Source Memo: ‘Virtually No Advertisers Will Commit to Long-Term Ad Programs’
CEO Jim Malkin: 'Our clients in financial services are getting clobbered.'
As first reported by FOLIO: this week, financial publisher Source Media is reorganizing its more than 60 magazines into four business groups—banking, capital markets, technology and professional services—and is recasting editorial staffs for each of its individual brands and rolling editors into combined units for each of the four new groups, "pooling" editorial by market.
In an 1,830-word memo announcing the reorganization to staffers, CEO Jim Malkin provided a detailed account of the hurdles plaguing the financial services and information publishing industries, and the debt market:
To All SourceMedia and Accuity people:
I’d like to take some of your time to fill you in on the state of our business. In reading our publications, watching or reading the news or following the political debate, we are seeing a downward business cycle and economic fall off of significant proportions. It is my belief that the earliest this cycle will turn will be by the end of 2009.
I am certain that you are all familiar with the current state of the financial services industry, the conditions of the evolving information publishing industry and the state of the debt market. I want to explore in this letter how these national, regional and industry trends impact our company and what we intend to do so that we emerge healthy and robust when this cycle turns.
Financial Services Industry
Our clients in the financial services industry are getting clobbered. Wall Street lost a record $11.7 billion in 2007 and another $22.4 billion in the first quarter of 2008. Wall Street is expected to cut 25,000 jobs from its September 2007 peak of 188,000 jobs – a 13.4% decline. It is estimated that 74,000 financial services jobs have been cut over the past 12 months.
Our clients who advertise to our readers don’t know what they can successfully sell to firms that are unsure of their future. There are fewer industry participants to subscribe to our services and virtually no advertisers who will commit to long-term advertising programs.
Information Publishing Industry
We have talked about the change in readers’ habits in the electronic age. We have talked about the change from print to on-line advertising. Although our on-line advertising has been increasing at a healthy rate and in line with industry averages, print remains the bread and butter of our revenues.
It should come as no surprise to you that our print advertising revenues are experiencing a significant fall off this year. Other media and newspaper companies are reporting print advertising to be off by 5% to 25%. SM’s print advertising is off of last year’s levels by 17% or $6.8m. Print based revenue still comprises almost 57% of our total revenue.
Our debt, which we have been paying down since our acquisition in November 2004, stands at $172m. Despite our healthy "performing loan" status and our low leverage ratio of about 4.5X, our interest costs have increased by 30%, which translates into an additional $4.3m of cash interest payments that we have to pay each year to our lenders.
What does this mean to you?
It means that the entire enterprise, SM and Accuity, has to be positioned to:
A: Establish a structure that can operate more effectively in this environment – more effectively in terms of content creation, product development and sales/marketing execution.
B: Take advantage of the cycle when it eventually turns upward (and remember that the entire economy relies on the financial services sector to kick-start the rest of the economy).
C: Generate sufficient cash to cover expenses, which now include the additional $4.3m in interest and, crucially, to generate the monies needed to provide funding for growth initiatives.
This is the third major down cycle I have managed through. Although it is the most severe, I am confident that the steps we take will see us through this and that we will emerge a stronger and better business. We will be better positioned to support our clients and to serve their needs with integrated solutions that provide value.
After extensive discussions with people within our organization and with outside consultants, our Board of Directors has approved our new operating structure and has reaffirmed its desire to grow SourceMedia and Accuity into the future under Investcorp’s ownership.
The SM publishing business will be divided into four communities:
Banking will now comprise the following groups: American Banker, Banking magazines, the Mortgage Group, the Payments Group and Credit Union Journal. Jeff Scott, as President and Managing Director of Banking, will report to me. Tim Murphy, John DelMauro and Frank Diekmann will report to Jeff within this community.
Capital Markets will comprise the Bond Buyer, FCC and the majority of the Capital Markets newsletters. Mike Stanton will head this Community as Executive VP and Managing Director of Capital Markets.
All existing sales positions including Naz Bayazit, Lou Fugazy, Bill Baneky and Tara Gonzales will report to Mike.
This group will comprise DMR, BIR, HDM, INN, SIN and Traders. Rob Whitaker will head this Community as Executive VP and Managing Director of Technology. Reporting to Rob will be Ken Heath of Traders and Dan Rubinetti who will assume responsibility for sales management for the rest of the group.
This group will combine the Investment Advisor, Employee Benefits and Accounting Groups. Mike Dukmejian will be joining SourceMedia as Executive VP and Managing Director of Professional Services. Mike joins us from Time Inc where he was Group Publisher of The Fortune/Money Group and CNNMoney.com, Publisher of Mutual Funds Magazine, Director of Sales Development, Sports Illustrated and Corporate Marketing Director for Time Inc. Reporting to Mike will be Jim Callan, Dan Goldemen and Jack Lynch.
New product development is an area in which SourceMedia needs to devote more effort and resource. Accordingly, we are establishing two new positions within the company to drive new growth initiatives.Adam Reinebach and Patrick Toner will each serve as VP of Business Development. Adam will work with the Professional and Technology Groups reporting to Mike and Rob, while Patrick will work with the Banking and Capital Markets Groups reporting to Jeff and Mike.
Each of the community heads noted above will have responsibility for strategy, acquisitions, partnerships and the revenues for all of their brands’ activities in print, on-line, conferences and events.Therefore we will be disbanding the central conference group and re-aligning its resources to serve the needs of our communities. Sales and program development will report into the communities, marketing will report into central marketing and operations will report to our central operations group. As advertisers place high value on face to face interactions with clients, it is crucial that program development, editorial and marketing work closely and effectively together.
One of the most commercially successful community-building brands that our company has established is the 25 Most Powerful Women in Banking franchise. I believe the success of MPWIB should serve as a template for the development of niche communities for each of our brands. We have the reach and the distribution and now need to aggressively move forward in creating and maintaining similar franchises. This is perhaps our biggest new opportunity. Holly Sraeel will assume the newly created position of SVP Brand Management, reporting to me. She will develop professional networking communities for our brands following the WIB model and will assume the additional title of President, 25 MPWIB.
The Editorial functions for all of our products will be combined into one group under David Longobardi as Executive VP, Chief Content Officer. This will permit us to more readily share content, to provide consistent quality to our readers, to facilitate our journalists’ career paths across the organization and to support our brands with editors who can draw from a large pool of talent and resources. I feel very strongly that we need to do more to support our efforts in content development and creation across our organization; despite the best efforts of an editorial council, we need to be more proactive still in seeking cross-brand opportunities and establishing best practices and common standards for our products. We will be working through this year to implement the workflows and processes, and establishing the relationships necessary to make Editorial function optimally for our communities. Further details will be issued under separate cover by David Longobardi later today.
As a result of the changes in our communities, senior managers David Greenough, Greg Gillespie, Bill Dimodugno, Maria McDaniel, Bill Bell, Robert Mitchell and Tim Reifschneider will leave SM. We wish them the best in the next chapter of their careers.
There are a number of other changes which will more effectively support the new organization described above, and they are:
Andria Wirth has decided to devote the next chapter of her career to raising her new daughter and we trust that she will be as successful in that endeavour as she has been with SM. Rich Antoneck will be promoted to Sr. VP, Financial Operations and will be responsible for our Finance and the Accounting Groups. Reporting to Rich will be Rebecca Knoop who will be promoted to Executive Director, Finance.
Further details will be issued under separate cover by Bill Johnston later today.
Classified Advertising will be centralized under Steve Andreazza. This group will sell classified advertising across all our brands and will be lead by Joanne Kao, reporting to Steve.
Marketing will be restructured to provide coverage of all marketing activities (advertising, audience development, delegate and exhibitor marketing) under a Group Marketing Director for each community. The Marketing Directors will report to Anne O’Brien with a strong dotted line to the community heads. Further details of this organization will be issued under separate cover by Anne O’Brien later today.
As noted earlier, conference operations will become part of our central operations group under Celie Baussan. All hotel bookings, venue management and other operational activities for our conferences and events will be handled by that group.
The NRS and Accuity businesses will be consolidated under the leadership of Hugh Jones, President of Accuity. There is a huge market opportunity for us in the compliance and regulatory space across our business units. John Gebauer has done a terrific job of building the NRS business to its current level and will continue to play a key role in the senior leadership of our company. I believe that the benefits of bringing the data and credibility of Accuity together with the expertise and talent of NRS will be significant.
Further details will be distributed under separate cover by Hugh Jones later today.
One additional note to this already lengthy and important communication: in January of this year, Jeff Scott, respected colleague and good friend, began speaking with me about wishing to make a career change. He and I agreed to spend the year working through a process that would best serve the needs of SM and the needs of Jeff who is looking for a more hands on role in a technology and data business. We will continue working through this process and I expect that within the next several months we will hire a new community head for Banking and Jeff will find a position outside of SM.
Please think this through and join the smart people in this organization who will work through the complex details necessary to make this work for our business now and in the future. As noted, there will be further communications about each group. Should you have questions please address them to your manager or to me.