Livingstone recently advised on the sale of leading consumer media publisher and eCommerce organisation, Dennis Publishing, to Exponent Private Equity. Operating across the UK and US markets, Dennis holds strong media brands across current affairs (The Week, The Week Junior, MoneyWeek), automotive (AutoExpress, Carbuyer, Octane, Evo), technology (Computer Active, IT Pro) and other special interest verticals (Viz, Cyclist, Den of Geek). It also owns a fast growing automotive eCommerce portal called buyacar.
One of Dennis’ key strengths is the ability of the business to deliver profitable growth by focusing on a subscription revenue model, which accounts for over 50% of Dennis’ media revenues. Subscription revenues deliver high quality of earnings and excellent cash flows, which led to a number of strategic and private equity bidders expressing a strong interest in acquiring Dennis Publishing.
The foresight of the Dennis management team to prioritise subscriptions helped position the business as a market leader and assisted in reducing its reliance on newsstand sales and advertising. Fundamentally, this has enabled Dennis to consistently generate significant EBITDA, the vast majority of which converts into free cash flow.
Value and growth drivers
Despite a period of change and disruption in the consumer media landscape, Dennis Publishing’s strong track record of growth and innovation enabled the business to consistently outperform its peers.
A combination of factors can facilitate the virtuous circle of high profit margins, strong subscription revenues, recurring cash flows and consistent profitable growth. The factors, listed below, do not occur by fluke or chance, but are replicable courses of action that consumer media players may wish to focus upon in advance of a sale process.
1. Focus on the subscriber file of key titles/publications
Subscription revenues are crucial in piquing the interest of a diverse community of acquirers, especially to garner the interest and support of private equity investors. Subscription revenues, as mentioned above, deliver high quality of earnings and superb cash flows.
In advance of a sale process, managers may wish to explore ways in which subscriber volumes can be expanded, as well by providing thought to the price inelasticity of their products to foster successful increases in yield. Targeted strategy to monitor and improve the characteristic of the subscriber file will reap rewards down the line – but improvements in underlying quality of earnings rarely happen by chance. Continual monitoring of subscriber file progression is key.
2. Diversification through a portfolio
Whilst the appeal may exist to focus solely on one or two profitable and popular titles, performance of most titles can fluctuate due to the cyclicality of consumer trends. Rotation of titles in across a balanced consumer media portfolio is crucial to keeping things fresh.
In among long term profitable titles it may make sense to host a portfolio of other titles, some of which are new and building, other may be perhaps past their best and declining. Managers should have one eye on the development of the next generation of titles around new topics of interest, whilst also keeping declining titles running for as long as profitable before the time is ultimately right to take the decision to discontinue such titles.
Don’t be afraid to wield the axe when the time is right. If management from time to time choose not to discontinue titles in favour of newer, fresher content, then the market may make the decision for them through a painful and costly rightsizing of the portfolio driven by creative destruction.
A successful portfolio, however, can evolve through time either organically or through selective acquisitions to complement the existing portfolio. Consequently, resilience and longevity will be enhanced by a diversified and dynamic portfolio.
3. A digital-led growth strategy
It is no secret that print media has experienced its challenges in recent years. What may be more of a surprise is the aversion of certain large strategic consumer media players – listed and private – to move in any direction perceived to be closer to print media. Whilst print media portfolios may demonstrate high quality subscription files rife for further volume and yield enhancements, certain buyer audiences simply will not wish to entertain an acquisition in that direction due to the belief that digital is the only way forward.
The economic certainties of successful print media – i.e. high quality of earnings, recurring revenues and high cash flows – can easily be forgotten by larger strategic media players who consistently look to expand the reach of their titles to a seemingly lucrative digital audience.
Digital revenue models have proved successful in recent years, primarily via digital advertising, clever use of data and eCommerce. An integrated approach to developing and delivering digital brands is fundamental to any consumer media publisher’s ability to grow large-scale digital audiences and to monetise them through the most appropriate mix of digital advertising, data and eCommerce.
Strong content and brands, together with in-house technology expertise covering web publishing, SEO and SEM are key characteristics of players who have built digital audiences of scale and quality. By focusing on direct traffic and organic search, growth can be facilitated at a low incremental cost. Such a strategy may enable the creation of first-party consumer data relationships, which are not always possible through social platforms.
The ability of a digitally positioned consumer media business to deliver market-leading advertising yields from digital audiences is an important differentiator. Strong coverage and relationships across key advertisers and agencies will deliver a high proportion of digital brand advertising and a low contribution from programmatic advertising – traits desired from the purchaser audience.
As high-quality, consented marketing data becomes ever more scarce, the potential of customer data to deliver meaningful revenue streams will continue to grow. Lead generation solutions can be successfully leveraged from customer relationships created by content, to deliver high-quality and consented marketing data that will cause digitally-focused purchasers to take note and listen.
For further information about value drivers in the UK consumer media market, please reach out to the Media & Tech team at Livingstone.