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Evaluating the Competition, By the Numbers



By Matt Kinsman
05/24/2006

When it comes to financial metrics, publishing companies, both consumer
and b-to-b, like to play it close to the vest. So how does one gauge
how the competition is performing?

Metrics vary not only by consumer and b-to-b but by the various
business models within those categories. "Start with the financial
health of a business," says Scott Peters, managing director at the
Jordan, Edmiston Group. "Is it profitable? Is it growing? You need to
peel back the onion and start talking about diversity and revenue mix.
Is it a publication that has a wide range of advertisers or is it
dependent on a handful of advertisers that are cyclical?"

Most publishers agree that it comes down to two factors. "At the end of
the day, it's about revenue and profitability, those are the two
primary metrics we look at," says Cam Bishop, president and CEO of
Ascend Media. "It can be as simple as trend analysis on either one of
those elements and analysis of costs. We like to look at ad revenue per
page, the mix of revenue streams, diversification of revenue and
profitability in real dollars and as a percentage. You can't make a
judgment based on one or two criteria. I always said this business was
50 percent art, 50 percent science, and you've always got to marry the
two together."

Without access to a competitor's numbers, New York City-based legal
publisher ALM puts the most stock in renewal rates. "If I had to take
one metric;renewal rates tell you the most about the quality of what
they're doing," says CEO Bill Pollak. "Renewal rates for readers,
advertisers, sponsors. Repeat attendees at conferences. We look to see
whether the conference lineup is all new or whether they have repeats
with the assumption that repeats are stronger."

For John French, CEO of Prism Business Media, assessing personnel, from
top management to editorial, can help put the competition in
perspective. "One of the areas we think is very important is editorial
staffing," he says. "Whether it's a competitive company or one we're
looking to buy, we look at editorial staffing especially in view of the
last five to 10 years. If there's been a large reduction in the
editorial staff or the tenure of the editorial staff is lower than the
industry average, then that's an alert. That tells you the personnel
producing the content haven't been there that long or more importantly,
they took out the stars at that company."

Factoring Circulation

While b-to-b lives and dies by advertising revenue, circulation is the
dominating force for consumer publishers, particularly for mass-market
titles but also for niche publishers. "In the magazine business in
general, a lot of the internal metrics just aren't visible," says Bryan
Welch,publisher at Odgen Publications. "The most important metrics to
us are circulation metrics. At least 50 percent of all revenue at our
magazines come from circulation."

While circulation metrics are fairly deep (and accessible), publishers
still need to interpret. "If they're audited, that tells us a fair
amount about the circulation mix but possibly not enough," says Welch.

On the single-copy side, Odgen looks for competitors in locations where
it knows they're not generating positive cash flow;such as on airplanes
or airport newsstands or in very prominent promotional positions. "That
gives us an indication of how much of their circulation is not cashflow
positive, and it gives us a general inkling of how aggressive they're
being in the promotional realm," says Welch. "Obviously, we can take
away two different messages;perhaps we need to ramp up and compete for
that circulation and take on some cashflow negative circulation or on
the other hand, perhaps it's a sign that they are behind us and
desperate to achieve a certain level of circulation."

Ultimately, Welch says, most consumer publishers are focused on the
wrong metrics. "The whole industry is paying too little attention to
the lifetime value of subscribers and too much attention on the lowest
acquisition costs. Nearly every magazine would be better off building
value with a lifetime subscriber base."

Beware Too Much Reliance on EBITDA

EBITDA (earnings before interest, taxes, depreciation and amortization)
is one of the most prominent publishing yardsticks, particularly on the
b-to-b side. But don't take it at face value: EBITDA can either tell
you a lot or a little about a company depending on its business plan.
For a new company undergoing rapid growth, negative EBITDA numbers
don't mean much;it could be balanced by the investment in growth. For a
mature company, however, a positive EBITDA could mean everything.

"If you look at the competition, EBITDA doesn't tell you anything,"
says Peter Goldstone, president of Hanley Wood Magazines. "It could
mean they're investing in their products. It could mean they're not
investing in their products. EBITDA only tells you what the parent
company wants EBITDA to mean. What's more important than EBITDA is
topline revenue growth. Anybody can make EBITDA look like what they
want it to look like. It's a function of how you calculate direct costs
versus indirect costs and whether you want to tell a profitability
story or a growth story. It doesn't tell you about the mindshare of the
brand. It doesn't tell you the stature of a brand in a marketplace.
It's just an indication of how they account for expenses."

The other big factor EBITDA does not touch on is what's going on with
debt. While a publisher could have a very healthy EBITDA margin, if
it's over-leveraged and just scraping by to pay its interest payments,
the company has no capital to invest. It could even be on the fringe of
going out of business. "EBITDA strips out the whole debt conversation,
and debt tends to be a very important part in the b-to-b public or
private markets," says Peters. "The larger companies tend to be heavily
leveraged."

Still, EBITDA has its place. "EBITDA is one of the best benchmarks of
the fundamental profitability of a company," Peters adds. "That's why
it's used a lot. It's not smoke and mirrors. Publishing and trade shows
are not capital-intensive businesses. If you're talking EBITDA at a
publishing company versus a car manufacturer, it's a night and day
difference because the depreciation and amortization are big numbers.
The depreciation and amortization in a publishing company are
insignificant. It truly is closely aligned in many cases with actual
cashflow of the business."

By Matt Kinsman
05/24/2006







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