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Enthusiast Media's True Believer



By Tony Silber
05/24/2006

Aspire Media CEO Clay Hall remembers when he realized the extraordinary
value of enthusiast magazines. He had spent the early part of his
career in city magazines and moved to enthusiast media in 1983 when he
was hired to run Southwest Art
by former Texas governor John Connelly. "The business model was
completely different," he remembers. "First, it reached people all over
the country, but with purely endemic advertising. And the thing that
struck me was the value that readers placed in the advertising;it was
as high as or higher than the editorial content. Readers of art
magazines are primarily interested in buying art."

From that revelation grew one of the more richly developed theories for
building a business in the unique circumstances that define enthusiast
media, and one of the more notable careers in that space in the last 20
years. It spans from Hall's successful establishment and subsequent
sale of Southwest Art through
a stint in big-company publishing at Cowles Media. It runs from a
period as an M&A broker through to the creation of Aspire Media in
2003, when Hall teamed up with private-equity firms Frontenac Company
and Catalyst Investors, intending to build an enthusiast-media company
with revenue in excess of $100 million. A year ago, Aspire acquired
Interweave Press, a 30-year-old leading publisher of six crafts
magazines and more than 150 crafts books in print.

Now Hall is in the process of building out Loveland, Colorado-based
Aspire with what he calls a "bifurcated" approach to acquisitions and
publishing: First, acquire companies where strong multiplatform
companies can be built on the foundation of strong magazine brands.
Second, let editors be intuitive and creative and stay close to their
markets, and three, impose a process-driven, metric-driven discipline
on the business side.

Defining Enthusiast Magazines

Enthusiast magazines are a unique breed. Typically started by
entrepreneurs;themselves enthusiasts;they are usually small operations,
but some grow up and transform into major companies: Think Terry Snow's
World Publications, an $80 million business, or Taunton Press, one of
the country's best-known enthusiast-magazine companies, or the old
Petersen Publishing, which sold to Emap in 1999 for $1.5 billion and is
now part of Primedia.

But for the most part, enthusiast magazine companies are part of the
broad mass of smaller, entrepreneurial businesses that make the
publishing industry so diverse. There is a Tractor Classics, a Barbie Bazaar, a Casino Player, a whole slew of bird-watching titles and a magazine for ghost hunters. There is a Focus Fanatic for lovers of the modest Ford compact car.

A brief Google search on the keywords "enthusiast magazine" produced these:

ユ Wine Enthusiast ユ Alberta Motorcycle Enthusiast

ユ Land Rover Enthusiast ユ Pontiac Enthusiast

ユ Scale Auto Enthusiast ユ Mercedes Enthusiast

ユ PC Enthusiast ユ Pony Enthusiast

ユ MG Enthusiast ユ Texas Coastal Enthusiast

ユ Enthusiast Magazine ユ Cadillac Enthusiast

ユ Jaguar Enthusiast ユ Corvette Enthusiast

ユ Musclecar Enthusiast ユ RV Enthusiast

ユ Outdoor Enthusiast ユ Mustang Enthusiast

ユ Embroidery Enthusiast ユ Military Enthusiast

ユ Motorcycle Enthusiast ユ Focus Fanatic Enthusiast

You get the idea. In fact, as many as a third of the 10,000-12,000 magazines produced in the country are enthusiast magazines.

They share important characteristics:

ユ They provide critical connections between people and their passions.

ユ They have committed readers, willing to pay relatively high
subscription rates and who have an insatiable appetite for information.
And because the magazine is about their passions, they renew at
higher-than-average rates.

ユ Readers are easily identifiable.

ユ Because of that commitment, advertisers consider them a must buy.

ユ They inherently have multiple revenue streams, providing a cushion
against advertising ups and downs. If the magazine is for fly
fishermen, for example, or a home-repair enthusiast, they'll buy every
book and video and DVD available.

ユ Most advertising in enthusiast magazines is endemic, directly related
to readers' interests in the subjects covered by these magazines.
Unlike general interest and special interest magazines, where
advertising is often viewed as an interruption, ads in enthusiast
magazines are among the best read pages since they provide important
information about products that enable participation. That means that
ad:edit ratios can be pushed well beyond 50 percent.

The results of all this? The rate of growth of advertising in
enthusiast magazines has outpaced all other sectors and all sectors
combined over the last decade. (See accompanying chart.)

For entrepreneurs like Clay Hall, the key is understanding these
characteristics and turning them to their advantage. In fact, he has
his own definition. There are general-interest magazines, he says, and
special-interest magazines, and finally single-interest magazines. Field & Stream is a special-interest magazine, Hall says, while Fly Fisherman would be a single-interest magazine. Outside is a special-interest magazine, while Climbing
is a single-interest magazine. "The advantages of the single-interest
magazine are that the reader has an insatiable appetite for
information," he says. "He's a bird hunter or fly fisher and will buy
every book and DVD on the subject. My company's business model is to
build multimedia businesses on the foundation of strong magazine
franchises." In this report, Folio: looks at the state of enthusiast
media through Hall and his company.

A Prototypical Entrepreneur

Hall has a very colorful history as a magazine impresario. He started out at Richmond Magazine
when he was 22 years old and still a college student, hired as ad
manager at that magazine after success in the market selling
advertising for the local college radio station. Hall tripled sales
from about $200,000 to $600,000 in a year. Still, the owner was going
to close the magazine until Hall talked his way into the publisher's
title and an equity position. To cut costs, he sold the furniture, the
copier and the coffee machine, and traded advertising for the rent. In
the first 30 days of Hall's tenure, the magazine made a profit of
$1.67. He ran Richmond Magazine
for two years before it was sold. "That was my first taste of equity
ownership," Hall says. "At the end of the day, I walked away with
$100,000. In 1977, when you're 24, it felt like a million."

Next, Hall was recruited to run Pittsburgh in 1980, and in two years turned a money-losing magazine that produced $500,000 into a profitable $2.5 million business.

Then there was Southwest Art.
Hall says he had the magazine making money in 30 days after taking over
as publisher in 1983 just by renegotiating the printing contract and
increased revenue from $3 million to $4 million in a year and a half.
Hall made what was perhaps his most stunning deal in 1987, when he
teamed up with Veronis Suhler & Associates to buy Southwest Art
for $6 million. Combined, VS&A and Hall put in $100,000, with
$45,000 from Hall, and borrowed $5.9 million. They sold the magazine
eight years later to Primedia for $12 million, making a $6
million profit on an initial investment of $100,000. Dan Wiesner, CEO
of Wiesner Publishing, says this about Hall: "He is a very strategic
guy. He pulls all the pieces together of how to buy, how to finance,
how to do a buildup, and how to pull the key players together who can
help you. He himself is a big enthusiast, so he really has an affinity
for those kinds of magazines. Before I met him I was just a sales guy,"
Wiesner says, adding that Hall serves on his board of directors. "I was
not a buyer, seller nor operator on a more strategic level."

Looking at Interweave

After the Southwest Art deal,
Hall started his own firm, Hallmark Ventures, a boutique investment
bank, located in Bozeman, Montana, in 1996. In 2003, he got back into
publishing with the creation of Aspire. His first acquisition,
Interweave, exemplifies the profile of the successful
enthusiast-magazine company. Seventy percent of its revenue;somewhere
around $15-$20 million, comes from consumers, Hall says. Books make up
about a third of the company's revenue, and while some titles have sold
several hundred thousand copies over their lifetime, the company views
sales of 20,000 to 40,000 as good sellers. Revenue from the
magazines;including Beadwork, Fiberarts, Handwoven, Interweave Knits, PieceWork, and Spin-Off;makes
up two-thirds of the company's total revenue with roughly 70 percent
coming from circulation and 30 percent from ad revenue. The magazines'
subscribers renew at a rate of about 70-plus percent, with a cover
prices of between $6 and $7 (higher for newsstand-only special-interest
publications) and frequencies of between four to six times per year.
Additionally, the company publishes several newsstand-only SIPs with
frequencies of 1 or 2 times per year. The flagship magazines are Interweave Knits, the leading knitting magazine, with a total paid circulation of 110,000, and Beadwork
magazine, with a paid circulation of approximately 90,000. Together,
these titles generate about 70 percent of Interweave Press' magazine
revenue. Interweave Knits magazine is the leading knitting magazine and competes against SOHO Publishing, XRX, House of White Birches, among others. Beadwork is the number-two title in its market and competes against Kalmbach, All American Crafts, and Primedia, among others.

Most of all, perhaps, Interweave has the vision and passion of an
entrepreneurial owner. Linda Ligon started Interweave 31 years ago with
$1,500 and sold to Aspire in 2005. At the time the company was created,
she said, Ligon realized there was a lack of literature for people
interested in spinning and weaving. "Back-to-the-land crafts were
really hot in the seventies," she told FOLIO: in March. "Though my
subject matter was traditional women's crafts, my personal passion was
for magazine journalism and book publishing. For typography; graphic
design; photography; good prose. I also loved and practiced the
handcrafts, so it was a nexus of those interests." Spoken like a true
enthusiast businesswoman.

Hall says Interweave's publications have steadily grown at roughly 22
percent a year since 2001. Naturally, then, it made a great target for
his Aspire Media. "She had six interested buyers," he recalls. "I had
stayed in touch for years. So one night over a glass of wine, I
promised to learn to knit. And I did. I can't claim it was an article
of clothing. More like a shawl for a Barbie doll."

Going forward, Hall wants to bring Aspire's resources to grow
Interweave. In recent years, the company has successfully launched
several SIPs including Stringing, Bead Show, Crochet, and KnitScene.
"Interweave's SIP strategy is to serve special niches while developing
new markets for advertisers," he says. "Ultimately, the most successful
SIPs get launched as full-frequency titles." Interweave plans to expand
the frequency of Stringing in
early 2007. In late 2005, Interweave acquired Bead Expo, a leading
annual consumer show and workshops for bead enthusiasts. In 2006, the
company is making a major investment in re-engineering its Web
businesses. "In late summer or early fall we'll be going to market with
a new and improved Web business model that we think will become the
ムtown square' for beaders, knitters, and other crafters," he says.

The Empirical Approach

For Hall, it's not as much the profit potential from deals like Southwest Art that
make enthusiast media attractive. It's the synergy between the
advertising and the editorial that gives rise to the attractive
characteristics of enthusiast media as an investment. "The sales staff
can become experts in the space and in some cases lead the industry,"
he says. "Your cost of sales is lower because you are covering one
industry, not five. And you can stretch the ad:edit ratio to 60 percent
or 65 percent."

As part of his "bifurcated" structure, Hall measures some of the
typical benchmarks;yield per page, cost per page, sell-through and
more. But he goes far beyond the superficial metrics and examines such
things as marketing, editorial and product-development expenses as a
percentage of total revenue, by magazine; ad and circulation revenue
performance against all competitors; marketshare and cover prices
against competitors, and much more across a spreadsheet with multiple
tabs covering all aspects of a company.

How does a longtime entrepreneur like Ligon respond to this? "I've been
pleasantly surprised, actually," she says. "We are required to report
more, and decisions take longer and have more approval layers. But
we're continuing to grow the creative side of the business, which is
what interests me most. We've been fortunate to have a new CEO who
really understands and values what has driven this business over the
years, and who shares many of our core values."

On the creative side, Hall is one of the industry's most interesting
thinkers. He conducts informal e-mail surveys, for example, polling
peers about their approaches to various publishing challenges. He is
planning a publishing retreat next year in Las Vegas at the Consumer
Electronics Show to explore how that industry will transform the
magazine industry. Says Roland DeSilva, managing partner at DeSilva
& Phillips, "Clay understands enthusiast media because he's been in
it for 25 years. He's a knowledgeable and disciplined manager who first
thinks strategically and then acts tactically and executes flawlessly."

All of which leads to the question: What's next for Aspire? The company
is looking for more acquisitions in several enthusiast market segments.
Hall says he hopes to own companies in two or three market segments and
maintain a balance of both mature and growth businesses. "I hope we're
going to succeed by not imposing a single culture on the company," he
says. "I'm sort of an idiot savant -- all I've ever done was publish
magazines since I was a college student."

By Tony Silber
05/24/2006







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