Tuesday, September 30, 2008

Sun shines on SPG

SPG which has a turnover of £17m and profit before tax of less than £0.5m has been acquired by Mike Danson's aggregation vehicle Progressive Media. SPG is a public company with shares valuing the business at just £7m. The Telegraph suggests that a deal may have been done at twice that. Wow! Merging with progressive will see duplicate costs coming out perhaps to the tune of £1m-£1.5m. If thats right then the underlying valuation is around 7 times earnings.

On of the largest shareholders is Kelvin Mckenzie. Allright matey.

This is a great escape from the public market which is still punishing all shares, with media stocks only ahead of bank stocks in traders minds of good places to put their money.

Danson, who founded and then sold Datamonitor sees opportunity in building a new b2b heap. Certainly there can be profit in it. Look at how well Metropolis have done.

The Future of B2B Media Part 2

The first challenge for the 21st Century Publisher is what to do about news. As a primer for this discussion read this interesting piece from the Monday Note on the economics of newspaper news.

It questions the online economics of the news room and we might question that for b2b too. Lets play the sames game for B2B that the Monday note plays for newspapers. A major weekly trade paper has a total editorial team of perhaps 12. A smaller weekly perhaps 6. In the online news world all the industrial costs of printing etc, disappear. Let's assume the cost of a journalist averages £30k. Let's also assume that we are modern people with a keen eye on productivity and we do without subs, lay out and so on. Let us imagine we can give good coverage of our b2b beat in the online world with half the number of journalists we used to enjoy. We will also need some web hosting and a bit of skill to maintain the technical aspects of our site. Lets pretend thats another £30k a year.

This means our b2b news web site has costs of around £210k for a six person edit team. We might also need a sales person and an office and some overhead. Lets say all up, around £300k a year. How many visitors do we need to make this pay? Lets assume each visit consumes around 3.5 pages per session (and thats probably being optimisitic) and that each page impression contains three ad imporessions (a sky, a banner and a MPU). Lets also assume we can sell all the ad inventory (another optimistic assumption) and that the yield is £25/000. (In other words we have to sell each ad site at an average rate of arond £8/000.

We need around £25k /month revenue to break even. With three ad sites/page impression we need around 1m page impressions/month from 285,000 visits.

Ah. Houston we have a problem. Even with an optimistic view of page views/visit, yield and inventory sell through it looks highly unlikely that most verticals can support high quality editorial with a simple ad model.

Today the web content model is effectively subsidised by the print jounralists contributing content. In a post magazine world the economics of the web only model, using news as the bedrock just won't work.

Our options then are:
1)Find a way to continue to make the mag model work so that we can maintiain our editoiral standards.
2) Find a way to increase the revenue opporunities from the web offering
3) Accept lower standards of news content on the web than we would have accepted in the print model.
4) Act as a content aggregator rather than a original producer.
5) Use news as a loss leader for seeding other b2b activities which can be profitable.

In the next part of our journey of discovery to find the new model for b2b we will examine whether the mag model can be reinvented.

Click here to read
The Future of B2B Media Part 1

Friday, September 26, 2008

Sharman Tanked

Just a few days ago we were speculating on Centaurs results and the inevitable cost cutting that will follow. Poor Howard Sharman, the Centaur Business Development Director, took a sabbatical to get a M.Sc, came back to work and found his desk had been sold and nobody could remember what he did. Actually that's not quite true. His position has been made redundant.

Interestingly the Centaur announcement blames the redundancy firmly and squarely on the credit crunch by saying

"the recent slowdown in acquisition activity, following the impact of the ongoing credit restrictions means that a significant portion of his prospective duties has been curtailed."

This is interesting on two counts. The credit crunch excuse has not been used quite so overtly before and not entirely convincingly in this case. As far as I know Centaur has made few acquisitions anyway, and has never done so with borrowed money. This is cost cutting to mitigate revenue decline make no mistake.
Oh and if you are in the publishing business please don't use phrases such as "ongoing credit restrictions" - Yuk.

Thursday, September 25, 2008

The Future of Business Media Part 1 - The End of Business

Whilst we wait for news of the RBI deal (the word is that there are two serious bidders in round three, that the deal will get done but at a price closer to £1b than £1.3b) it might be useful to start thinking about what strategy a new owner should employ. What will work for RBI will likely work for other traditional b2b publishers.

Lets begin in this piece by agreeing about what has gone wrong for the business magazine model and then we can consider how each of the issues might be addressed.

1) The paid copy model is dying. There are subscription model opportunities in high level must have data, but not for news and features. The few business magazines that still have paid circulation are strugggling to maintain subscriptions and have seen news trade sales wither.
2) The cost of controlled circulation distribution is increasing as proportion of total costs, partly due to price increases, but also because of the collapse of classified advertsing (See 3). With size based pricing it is not possible to flex the cost down as pagination falls. In a downturn this has important implications for margins.
3) The historic high margin classified and recruitment market has been disintermediated by the web.
4) Free web based information means a news model with a weekly frequency is less than compelling as an essential driver of readership. Although business news consumption and disribution has changed dramatciall in ten years, most weekly business magazines are producing news using the same definition of "news", the same presentation and approach as in 1970. They are of course doing this with fewer journalists than ever.
5) B2B magazine brands have different attributes than they used to enjoy. Once they were beacons of essentailness, independence, trusted sources, bibles of the industry they served. Today a blog is just as likely to be credible to a reader (forget whether this is true or not, it is how readers think) and the gateway to finding stuf out is a search engine, a blog roll, favourites, RSS as well as some residual loyalty to the old brands.
6) Advertisers are doubting the ROI of traditional print advertsing. Many are spending more on SEM, their own sites and email marketing than they are on print. Why spend £3000 on a display page with no proof of readership or noting when for the same money I can buy 300,000 page impressions?

Does this mean the end for business magazines? Not necessarily. But the cure is painful and shocking. I'll come back to this is upcoming posts and share with you my recipe for saving the business magazine industry.

Friday, September 19, 2008

RBI Losing Value

The Times has reported that second round bids for RBI are way below the target price of £1.2b. This will come as no surprise to readers of this blog. The problem is made worse by the banking crisis which has already scuppered to putative deal for Informa. RBI is heavily exposed to the ad downturn and its high growth totaljobs business is in recruitment - and we know what happens to recruitment.

What will Reed do? We have postulated before that this deal is by no means certain to get done. Will Reed do it at any price? If they don't get it done even at a low valuation is there any real prospect that the business will be worth any more at any time in the forseeable future?

What should RBI do? I have a busy few days ahead, but I plan to offer them some advice (which I am sure they won't take) in a future post. RBI is fixable. It's blody and its painful, but wholly necessary.

Thursday, September 18, 2008

Centaur Starts to Feel the Pinch

Cenatur media announced its yearly results today. Revenues flat year on year and a small improvement in margin resulting from cost savings. Also made clear is that the second half has been ugly, with an 8% drop in print revenues.

I can't see how there won't be a material fall in profits this year. As the employment market loosens up recruitment revenues will crash. Print advertising in the financial sector is hardly going to be a growth sector. The share price languishes at less then 60p, valuing the business at around £80m or just four times adjusted earnings. The future drop in profits is already factored into the share price, but shareholders have a long wait for recovery and in the current debt market thinning hopes of a private equity saviour.

Expect swathes of cost cutting as the business tries to catch up with the downward revenue trend.

Wednesday, September 17, 2008

Wilmington Signals No Deal.

The Times is reporting that the long rumoured acquisition of Wilmington by HG Capital won't happen. Apparently it did not porve possible to put the deal finance in place. Ouch! Apart from the immediate downward impact on Wilmington shares, what does this say for othe quoted companies and the RBI deal? ITE, Centaur and SPG would all be happier in the private world, but if Wilmington can't get done, it is hard to see how any of them can escape from dull valuations of their businesses or the lack of liquidity in their stocks. Shareholders may have to be very patient indeed and hope that the businesses survive the curent economic malaise.

Tuesday, September 16, 2008

Trade Shows Start to Decline

According to Folio there has been a 6% drop in B2B revenues in the last half year in the US. No surprises there. The most significant aspect of this report is that trade show revenue declined by 1%. When a downturn hits, there is a lag in trade show deterioration. This years events are based on last years sales. But now we seeing the crunch begin to bite. Unlike publishing where the decline is the reuslt of a perfect storm of cycle and paradigm shift, for shows, this is just about the cycle. Nevertheless high profit margins from shows in the good times mean rapid falls in profits when the downturn bites.

All those companies, (UBM?) smugly congratulating themselves on not being exposed to too much publising because of the strength of the events business shoudl take note and start taking actions now. Conferences will also feel the pinch. Don't hold your breath on the Informa deal.

Thursday, September 4, 2008

The Future of Publishing, Computing the Magazine

We noted the merger of IT Week and Computing a few weeks ago. Now its publisher Graham Harman, is interviewed in Press Gazette and his argument dissembled by Peter Kirwan.

Harman says lots of things in his interview with which this author would agree,

You can’t just stick to the old practices and say ‘that will do’.” and

You have to say to yourself: ‘If I was launching into this market now what would I do?’” and

We have seen the writing on the wall the way that the revenue models and the way that the information needs of our readers has changed, and we’ve decided that we need to do this now"

What happens in the tech sector is often a lead indicator for what will happen in other b2b markets - so we should take all this seriously. Twenty years ago, the professional IT press was hugely profitable, with 50 to 100 pages of job ads published each week in each of the two main weekly titles. Today, Computing is a shadow of its former self with just a couple of pages of job ads and a declining display revenue.

I am beginning to think that Peter Kirwan and I should go into businsess together, as I find it hard, as usual, to disagree with his point that if Incisive was to act in the way its analysis suggests, the weekly magazine would be killed off today. No one, he argues, would launch a weekly IT title today so why keep the ailing beast alive? There is more to it than wanting to squeeze the last drop of profit from print though. There is also pride. Computing has fought a bitter war over thrity years with Reed rival CW and, rather like competing generals in WW1 trenches, nobody is going to give an inch to the other even nothing is to be gained by winning a point of share or foot of territory from the other.

What is need here is some management bravery and to honestly answer the challenge that Harman puts, which is, in terms, to imagine what you do if you were launching today - and then do that. It is only a question of time before Computing closes. It might not be this year or even next, but close it surely will. In the meantime huge management time and effort will be devoted to keeping its heart beating at the expense of developing the new model.

Incisive are showing the first signs of realising that the publishing game is up. Theyhave noticed that print is dying. They believe it but haven't yet come to terms with it. They have a real opportunity to set the lead and build a new future whilst their competitors are still pretending that this is just a cycle and a course of anti biotics will cure them. Will they take it? Will any of you?

Informa Going Down

After months of speculation, private equity interest in Informa has materialised at a rather lower value than shareholders would have hoped, acccording to this interesting analysis by Peter Kirwan.

The standard thinking is that Informa is a solid B2B stock. It is a business with scale, it is not very exposed to advertising, has lots of events and subsctiption based activity and is a well managed beast. Even with all that in its favour valuations are softening.

Readers of this blog will not be surprised then, when the value placed on RBI which is smaller than Informa, is exposed to the advertising cycle, has little events and subs based activity drops in the second round of bids.

Wednesday, September 3, 2008

Managing more growth means managing with less managers.

The reason for the departure of Nick Stimpson from Haymarket, is not explained in this report from Haymarket owned Brand Republic, but I loved Martin Durhams Orwellian doublethink in his quote explaining the reorganisation that follows,

"Martin Durham, chairman and managing director of HBM, said: "These changes enable us to streamline the business and increase our operating efficiencies across a wider portfolio of products, and I am confident in the growth opportunities this new operating model will provide us."

Which means:
"We are cutting our management team by not replacing one of our most senior and experienced executives. This reduction in our management knowledge and resource is exactly the extra boost we need to accelerate our efforts to grow."

I am sure that must make sense to someone.

War is peace. Freedom is slavery.

Tuesday, September 2, 2008

Informa Still On the Blocks

Interesting that The Times reports that private equity groups are able to raise the financing to make a real bid for Informa. Contrast this with the ducking and diving of Reed who have had to offer staple finance and are rumoured to be leaving some equity in the deal in order to get it done at all.

The difference of course is that RBI is a publishing company with declining print products, whilst Inforam is events and subs.