Profitable Publishing In the Internet Age

After four years of virtually unimpeded growth, media industry mergers and acquisitions activity peaked in 2007, with transaction volume (the number of completed deals) leveling in the second half of the year. Surprising to some, however, is that despite tighter credit and turmoil in the financial markets, enterprise valuations remain strong.

Now, with the economy slowing and traditional advertising spend poised for a dip, pressure is mounting for magazine publishers to diversify their revenue streams. From the standpoint of maximizing media company asset values, the solution appears to be the familiar model of the three-legged stool: (1) a stable, revenue-generating traditional print product; (2) an online presence that monetizes data; and (3) an event or tradeshow that provides both revenue and one-to-one contact with the core audience.

Doubling Value in Two Years

For at least the past ten years publishers have been wringing their hands over how to protect their franchise in an increasingly fragmented marketplace. Most have poured rivers of cash into creating and sustaining an online presence, yet few have truly prospered from their investment in digital media. It’s not enough to be a print magazine with a web site. Rather, success appears to accrue to publishers who can convert a title into a brand, and a brand into a diversified media platform that supports print, an internet destination and a tradeshow or consumer exhibition. If they can capture user data, repackage it and sell it to advertisers, so much the better.

One media company that is doing exactly that reportedly doubled its value in two years. Explaining why Randall-Reilly Publishing is sharpening its focus on data, online and event development, CEO Mike Reilly quipped, “for the same reason Jesse James robbed banks: because that’s where the money is.” Berkery Noyes managed the January 2008 acquisition of Randall-Reilly on behalf of the buyer, Investcorp, which has a record of backing strong management teams bent on rapid growth.

Not every publisher can capture and resell valuable proprietary data the way Randall-Reilly does. Web site operators who can take a piece of every transaction they generate or facilitate profit handsomely by leveraging existing print content and offering it as a free web-based service. Publishers of travel guides, for example, offer content normally sold in bookstores to their web audience as a free service, then claim a commission on every reservation booked through their site.

Brave New World

Of course, the future—at least the one unfolding in the next five years or so—belongs to those who can deliver useful information not to a desktop or laptop but to a mobile platform (most likely one bearing an Apple logo). Handheld devices that access the internet, play music, store information and make phone calls are the newest elephant in the room, a certainty that muddies the waters for publishers even as it opens expansive new vistas of opportunity.

A few traditional publishers and even a handful of diversified media companies will figure out how to enter boldly into this strange new landscape. Most will need help, probably in the form of a strategic alliance or an outright merger with a technology partner who can navigate this uncharted, unbounded and, you can bet, wondrously profitable territory.