Industry Being Reshaped by Ad Downturn

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NEW YORK ( -- A passel of magazine titles have put up "for sale" signs in recent weeks, leading industry observers to predict the start
of a trend that will leave newsstands less cluttered.

Several publishing company executives report being approached with partnership overtures for Bob Guccione Jr.'s Gear, and with offers to acquire News Corp. unit NewsAmerica's Maximum Golf and Mary Engelbreit Cos.' Home Companion, a Missouri-based home-decor title.

The struggles of stand-alone magazines are yet another indicator of the crunch in which publishers -- particularly smaller publishers -- find themselves. The titles above join the likes of Working Woman Network's Working Woman and Working Mother; Standard Media International's The Industry Standard; and hip-hop title The Source as recent additions to the deal market.

Start of an ugly trend
Reader's Digest Association's Walking, which had recently been on the block, was shuttered last week. A deal, most likely for its subscription file, could come this week, but its death could indicate the start of another ugly trend.

"There are so many trends working against marginal titles," said Jason Klein, former CEO of Times Mirror Magazines. "Any title in the bottom quartile of profitability is probably looking at losing money right now. You'll see a lot of titles in the bottom quartile get pushed over the edge. They just really won't be viable in this environment."

The deals will only accelerate. "Many properties are waiting until the fall to come to market," said Kim MacLeod, managing director of media investment bank DeSilva & Phillips. "Everyone is back from vacation -- [the sale process] can move along faster."

Consolidation predicted
Even in the ad-mad delirium of 2000, key industry executives had predicted a coming consolidation. It took until midyear to begin, though the grim tidings of 2001 -- ad revenue declines, circulation weakness and cost increases -- were clear on the horizon late last year.

Hopes of a second-half turnaround had to be definitively dashed before titles hit the block, publishing executives said. "Publishers never want to believe the inevitable until it smacks them over the head with a bat," said one.

Industry is 'rusting away'
Chip Block, a publishing strategist for Ziff Davis Media, compared the magazine industry to a "beautiful shiny car -- beautiful and shiny because of a paint job, but inside it's rusting away," with circulation and structural woes. In 2001, the industry's "paint job" -- the ad boom -- "went away. Now everyone can see it for the rust-bucket it really is," he said.

Mr. Guccione denied any talks concerning a Gear sale, but said he was feeling out financial players with an eye toward "future projects" and acquisitions in the pop-culture and fashion realms. A spokeswoman characterized Standard Media's situation as a routine second round of financing, although a Standard Media staffer conceded it could substantially change the Standard's ownership structure. A spokeswoman for IDG, the majority owner of The Standard, declined comment.

Through a spokeswoman, Greg Hoffmann, CEO of Mary Engelbreit, said, "At this point in time, we are not seeking a buyer or a partner."

Regarding Maximum Golf, a News Corp. spokesman said, "We do not comment on rumors or speculation."

While Jay MacDonald, chairman of Working Woman Network, e-mailed staffers June 28, citing several "companies and one consortium" making offers in the next week to 10 days, executives familiar with the company cite its $15 million debt load as a sticking point to even a fire-sale deal. Mr. MacDonald's spokeswoman did not return calls by press time

One potential buyer for at least part of Working Woman Network -- Richard Huttner, former CEO of Baby Talk magazine -- declined comment.

Bidding for Source
The first round of bids for The Source are due at the end of July. Executives familiar with the title's financials said earnings before interest, taxes, depreciation and amortization last year were almost $7 million on revenues of around $25 million, and that profit margins were somewhat lower than in previous years. (The Source deal will include some smaller sideline businesses.)

Potential buyers include Wenner Media, which had previously considered buying the title, and Miller Publications, which owns Spin and Vibe. Ed Lewis, CEO of Essence Communications Partners, said he was interested as well, either in conjunction with his 49% owner, Time Inc., or alone.

Bidders that miss out on that deal will be consoled by the knowledge there will be plenty more properties to choose from in the months ahead.

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