McGraw Hill’s (MHP) announcement this week that it would be selling BusinessWeek puts another nail in the print media coffin. A crippling recession has only accelerated the demise of an industry experiencing a sea change in the way information is processed and sold.
Could a prestigious financial magazine like BusinessWeek really only be worth $1 as suggested by the Financial Times?
Despite having a formidable brand that was ironically launched during the year of the 1929 stock market crash, huge operating losses on declining revenues and subscription numbers ensure that McGraw will be fortunate to liquidate this anchor for any value.
But who in the world would buy BusinessWeek in its current state?
The most ideal candidate would be to find a strategic buyer that could better integrate and leverage the BusinessWeek publishing model. Unfortunately, the strategic buyers like Dow Jones, Bloomberg, or Time Inc. are struggling themselves to stay afloat. And they hardly have the resources to deal with a problem child like BusinessWeek.
That leaves a financial buyer, but there, too, are problems. Private Equity firms have made disastrous forays into the print media business at the absolute worst time. Fool me once shame on you, fool me twice…
I think you get the idea. Private equity firms have had to walk away from millions of dollars invested in the declining publishing industry. They are not going to do it again.
McGraw Hill is up a creek without a paddle here. The time to sell BusinessWeek was when advertising revenue peaked, not when the business is bleeding red ink and advertising revenue is falling like a rock.
Instead, they are selling at the absolute worst time. A $1 sale may not be out of the question here. I would think McGraw would be thankful just to be rid of the supposed asset.
Digging a little deeper here are five keys to BusinessWeek’s failure:
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5 Keys to BusinessWeek’s Failure
#1: The print business model is unsustainable in a digital age. It is impossible to profitably operate an individual business-to-consumer title, because you can’t leverage the operating costs (paper, postage, newsroom) across multiple titles (that’s right — you need good ole economies of scale). BusinessWeek’s revenues have suffered amidst the recession, but the fundamental issue is a cost structure problem, not a revenue problem.
#2: Readers’ and users’ expectations have changed. People spend time on the web, on their iPods, on their Kindles etc. The business of communicating business news is more effectively delivered via a timely medium, such as the web, not in print. Such a change is being duly noted by advertisers.
#3: The changes and decline in the revenues and circulation is secular, NOT cyclical. Advertisers follow readers, and readers are getting information online. The benefits of advertising online include better targeting and quantifying results. With print, advertisers estimate return on investment. With digital, return on investment is empirical. The two main categories for business publications, autos and financial services, have pulled back on magazine ads. With the recession, spending is down across the board. Put the two together, and the print model is near extinction.
#4: Relevance. The need for a print product dwindles with each passing day, as a new business site or blog launches. The internet makes a weekly magazine trying to bring news to the mass market look slow, unresponsive and irrelevant. The weekly magazines thriving in this recession are not the publications trying to break and bring news to the mass market, but rather magazines (such as The Week and The Economist) that deliver diverse opinions and context on hot button news items. Instant reporting and analysis destroy any value offered by BusinessWeek.
#5: The hole created by print is too big for digital to fill. An obvious option for BusinessWeek is to intensely focus its business online. The only problem is that doing so may never replace the top line revenue of $150 million or more generated in print.
McGraw Hill Has Bigger Fish to Fry
McGraw Hill has major problems beyond writing off its ownership of BusinessWeek.
Standard & Poor’s, the cash cow of the McGraw Hill franchise, is about to encounter even more scrutiny into the role the S&P ratings business played in the credit crisis. The scrutiny may be political window dressing, but if there is real teeth to the review of S&P, McGraw Hill could be seriously dented as a result.
The Bottom Line
The investment prospects for McGraw Hill (MHP) are quite poor. This is a stock to be sold and or sold short here. BusinessWeek for a dollar pretty much sums it all up.
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