“It’s a telling comment on the state of the magazine industry when a brand with that level of quality and apparent core value to the parent company finds itself in the state it’s in,” said Mike Parker, managing director at AdMedia Partners.
McGraw-Hill has long touted a model based on data businesses that provide steadier revenue streams than ad-supported properties. Yet despite its dependence on cyclical ad dollars, BusinessWeek has remained a key part of McGraw-Hill’s identity.
So what drove Harold “Terry” McGraw III, chairman and president-CEO of McGraw-Hill, to decide to sell the brand?
The losses of the past two years forced McGraw to this point, said Reed Phillips, co-managing partner of investment bank DeSilva & Phillips. “It is the substantial losses that are driving this sale,” he said. “Terry McGraw for a long time has had a strong affiliation with BusinessWeek. It was seen as the most visible symbol of McGraw-Hill. I think that changed in the last year because of the losses.”
Industry observers say BusinessWeek lost about $75 million in 2008 and has already lost about $20 million this year. Its ad pages declined 16.1% last year compared with 2007, according to Publishers Information Bureau figures. This year, the decline has accelerated. In the first half, its pages plummeted 36.8% compared with the same period last year.
The decline at BusinessWeek mirrors the plunge at its longtime competitors, Forbes and Fortune. Forbes’ ad pages dropped 30.2% in the first half of this year, while Fortune’s ad pages fell 38.2%. Additionally, Portfolio, Conde Nast’s ill-fated foray into the category, was shut down earlier this year after seeing its ad pages crater in the first quarter.
The falloff among BusinessWeek, Forbes and Fortune has been gathering momentum since 2000. In that year, BusinessWeek reached its pinnacle in ad pages—6,005. Last year, its ad pages numbered just 1,882, a decline of 69%. In that same period, BusinessWeek’s print ad revenue fell from $573.3 million to $236.1 million, a drop of 59%.
The decade has worn down the entire category. In the same time frame, Forbes’ ad pages fell 54%, from 6,083 to 2,775, and its print ad revenue dropped 22%, from $434.3 million to $338.0 million. Fortune’s ad pages fell 62%, from 6,258 to 2,382, and its print ad revenue tumbled 42%, from $476.8 million to $276.6 million.
Of course, all these publications have extended their brands online and into conferences. Forbes.com has been singled out as a strong performer in the category, but industry observers say the brand extensions have not made up for the steep decline in print revenue.
Who would be potential buyers for BusinessWeek, a brand that is hemorrhaging red ink in a category that has been contracting for a decade? Buyers may be hard to find, both because of BusinessWeek’s performance and the wasteland that is the business media mergers and acquisitions market.
“The timing is, of course, terrible,” said Ed Fitzelle, managing director of investment bank Whitestone Communications.
Investment bankers speculated that Bloomberg or News Corp.’s Dow Jones & Co. might be interested. Another possibility is that an entrepreneurial buyer, such as Mansueto Ventures, could appear with a plan to revamp BusinessWeek’s strategy and immediately cut corporate overhead.
But few are holding out hope that BusinessWeek will command a big price. “I think their objective is to remove the losses from McGraw-Hill and to have the buyer service the subscription liability,” Phillips said. “I’m not convinced they’ll find a buyer who’s willing to pay much of anything for BusinessWeek, just because of the losses that occurred in 2008 and that are continuing.”