Meredith Bought Four Big Magazines From Gruner + Jahr In 2005 At A Fire Sale Price of $350 Million. It Was Seen As A Great Deal Then, But Two Years On?

Meredith bought Family Circle, Parents, Fitness, and Child in 2005 at a price about one-half of what they should have been worth had G+J managed them properly. But G+J, owned by German media conglomerate Bertelsmann, then had so many internal problems running its US operations – the American management blamed the Germans, the Germans blamed the Americans (remember the fiasco with Rosie Magazine?) -- that at the end of the day the German headquarters decided the best course of action was to make a complete break.

Now, two years later, Meredith has announced that its June/July issue of Child will be its last in print, and the magazine will become part of Meredith’s parenting Web site which will be launched in July. Sixty jobs will go, the majority at Meredith’s New York headquarters.

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The Meredith spin in announcing Child’s closure is that the four magazines have been a good financial investment. “The performance of the group of magazines from Gruner + Jahr continues to exceed our initial expectations with fiscal 2007 operating profit forecasted to grow more than 20%, according to Steve Lacy, Meredith chief executive. But that is not to say those magazines are performing as well as Meredith’s legacy magazines before G +J.

“"These (G+J) titles had an overall EBITDA margin (earnings before interest, taxes, depreciation and amortization) in the mid- to-high-single digits when acquired. Looking to the intermediate term, we believe that we can improve their EBITDA margin to the mid- to-high teens, which is comparable to most of our legacy magazines,” Lacy told an investors conference call in January describing the company’s second quarter fiscal results. In other words, they still had a ways to go to get the G+J magazine profits up to the level of the rest of the magazine group.

And the problem was then pinpointed as the parenting sector, giving a hint that things had better shape-up quickly at Child or the plug would get pulled. “There is growth in the women’s service titles; however, this growth is partially offset by continued weakness in the parenthood titles, which represent about 20 percent of publishing advertising revenue. We were encouraged by the performance of our magazines in the women’s service field, particularly Family Circle where advertising revenues were up 14%. This follows a 20% increase last quarter. Advertising results for the second quarter were impacted by continued weakness in the parenthood field. Absent the parenthood titles, our publishing advertising revenues increased in the quarter.”

And Lacy looked to the current quarter. “As we look at early calendar 2007, fiscal third-quarter publishing advertising revenues are currently up in the mid single-digits. This growth is being led by Better Homes and Gardens, Family Circle and More magazines, along with our online properties. Circulation revenues declined due to previously announced initiatives designed to strengthen long-term circulation profitability. These include calendar 2006 rate base reductions for Family Circle and Child, as well as ongoing investments in transitioning the titles acquired from Gruner + Jahr to the Company’s long-term direct-to-publisher model. Since acquiring these magazines 18 months ago, Meredith has increased overall direct-to-publisher subscriptions at these titles from 30 percent to 50 percent of the subscription file, on average.”

Family Circle has seen its circulation decline from 4.2 million to 3.8 million, again as a result of concentrating on subscriptions, while Parents has remained steady at 2.2 million and Fitness at 1.5 million.

Child has not had a happy upbringing in Meredith’s hands. When Meredith bought it circulation was a bit more than 1 million, but Meredith could not grow it. Trying a different tack, it removed most newsstand copies to concentrate of subscriptions and that drove the numbers down to 825,000 and the numbers fell further to 740,534 paid subscribers for the second half of the year, according to the Audit Bureau of Circulation.

As if that wasn’t enough pain, there was that advertising softness in the parenting sector. Meredith spokesman Art Slusark explained that ads for such products as diapers, baby food, and other child-related products softness were down. Ad pages fell last year by 15.2%, according to the Publishers Information Bureau.

And as ftm has noted in recent articles, when magazine circulation and advertising revenues start to go south these days, publishers are showing very little inclination to let the bleeding continue for long, and are quick to shut down print production. Meredith will take a $7 million non-cash charge to write off the magazine’s assets plus another $3 million charge for severance costs. It has not shut a magazine since 2001 when it stopped Family Money.

What didn’t help Child was the launch last year of Cookie, published by Conde Nast, and positioned more upscale to Child. Following the law of the jungle, with Child’s impending Internet banishment Cookie says it will increase its advertising base rate to 400,000 from 350,000 and move to a 10-times annual frequency from bi-monthly.

“We still think Child is a strong brand that will do well online,” Slusark, the Meredith spokesman, said. At the recently concluded Magazine Media 2.0 conference in Hanover, Germany, that included executives from more than 25 countries, just a very few of the 350 companies represented said they made more than 3% of their sales online and only Meredith (that also prints such titles as Better Homes and Gardens and Lady’s Home Journal) said it was actually making a profit online.

One indication why is that its web traffic has increased about 20% from a year ago. Better Homes & Gardens reached a new record of 18.2 page views per visit from the 15.8 a year earlier. But where Meredith has really cashed in is on web subscription activities, generating more than 1.5 million subscriptions over the Internet annually. That’s a lot cheaper way of doing business than via traditional mail. In the second quarter online delivered 680,000 subscriptions, nearly a 50% increase over the prior-year quarter.

Bringing the G+J properties into its stable brought Meredith’s total combined circulation for all its magazines approaching 30 million, making it second only to Time Warner in consumer US magazine circulation. Meredith owns some 200 magazines and is particularly strong in the woman’s field and with the four G + J magazines Meredith’s total readership comes to some 135 million women.

At the time of the sale to Meredith, Torstein Klein, president of G+J International division, told an international magazine conference in New York that the US magazines failed to meet G+J’s profit goals. “We’re committed to the magazine business, but we are also committed to very high profits,” he said. The company today publishes more than 120 magazines in 17 countries.

As for Lacy today, “We continuously review our business activities with the objective of maximizing our performance and growth potential.” Translation – if any part of the empire is not performing to expectations, watch out!

Meredith Reports Strong Q1 – April 27, 2007

In an indication that advertising is improving for some sectors of the magazine trade, Meredith reported its fiscal Q3 publishing ad revenues were up 7% over the same period last year, and in its earnings per share rose 15%.

“Very strong advertising performance of our Publishing Group properties and the outstanding growth in online revenues across the country,” were credited by Stephen M. Lacy, President and CEO, for the company’s better performance. Web ad revenue was up 50%.

One trick that Meredith has seemingly mastered better than most magazine publishers is getting subscriptions via online for its print publications. Not only is that much cheaper, it’s also more efficient. Meredith said it has secured more than 2 million online subscriptions through the first nine months of fiscal 2007, already surpassing total orders for all of fiscal 2006.

Better Homes and Gardens, More, Family Circle and Meredith's Special Interest Publications all delivered solid growth in advertising revenues and net advertising revenue per page in the quarter, the company said, but it said its parenting titles (i.e.: Parents) are showing continuing weakness.