extent that they can, er, streamline operations at RBI, they’ll be willing to bid more aggressively.

RBI also has attractions that EMAP didn’t. One of them is Totaljobs, the RBI-owned network of job sites that attracts 1.8m uniques every month.

That’s more punters than the Guardian’s well-tended job site (1.4m). And although it’s some way off the market leader fish4jobs (3.2m), RBI’s online jobseekers are a better-qualified bunch. At Totaljobs, revenues are growing by 35% a year.

So while a successful bidder won’t get Reed Elsevier’s trade shows, they will get a solution — in so far as one exists — to the problem of shrinking recruitment revenues in print.

By contrast, building up trade shows — especially when you own a raft of successful magazines — has got to be the easier option.

In point of fact, because Reed Elsevier’s exhibitions arm has worked at arm’s length from its magazines, you could argue that RBI is bursting with potential for spin-off exhibitions and conferences.

Sir Crispin Davies’s decision to put RBI up for sale so soon after the sell-off of EMAP’s B2B properties looked a bit dicey. Markets, no less than human beings, can suffer indigestion.

But magazine portfolios like this don’t come up for sale too often. My guess is that Davies will get this one away.