Monthly magazine ad pages are down 33%, or 8,359 ad pages this year. For Conde Nast in particular:
Man that sucks any way you dice it. Business Insider asks: “The real questions for Conde Nast: Is this is a one time event brought on by the recession? Or is this is a permanent trend?”
Hmm… I’ve subscribed to magazines for a decade now and the trend is pretty clear: they get thinner and thinner, and some just - poof, like magic - disappear.
This is sad. Conde Nast is one of the finer magazine and media companies… but I guess no one is immune to the realities of the macro (economy) and micro (print) economies.
Conde Nast is shutting down a bunch of magazines:
Conde Nast told shocked staff today it was closing Gourmet magazine, Cookie, Modern Bride and Elegant Bride, surpassing expectations of perhaps one or two shutdowns as a result of McKinsey’s analysis.
The shutdown of titles across the Conde Nast portfolio this morning demonstrated, even more than arrival of the McKinsey consultants hired to deflate the company’s massive spending, that the polish was off the luxury publisher.
Here is the full company memo:
Read the staff memo from Mr. Townsend:
Date: Mon, 5 Oct 2009 10:16:52
To: Conde Nast Publications-All
Conversation: Announcing Changes within Condé Nast
Subject: Announcing Changes within Condé Nast
We have now completed an extensive review of our business — an important undertaking given the dramatic changes in the U.S. economy. The review has led us to a number of decisions designed to navigate the company through the economic downturn and to position us to take advantage of coming opportunities.Conde Nast’s success comes from the ability of our publications to attract readers with a wide range of interests, as well as advertisers who value them. But in this economic climate it is important to narrow our focus to titles with the greatest prospects for long-term growth.
As a result of our review, Brides will increase its frequency to monthly to solidify its position as the most important brand in the bridal category, and Modern Bride and Elegant Bride will close.
Gourmet magazine will cease monthly publication, but we will remain committed to the brand, retaining Gourmet’s book publishing and television programming, and Gourmet recipes on Epicurious.com. We will concentrate our publishing activities in the epicurean category on Bon Appétit.
Finally, Cookie magazine will be discontinued, and resources that had been dedicated to its publishing will be invested elsewhere.
The editorial and business staffs of Modern Bride, Elegant Bride, Gourmet, and Cookie all have earned their magazines large and devoted followings. We have been proud to publish these titles, and we are grateful to the staffs for their hard work and dedication.
These changes, combined with cost and workforce reductions now underway throughout the company, will speed the recovery of our current businesses and enable us to pursue new ventures. In the coming weeks, we hope to announce initiatives to develop digital versions of our brands that will make use of new devices and distribution channels.
This is surprising:
Conde Nast will shut down one of its web-only brands, Men.Style.com, when it gives two of its titles, GQ and Details, their own websites in October.
The move marks a partial dismantling of Conde Nast’s strategy of creating web-only brands to house magazine content, such as Style.com, Epicurious.com and Concierge.com, and the realization that in many cases the best brand for the web is the one that’s been successful in print.
Don’t get me wrong, this should have been the strategy from Day 1, but Men.Style.com was a great site (I say was because I only checked it out when I was at AskMen, which was years ago).
Ultimately, Conde Nast has great brands and the sooner they come to life online, the better. I wonder if this was something the consultants at McKinsey advised or if this was in the pipeline before they entered the scene.
Business Week has a good quick Q&A on why Conde Nast failed with Portfolio.
Come to think of it: News Corp. and NBC - two TV-centric media companies - launched a joint venture in online video distribution by selling 10% to private equity firm Providence Capital for $100M and it has managed to become a serious contender in the professional video content space by tapping into their parents’ content libraries. Sure, they got a few things wrong, got a lot of things right and while questions remain on the viability of the property’s long term prospects, the overall tide in online video is rising, and the company can seemingly do no wrong.
On the other hand, Conde Nast - a print-centric media company - poured the same amount of money itself and basically got the timing wrong. But even with better timing, I don’t think things would have changed.
As much as I criticize VCs, I think this echoes what VCs say about picking companies based on the size of the broader market: if the market is big enough (and trending upwards) then it can fix mistakes. With print, everything is priced to perfection and the slightest obstacle can derail a product. In 2008, we didn’t just encounter the slightest of obstacles, the world went belly up and Portfolio became a victim of that.
But you have to ask yourself: why is Conde Nast not reinventing itself in new media such as online video? That’s the $100M question people!
There are a few basic lessons to be learned from Conde Nast’s decision to close Portfolio, despite sinking $100M into the launch.
Lesson 1 is the obvious: use the Web to test new products and launch with some modesty. Portfolio, of note, was doomed because it was full of hubris.
Lesson 2 is somewhat sexist but it’s true: unless you are a magazine targeting women in one specific category or another, just go online-only. End of story.
Lesson 3 is that you can pick a great category like Finance and Business but still get blindsided by poor timing and abysmal luck. However, while I’ve never read Portfolio, I get a sense that instead of covering what was actually going on in the world of Finance and Business, the editors put their heads in the sand.
The perfect storm created by these three things culminated in the news today. I reiterate: the only thing that print companies should be investing in is online video…not because I am biased… but because it remains the only salvation, not today, or tomorrow, but in 1 or 10 years down the line.
While 2008 finished off with companies doing their best to cling on to anything to avoid from being sucked into the maelstrom, I think - despite the continued stock market meltdown - that many companies are seeing some stabilization in their core business. In other words: yes, 2008 Q4 saw a rapid evaporation of booked business, but 2009 is not looking as dire as some expected.
Online Remains a Beacon of Growth
Let’s face it: online media remains a growth area regardless of the fact that growth targets have been reduced. If you are CBS, News Corp., GE’s NBC, Walt Disney, Viacom or Time Warner, you have to look at ways to spruce up your online assets and acquire new ones. If you are Yahoo!, Microsoft, Google, Amazon, Apple, Cisco, Comcast, or IAC, you are looking at online assets as more reasonably priced relative to the previous couple of years.
A couple of companies that remain wild cards are print-based media firms Conde Nast and Hearst, who unlike their newspaper brethren (Tribune, NYT, etc.) are not on the verge of banktrupcy, but whom might fare a similar fate if they don’t take action soon.
This, I believe, is what explains the latest report by JP Morgan analyst Imran Kahn, who (Via Paid Content) in a new report, says:
“Mergers and acquisitions among internet companies could grow significantly. Since most companies cannot look to the economy for growth (JP Morgan estimates GDP will decline 2.2 percent this), Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.
Small is Beautiful
I’ve mentioned for some time that microdeals are the wave of the future:
- companies just don’t have the financial wherewithal to go for grand slam deals, and
- integration becomes a nightmare.
Lowered Expectations
Where things get interesting for big media companies is that VCs have been blindsided by their own investors inability to meet capital requirements, so many will accept lesser exits… though truthfully, heavily-funded VC companies are going to get sidelined in the M&A song-and-dance because entrepreneurs might be more realistic whereas VCs will never be able to pull their investments “in the money” when they agreed to nosebleed valuations for some of these bubbly Web 2.0 fares (Digg, Slide, Facebook, Ning, etc.).
Kahn seems to agree:
“Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.”
Build vs. Buy
The other variable we’ve touched on Big Media’s Buy vs. Build dilemma for some time:
Large internet companies may re-consider the “build vs. buy” strategy—they’ve been moving recently toward the “build” side of that continuum, which resulted in only 45 acquisitions in 2008 versus 94 in 2007, according to Kahn. While he predicts large internet companies will still increase their R&D spending by 8 percent in 2009, that is much less than the 25 percent increase in 2008. As they spend less on innovation internally, large internet companies will probably be on the hunt for smaller companies.
Balance Sheet vs. Income Statement
This plays into the nuance between balance sheets and income statements. A company’s income statement captures the revenues and costs over a period. Right now: revenues are going down (or at best flat) whereas costs remain high. Yet companies do have cash on their balance sheet, which captures a firm’s assets and liabilities (and shareholder equity) at a given time. In other words, even if companies revenues go down, their cash remains idle. But if revenues are flat or going down, a company cannot justify adding to costs (and thus “building” in house) because this will push the company into a money-losing status, which in a tightening credit market might mean lights out if the company’s financing and credit facilities dry up.
As a result, while cash is king, too much cash on a balance sheet is inefficient.
“Finally, the large internet companies have stockpiled a ton of cash as they grew significantly the past several years, and they will be looking for ways to make a solid return on that money.”
In case you are wondering who is going to be taken out, here are some of Kahn’s picks:
As for which public companies are most likely to be acquired? Kahn evaluated them according to brand strength, product leadership, ease of integrating the smaller company into the larger company, and barriers to entry to determine that Omniture, the online analytics company, and MercadoLibre, the Latin American e-commerce company, are the most likely to be acquired. Shutterfly, The Knot, and Expedia were also attractive candidates, according to the report.
There are a few others I can think of… but we’ll leave that for a separate post.
Those who don’t learn from history are doomed to repeat it, goes the adage… and listening to print media managers, I would almost think we were in 2001-2003 again. Let’s flash back to that era, or the February 2001 issue of Maxim, to be precise, where the lad mag’s editor Keith Blanchard proclaimed in his Editor’s Letter (!):
“The Internet Bites: What are you doing on the Internet today? (…) I can’t believe Al Gore invented this crap.”
Sure… at that time, I understood his frustration. I was running Maxim counterpart AskMen’s ad sales strategy as we ate away at their market share. Largely due to their digital apathy, we became the largest in the men’s space. To this day, I ask: why did Maxim not buy AskMen? Or for that matter, Conde Nast, Playboy, Rodale, etc.?
The truth is they were afraid of acquiring a disruptor, I think. That understanding explains how I’ve crafted WatchMojo.com’s strategy as we essentially seek to disrupt the television media space through the online video content sector. Mind you, due to Hollywood’s fear of cannibalization, I see online video as a salvation for print (because it is all incremental) but as I like to say: when it comes to traditional media and online video: those who want, can’t; and those who can, won’t. But that is a separate post.
To stay on the topic of print media: if you need any further explanation of why Maxim’s parent Alpha Media Group’s EBITDA plummeted from $28M to $8M in the one year since the company went private, look no further than that management philosophy.
Admittedly, the truth is: print media’s dilemma is rather complicated, as
- women-oriented publications will continue to do quite well,
- the outlook for newspapers and magazines will probably be rather different.
But first, let’s fast forward to 2008, where the slowdown in advertising revenue is making the 2001-03 era look like a boom.
Now, I read that magazines will react to the decrease in advertising revenue and circulation numbers by cutting online headcount:
The operating policy now, particularly at Condé Nast, basically reads: Revenue first! Future later.
And the printed page, the luxury object, is still where you find the money these days.
“The print reader’s worth a whole lot more [than the online reader],” said publisher Jann Wenner in an interview with Advertising Age last week.
Mr. Wenner is no slouch, he founded Rolling Stone magazine. But that mindset is not limited to the B2B space:
[Business-focused] Portfolio, a magazine that had one of the boldest Web sites in the Condé Nast empire, let that experiment go two months ago when it dismissed 25 of the 30 people who worked full time and as freelancers for the magazine’s Web site.
And why? Partially to save the magazine.
The magazine lost close to $20 million this year, and with the magazine’s Web site losses also totaling in the millions, Condé Nast group president David Carey, along with Condé Nast editorial director Tom Wallace, played a large part in convincing Condé Nast chairman Si Newhouse and CEO Chuck Townsend to keep the magazine afloat at a reduced publishing schedule. But to essentially gut the Web site.
Across Condé Nast, publishers are making a calculation about the revenue of the present versus the promises of the future.
“We work in the high-end market,” said our Condé Nast source. “We’re going to stick to it and we might be the last one standing, but that’s our philosophy. The Web isn’t really a priority.”
The result is little - if any - original and fresh web content:
“It’s nothing now,” said one recently laid-off staffer. “There won’t be any more fortune.com original content in the near future.”
While the perception remains that the “higher-up’s” (ie. editors, publishers, management, owners) seem to put their heads in the sand, the journalists - bloodied by rounds after rounds of layoffs - seem to be reading the writing on the wall.
The New York Times’ Joe Nocera burst out of his seat during a question-and-answer session and strongly disagreed with the editors and wondered how they could be so sanguine about the future of print.
Of course, the philosophical, theoretically correct answer is that there should be no distinction made between an online and offline writer or for that matter, content… but the truth is, Mr. Wenner is right: right now, an offline reader is worth much more, but this has more to do with the fact that print dates back two centuries whereas online dates back two decades.
Moreover, while Mr. Blanchard’s philosophy might have worked in 2001 when marketers were still trying out online advertising. Today, marketers’ mind is made up: tracked and targeted media beats out traditional channels. The only problem is that new media remains embryonic and the transfer of wealth from traditional media to new media won’t happen overnight. As such, being so sanguine and stoic might prove foolish before long.
After all, this time around, it’s not online advertising budgets that are being savagely slashed, it’s print. Case in point: Dell’s $50M back-cover print ads.
Is print going to zero? Probably not, but there is no doubt that online will be the biggest media after television, and might even surpass television within one decade.
- Venerable private equity bank Veronis Suhler Stevenson (VSS) projects that to occur by 2011.
- Our estimates forecast online advertising to surpass TV advertising by 2021.
Ultimately,
- newspapers really have no business being distributed via print media and the Web medium suits their content rather well (timely news, short articles, etc.) whereas
- magazine content, dare I say, works better in glossy print packaging. The problem with magazines, frankly, is that the only viable magazines are women-oriented publications as men have flocked to the Web. As such, despite the aesthetic merit to publish in print… the ultimate conclusion is that any company (forget media or print company, we’re stressting any in all industries) that does not have a thorough digital and interactive strategy is doomed.
All I know is that TV executives better be following the storyline in print media, because within a decade, if not sooner, their media’s day of reckoning will be here, too.
Those who don’t learn from history are doomed to repeat it.
It’s clear that we didn’t learn from history in boom times. A lot of the excess and irrational behavior of the 1996-1999 era was repeated in the 2005-2007 period.
Let’s see if the media companies are going to repeat their mistakes in down times, too. Remember most companies went into their bunkers from 2001-2004 and this is why many traditional media firms are really in trouble: they scaled back instead of using the downturn then to ramp up in digital media.
In all fairness, by the looks of it, media companies are not yet slashing online video plans: Viacom and NBC both announced layoffs today but seem to have resisted from cutting in digital media and online video, according to NewTeeVee. Meanwhile, SAI is reporting that IAC is even contemplating acquisitions, which makes sense, given Barry Diller’s propensity to buy low… though the acquisitions he’s eyeing are in the search audience space, mind you, Diller is planning on selling/shutting down 236.com. And while I never like to see websites fail to take off, seeing companies like Bud.tv or 236.com shutter does give me a sense of deja vu when high-flying media darlings launched to much fanfare but then fizzled unceremoniously. Yes, TheMan.com, this Bud’s for you.
Conde Nast, however, seems to be cutting where it shouldn’t, according to PaidContent.
I won’t name extra names, but from my own wheelings and dealings, I’d say the jury is out, some companies are scaling back where they shouldn’t, but a few seem to have learned from their 2001-2004 era mistakes.
A day after venerable TV-centric media company CBS acquired CNET for $1.8B, print-centric media empire Conde Nast steps in and acquires Ars Technica for $25M, according to Tech Crunch.
Time Warner bought Weblogs for $25M in 2005, the same price Conde Nast paid for Wired last year.
I don’t know, it’s not a bad deal, Conde Nast makes $25M with the sale of one magazine spread (you know what I mean) and traditional media companies need to bolster digital assets, but I think for a company like Conde Nast (so reliant on print) needs to think more about online video than online text content.
Online video is a brave new world - all incremental - for print. For TV, online video is cannibalistic. These companies need to be more aggressive with online video (where their print-based skills are not necessarily transferable) and move their own assets online; by buying up text-based online publishers they tend to fall short over time.
But, I am biased, of course.
Life isn’t getting any better for magazine companies:
According to figures released by the Publishers Information Bureau and TNS Media Intelligence, in Q1 2008:
- ad pages fell 6.3% compared to the same period in 2007, from 54,126 in 2007 to 50,696 in 2008.
- total revenues remained basically flat with a slight 0.4% decline.
- the decline in ad pages was led by the top six consumer magazine publishers, with:
* Conde Nast down 2.6%,
* Time Inc. down 5.3%,
* Hearst down 3.2%,
* Bonnier down 11.5%,
* Hachette Filipacchi down 7% and
* Meredith down 12.2%.
The greater problem frankly is that even when the economy picks up, I can’t see how any advertising will rush back to print. Ad dollars are stampeding online… and the online spike in revenues for these companies’ websites isn’t big enough to offset the erosion in print.
Of course, one untapped, totally incremental area would be video content and advertising. While web video is cannibalistic for TV media firms, for print media it is all new. However, as some executives in these companies confide to me, print media does not have the pedigree or DNA to tackle video projects… so while this hypothesis remains intact in theory, I am not sure it holds water in practice.
PLAY
