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The Publisher's Dilemma: How to Build
Shareholder Value and Future Revenues? |
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28 November 2005 |
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Break out the pitchforks and the torches, the shareholders
are restless in the once-happy realm of publishing. While
the likes of Google and Yahoo gobble up capital chasing
extraordinary growth and healthy earnings, traditional
publishers are caught trying to please institutional
investors who may have very unrealistic expectations about
what it takes to transform older business models into 21st
century profits. But all is not lost for publishers that
are willing to learn how to sell their positioning to
investors with straight talk about both short-term and
long-term expectations. The time for gladhanding colleagues
on cushy buyouts is passing by as the time for true
publishing survivalists to take charge comes into focus. |
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There is a widening shareholder
revolt amongst media stock owners, with cranky investors
evident in both B2B and consumer publishing circles.
VNU's deal for IMS Health went sour based on shareholder
discontent, a move that pushed out CEO Rob van den Berghand,
who believed strongly in the long-term benefits of the deal. In
the meantime
Pat Kenealy is moving on to the VC world from the CEO slot
at IDG after some sourness from critics while other heads in
traditional media outlets come under fire from investors for
their leadership. The funny thing is that in many instances
media properties are cranking out earnings that are healthy by
historic measures. For the first nine months of this year
EBITDA at Penton Media is reported to be at 23.5 percent while
Advanstar was at 29.4 percent for the same period, thanks
to painful cost-cutting and restructuring.
But in spite of decent earnings, most traditional media
companies simply cannot keep up with the growth of new outlets
such as Google and Yahoo sucking away capital, setting the
table for unrealistic shareholder expectations. A telling
example of where this can lead is found in The
Wall Street Journal report on motivations lying behind the sale of Knight Ridder. Private Capital Management LP
pumped up its KR holdings to 19 percent in recent years but needs to hit financial performance targets by next August if it is to collect a $300 million payment from
PCM owner Legg Mason that was specified in PCM's 2001
acquisition package. Knight Ridder is being sacrificed to
compensate for the underperformance of a portfolio of newspaper stocks
on which PCM had bet heavily. An unrealistic bet, indeed.
Rich Gordon at Poynter notes
that it's a failure to move aggressively to effective online
business models that's to blame for the downfall of newspapers.
Gordon has some very constructive suggestions as to how to tune
newspaper business models, but the problem is that most of his
suggestions have been implemented already - by new online
outlets for news that do not owe allegiance to institutional
investors seeking both "growth" stock aggressiveness with
unrealistically comfy earnings reports. In failing to invest
aggressively enough in new technology and business models many
publishers have become boxed in by management that is more
focused on survival and earnings than responding to the
opportunities offered in online publishing that did not
disappear in the dot-com bust.
As this year draws to a close we can look ahead to a
broadening meltdown in those B2B and consumer media shares that
appear to be underinvested in innovation and strong market
positioning that could drive future revenue growth. Here are a
few thoughts as to how media outlets need to adjust their
shareholder relations to a rapidly changing publishing
environment:
- Be prepared to explain to shareholders how your
business model can prosper in The New Aggregation. There
are lots of great experiments with new sources of content and
payment flourishing than ever before and savvy acquisitions
are increasing in recent months. But the great majority of
publishers are caught in the uncomfortable recognition that
in many ways the media pie has been fundamentally re-sliced
against their current business models. It's not just a matter
of being more aggressive with an online presence: the
elements of aggregating content for profit have been
realigned to favor those who can assemble the best content
from all producers agnostically in a wide variety of venues.
The New Aggregation has come to roost in full force,
requiring new ways of defining a company's place in the
content business to nervous shareholders. Even if you are not
changing your business model any time soon, you need to
explain how it fits into the new landscape of user-driven
content aggregation.
- Think about how to explain new measurements of quality
to shareholders. If the value of advertising is
based on the quality of implied endorsement provided by the
content that provides its context, many newspapers, magazines
and directory publishers were unprepared to deal with how the
quality of new online content channels would change
advertisers' perceptions of where those endorsements would be
most valuable. Traditional measurements of audience size and
quality are necessary to explain year-to-year performance to
stockholders, but they fail to capture the scope of how the
changing perception of endorsements via content are shifting
ad and subscription dollars into new venues. The gap between
old reporting standards and new ad and subscription economies
aren't waiting for new measurements to take off. Publishers
need to be fill that gap with intelligent and consistent
explanations as to what will constitute measurable quality
that will attract valuable readership in this new
environment.
- Be willing to talk straight to investors about the
sacrifices required for extraordinary growth. While most
publishers have avoided the excess of exaggerated and bogus
performance claims touted in the dot-com era, there still
seems to be a strong reluctance in most publishing circles to
level with shareholders about the future of their industry.
Rhetoric about the centrality of print revenues still blows
hot and heavy in most publishing industry presentations. Yet
when a
media hand such as Rupert Murdoch can talk rationally
about the generational divide that is shifting publishing as
we have known it to the same fate as blacksmiths and
Studebaker dealers it's time for publishers to refocus
their own investor and industry presentations on the real
challenges that they face for survival and growth.
Nobody's asking publishers to out-Google a Google in their
industry outlook and marketing, but publishers need to offer
some straight talk about how they are going to move beyond
fear of a search-centric and user-centric publishing world to
the ability to thrive in it.
Sticking to a strong vision of a future that may look
radically different from one's current operations takes a lot
of guts, but it's clear that those who value survival over
politeness are wise to do so. Here's to good earnings,
but here's a toast raised higher to future earnings that will
do more than mollify shareholders who should have reason to
expect long-term growth in their portfolios.
-
John Blossom
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