FORUM: What is the motivation behind IPC’s cost cutting? - Last week, 200 job losses were announced as part of a massive restructuring plan at IPC. But after 12 months of relative inaction by senior executives following the publisher’s pou

When the existing management and the venture capitalist company, Cinven, paid pounds 860 million for IPC almost a year ago, the buyers were quick to highlight the pressing need for investment and growth. But 12 months later, their agenda suddenly seems a little bit more complicated.

When the existing management and the venture capitalist company,

Cinven, paid pounds 860 million for IPC almost a year ago, the buyers

were quick to highlight the pressing need for investment and growth. But

12 months later, their agenda suddenly seems a little bit more


The acquisition of the Link House Group last year was balanced last week

by the announcement of a massive restructuring programme. This

cost-cutting initiative will see almost a tenth of IPC’s 2,000-strong

workforce take redundancy, cost an immediate pounds 5 million and, it is

hoped, generate annual savings of pounds 6 million. The advertising

industry - for whom strong, well-supported magazine brands are extremely

desirable - doesn’t know what to make of the changes. Lurking at the

back of everyone’s mind is the suspicion that the scale of this buyout

is now starting to make its presence felt.

As far as Universal McCann’s joint managing director, Chris Shaw, is

concerned, the warning signs were clear from the moment the management

agreed on the pounds 860 million fee. ’Every financial commentator

seemed to agree that the price paid was a full one and that cost cutting

and disposal of titles was the only way they could reduce the debt and

make financial sense of the transaction. Unfortunately, that is what now

appears to be happening,’ Shaw admits.

’To me it looks like they are making the company more attractive either

to potential purchasers or to the stock market. And that doesn’t imply

that the brands will be made more attractive to readers and advertisers,

just that the debt levels will be reduced and the costs trimmed. And

while the move to separate profit centres seems to ape the likes of

Emap, it should be pointed out that Emap is now trying to get its

overall deals in place with the launch of Emap On Air and Emap

Magazines. It has already moved on, so there seems little point in IPC

trying to copy that model. To me, it all stems from the fact that they

have paid too much for the company.’

But according to Laura James, a media director at New PHD, the problem

is two-fold. On the one hand, it’s difficult to see how that scale of

cut-back could not have a detrimental effect on editorial standards. On

the other, the delay in effecting the changes by a management team that

already knew the business suggests a change in their priorities. A

change in which editorial investment no longer finds itself at the top

of the pile.

’It’s the timing of these massive cut-backs that raises concern,’ James

explains. ’Given that the company is being run by the same management

team, one would have assumed that changes in structure would have been

made pre-buyout or very soon afterwards.

However, following a rather flat year in terms of the current portfolio

performance and no real change in the marketplace, it could suggest that

there is some pressure being exerted by Cinven, looking to achieve the

returns on their substantial investment.

It has also happened at a stage when we would be expecting a company of

this stature to be investing more in its products.

’As we were expecting more launches, it now appears that IPC is not

trying to drive profit by driving revenue but by making cuts. We will be

looking for early signs of re-investment of savings into the editorial

quality and marketing of the products, which in turn will drive

circulation - which is what advertisers really care about. The devolving

of responsibility to the five different profit centres is a very

positive move and can only help IPC become more able to improve its

position in an increasingly competitive marketplace.’

Optimedia’s head of press, Simon Timlett, sees little reason for the

advertising community to get worried about the changes. ’There is a

temptation whenever a company announces job losses and rationalisation

programmes to associate those cuts with huge problems. In this case I’m

not that surprised.

The fact is that IPC did need sharpening up. IPC is still perceived as a

monolith and there’s little doubt that it needs to become more flexible,

and these changes would seem to be a big step in the right


Timlett also cautions against too much negativity. ’I think it’s unfair

to suggest that any restructuring on this scale has automatically to be

a bad thing for the magazines. In fact, I think the new structure will

be quite the opposite. Giving managers financial responsibility, for

instance, adds another level of incentive to the operation. It charges

them to make their brands as strong as possible. Creating separate and

smaller business units should mean that IPC as a whole will be able to

be more innovative and sharper, which has got to be good news.’

That, perhaps less surprisingly, is the message reaffirmed by IPC’s

chief executive, Mike Matthew. He also refutes suggestions that the

restructuring will lead either to an end to IPC’s acquisitive strategy

or to the disposal of chunks of the business. ’We are still an

acquisitive company, as we’ve been consistently over the past few years.

When I took over in 1992, I helped grow our portfolio from the mid-40s

to mid-60s and announced an ambition of 100 titles by 2000. Following

the acquisition of the Link House titles late last year, we now have 93

titles in the UK as well as three in Australia and we want to keep

growing. Obviously individual titles from time to time get sold or

closed but we are not in the business of selling blocks of magazines,

nor are we restructuring into separate business units simply to make the

units more attractive to potential buyers.

’We instituted a full review when the acquisition went through and are

now acting on the results of that. Most of the job losses will be in

management and services rather than at the sharp end in editorial or

advertising - although I can’t pretend those divisions won’t be affected

at all. One of the benefits of size is that we can make real economy of

scale savings. Unfortunately, the downside of it is that we can at times

be caught up in too much bureaucracy.’


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