So, nothing much has happened on the US media scene since I checked in six months ago…
Just ribbing you. Wish I could report otherwise, but as I write this in mid-November, our lives, along with our economy, are in more peril than ever from the coronavirus, thanks to the homicidal neglect of the would-be dictator who (hallelujah!) will no longer be occupying the White House as of January 20.
While our president-elect is trying to prepare for this disaster despite the outgoing president’s obstructions, the 10-week transition period couldn’t come at a worse time. A thousand Americans are dying of Covid each day (247,000 to date and counting). Recalcitrant midwestern states are finally initiating lockdowns as their hospitals are overwhelmed, and well-led states are reinstituting restrictions – all necessary, but bad for consumer spending. Plus, millions are facing hunger and homelessness, as the same Republicans who gave corporations and the rich trillions in tax breaks refuse to agree to another substantive round of pandemic relief.
My point: I fear the economy can’t avoid another serious dive before President Joe Biden can mitigate the virus’s spread with a federal masking mandate, and the hoped-for effective vaccines can be deployed and administered to 300+ million Americans (minus the hordes who may refuse, having been brainwashed to reject science by Trump).
As a result, most businesses, including magazine media, are going to continue to feel pain for the foreseeable future.
While overall US advertising spending has been rebounding from the double-digit decreases early in the pandemic, print remained on life support even before this second, more devastating wave of the virus hit in October. As of early September, the Interactive Advertising Bureau was projecting that total US ad spend would decline 8% versus 2019, with only digital in the positive (+6%). Print’s drop, -33%, is exceeded only by traditional out-of-home, at -46%, although terrestrial radio and linear TV are also struggling, at -31% and -24%, respectively.
The hopeful news is that, in their own equivalent of a race for a vaccine, magazine media appear to be getting more adept at driving non-print revenue streams. The question is whether it will be enough – especially if the pandemic’s economic fallout worsens.
In their own equivalent of a race for a vaccine, magazine media appear to be getting more adept at driving non-print revenue streams.
The crisis has already hastened the inevitable, with Bonnier recently selling off its largest remaining titles here – including venerable titles like Field & Stream and Popular Science – to a “digital media venture equity firm” and pushing to get rid of the rest so as to hasten its exit from the US. Notorious, debt-ridden AMI has been taken over by a private equity firm, in this case a company that also owns the magazine wholesaler servicing most of the country. And while the now-declawed National Enquirer would hardly be a loss, this company is instead shutting down venerable enthusiast titles (60-year-old Surfer and Snowboarder among them) that fell into AMI’s clutches. Judging from this “media” company’s website, it’s using the Enquirer and what’s left of other titles’ now mostly digital-only “content” to try to sell “seamless editorial integrations” to God knows who. Even Meredith sold Sports Illustrated to a brand licensing group. RIP to the magazine model that relied on deep knowledge and passion to collectively serve millions of enthusiasts for decades.
RIP to the magazine model that relied on deep knowledge and passion to collectively serve millions of enthusiasts for decades.
Meredith faces a split decision
A year ago, I noted that the stock performance and previously unwavering dividends of the fiscally conservative, normally predictable Meredith Corp had been torpedoed by its difficulty in offloading some Time Inc properties for the prices it had counted on to reduce its debt from that acquisition, combined with the acquired titles’ worse-than-expected advertising and circulation pictures. In June, I touched on the pandemic’s damage to Meredith, along with Hearst and Condé Nast.
As of early October, Meredith’s shares had lost nearly 60% of their value since the start of the year, and its stock price was down to $13, versus $66 when the Time Inc buy was announced at the end of 2017.
However, as I’ve said before, I wouldn’t bet against Meredith. The company’s most recent quarter, ended September 30, included some positive signs, helping to push its stock price up to $18 as of mid-November. Overall revenue declined 4.4% year-over-year, to $693.5 million, due to Covid advertising cutbacks and "magazine portfolio adjustments" (title sales and cutbacks in print versions). But that beat analysts' consensus estimates by $30.4 million – and EPS of $0.88 beat estimates by $1.23. Adjusted EBITDA grew 17% to $143 million, earnings from continuing operations more than tripled to $42 million, and cash flow from operations was $79 million, versus a loss of $14 million in the year-ago quarter.
The bad news: Print ad revenue in its magazine-driven National Media Group (NMG) declined 32.4% to $108.5 million; subscription revenue declined 11.4% to $133.4 million; newsstand revenue declined 17.6% to $35.1 million; and third-party ad sales declined 26% to $14 million.
But that was largely offset by record quarterly digital ad revenue (up 14.7% to $105.1 million); a 22% increase in consumer-related digital revenue, to $20 million; a 21% increase in licensing, to $24.1 million; and a 3.6% gain in affinity marketing, to $14.4 million. Meredith cited NMG highlights including 9% growth in video views for Meredith properties, in part driven by podcasts; strong brand licensing and ecommerce performance (including Apple News+, digital couponing, content and affiliate commerce); and the launches of a People-branded TV show and a “data studio” offering advertising solutions driven by first-party data and predictive insights. And thanks to the election, the company’s Local Media Group (local TV stations) saw record revenue, with spot advertising up 43% versus the 2018 election.
While the pandemic “continues to impact total company revenues, sequentially our year-over-year performance has continued to recover,” said Meredith President / CEO Tom Harty – again, prior to second-wave hell commencing. “Our efforts to enhance financial flexibility and control costs have produced tangible results, as demonstrated by our growth in operating profit and free cash flow. We anticipate these improvements will continue benefiting shareholders as macroeconomic conditions continue to improve and enable us to more meaningfully shift our focus to deleveraging and other long-term initiatives."
The earnings release in early November made no mention of the bombshell the company had dropped in September, when it said it would seek shareholder approval of a charter amendment to allow the company to “increase options for a tax-efficient separation of the company's National and Local media groups.” While Meredith stressed that there was no assurance of any split to come, it’s clearly considering spinning off the problematic magazine group so as to let the smaller but very profitable local media group’s stock prices and dividends shine. That would be an ironic turn, given that Time Warner’s spinoff of Time Inc in 2014 – which saddled the spinoff with debt – ultimately enabled Meredith to acquire it four years later.
On 11 November, the shareholders approved the charter amendment. Now the questions are: Will Meredith hold off on a split based on NMG’s improving non-print revenue? If it goes ahead with a split, “it might generate a new pool of working capital for digital growth at its magazines or new ventures,” but the spinoff will be left “without the balance of steady earnings from TV,” noted media business analyst Rick Edmonds in Poynter. Frequently, spun-off legacy print businesses have attracted “less and less capital from stock market investors,” which in turn can “give the hedge fund crowd an entrée,” he pointed out.
However, Meredith “has plenty up its sleeve to avoid that result,” Edmonds added. “It continues to ‘adjust its portfolio’ – closing the venerable Family Circle, making Entertainment Weekly a monthly, and converting two other titles to newsstand specials rather than subscription products. It has moved on from the first generation of digital deals to more current offerings, and evergreen content like recipes that thrives on the internet. It continues to operate at a comfortable profit on a cash flow basis and carry a reasonable debt load in proportion to its annual revenue and earnings.”
Hearst has also been pushing to monetise digital through membership programmes and metered paywalls now in place for several brands.
Internal ferment on top of advertising plunge
In addition to unprecedented financial challenges, this annus horribilis has unleashed unprecedented cultural ferment at both Hearst and Condé Nast. Normally buttoned-down Hearst shocked pretty much everyone outside its architecturally renowned HQ building when it felt forced to oust magazine division president / designated digital transformation saviour Troy Young for alleged sexual harassment. Young’s callousness toward legacy (print) staff and a spiked investigative piece are also said to have helped initiate Hearst Magazines’ first editorial union, adding another complication for management to grapple with.
The division’s CFO, Debi Chirichella, was Young’s acting replacement, and has now officially succeeded him. Seems a rational choice, though it remains to be seen if she has the vision to match her financial chops.
Hearst, which prudently continues to expand into healthcare and other sure-bet industries, has reduced print frequency on titles including Marie Claire, Elle, Cosmopolitan, Harper’s Bazaar and O, The Oprah Magazine (O, which will publish just four “special” print issues, just laid off 60 staff). On the other hand, it publicly declared it will invest multi-millions in improving its remaining print products (larger formats, better paper and an improved ratio of editorial versus advertising – this last not being much of a challenge when print ads are scarce). Hearst has also been pushing to monetise digital through membership programmes and metered paywalls now in place for several brands – and has been pushing the envelope on licensing and ecommerce. (A line of Cosmo-branded wine? Worth a shot.)
“We are experimenting and making great strides by activating our digital channels to sell products, including print and digital subscriptions,” Chirichella has said. “Our strategy to invest in digital growth while maintaining the strength, differentiation and high quality of our print products, along with this new investment, paves the path to our future." Sounds reasonable, and I’m sure I’m among many who are rooting for her and those whose jobs depend on her.
There’s no room to go into Condé Nast’s status this time – other to say that it, like its cohorts, is furiously expanding its DTC revenue initiatives, while also coping with cultural upheaval. (I’m sure you’ve seen the high-profile editorial and other departures spurred by employee charges of racial discrimination.)
A personal note about the recent US election: After four years of daily assaults on our democracy by Trump, no words can adequately describe the relief and joy that most Americans feel at Biden’s election. While it’s incomprehensible that 47% of votes went to Trump, 51% - 78.2 million of us – acted to throw him out. Further, Biden’s margin was actually larger than the winners’ margins in every election in recent history except Barak Obama’s in 2008, including Trump’s. As I write this, the petulant loser is pulling pathetic stunts to try to impede a transition and delude the craziest elements of his cult-like base – the white supremacists and QAnon whackos – that he will not be gone in January. He is wrong. We’ve elected a decent, experienced president who will do everything in his power to close the dangerous divide in this nation, re-establish rational relationships with our valued allies, and expunge Trump’s blight on the world.
This article was first published in InPublishing magazine. If you would like to be added to the free mailing list, please register here.