Out of adversity comes opportunity

It’s a tale as old as time. As soon as the internet was invented, there were predictions that it would be the end of the magazine, newspaper and book business as we knew it.

This has certainly been the case. Over the years, magazine and newspaper publishers have been on a mission to reduce their staff compliment and sell expensive printing equipment as the online movement gained momentum.

The transition has been slower in the book publishing space. Amazon, the worlds largest e book retailer, sold 191 million e books in 2020. This is significant considering that 750 million books were sold in the same year.

The Covid-19 Pandemic has also significantly impacted the media industry. With lockdowns, the movement towards online media consumption became a tsunami. This caused a lot of companies to go into distress. But some were impacted differently than others.

Local problems
A report by News24 points out that publishing and printing group Caxton has impaired R64.7 million on its plant and equipment, following a slowdown in magazine and newspaper printing.

In 2020, Caxton pulled out of magazine publishing and closed ten of its brands such as People, Your Family, Bona, Country Life and Rooi Rose.

“As reported at half-year, the trading environment in the newspaper and magazine printing market has experienced a permanent decline and certain equipment that is [in] excess to the ongoing requirements, required an impairment of R64.7 million,” said Caxton in its results for the year ended 30 June 2021.

There has been some good news for Caxton though, the article points out that the group reported a profit of R565.9 million in 2021, up from a loss of R64 million in 2020. Revenue declined by 6.3% year-on-year to R351.9 million.

The other side of the distress coin
The Pandemic has changed the landscape of some industries so significantly that it is tough to imagine what they were like in their prime.

Some companies have struggled to come to terms with change, as evidenced by Caxton. Others, like Future Media, have taken the bull by the horns and made the best of the Pandemic.

It comes down to leadership. A Forbes article points out that, in her first six months at the helm, Future Media CEO Zillah Byng-Thorne slashed 400 jobs, around 40% of its staff, moving jobs from San Francisco to the low-cost west of England, and sold a bundle of 17 magazines, including prized title Procycling, for $36 million. “Unless you put out the fires, you don’t get the right to think about what you’re doing [next] as a business,” says Byng-Thorne.

The article points out that, since then, Byng-Thorne has transformed Future into a digital-content powerhouse generating a $95.7 million profit last year from sales of $451 million. The share price is up 3,821% in just over six years, translating into a market cap of $6.3 billion.

Cutting ties
The article points out that a shrewd decision by Byng-Thorne paid dividends. She broke Future Media’s reliance on newsstand and advertising and refocused the entire venture on events, data and, most critically, e-commerce. Around a quarter of Future’s revenue comes from what is known as affiliate marketing (click bait).

The article adds that, basically, affiliate marketing is the commission (sometimes of up to 8%) that Future Media receives when a reader clicks through to buy a gadget on Amazon after reading a specific review. Every major media brand, from the New York Times to Forbes, has dabbled in the affiliate marketing sandbox, but with her portfolio of product-focused publications, Byng-Thorne has been able to cash in better than most.

“There are very few businesses that have shown the ability to monetize magazine content online, and Future does it significantly better than anyone else,” says Mark Slater, cofounder of Slater Investments, a London-based fund managing $2.5 billion and a major Future shareholder. “This focus on customers with intent to buy is very, very distinctive, and there aren’t many businesses like it.”

Humble beginnings and fast tracking
Many of the worlds best business leaders came from humble beginnings, the best example is Richard Branson (Founder of the Virgin empire) who began his career selling Christmas cards out of the boot of his car.

The Forbes article points out that, before Future Media, Byng-Thorne’s only media experience was as interim CEO of a car classified magazine called Auto Trader. She canned the bulky print magazine, cut jobs and hit fast-forward on her predecessor’s mobile-first strategy. “This was pretty much the model for a print-to-digital business,” says Colin Morrison, a longtime media exec who is the founder of the Flashes & Flames blog.

Having cracked the print-to-digital code, at least for hobbyist magazines, Byng-Thorne has been busy using her suddenly valuable stock to buy more. Since 2016, she has spent $1.91 billion on 21 deals for dozens of titles.

Opportunities in adversity
Benjamin Franklin once said that out of adversity comes opportunity.

As we have seen during the Pandemic, companies have been forced to get rid of underperforming product lines and focus on those that make a profit. With Future Media, we can see that there is opportunities for companies that are prepared to take risks and embrace innovative business models.

Sometimes your box is much bigger than the four walls that confine you.

Hannes Brits is the Director of Kubu Business Optimization Consultants