Media Forum: Should Emap be broken up?

Would Emap be better off splitting up business and consumer, Alasdair Reid asks.

Companies that call in the McKinsey management consultancy must resign themselves to a life (over the medium term, as far as visibility allows) punctuated by many moments of unsought-after and unwitting comedy. The McKinsey method - insisting that everyone involved in its brainstorming sessions must be prepared to "think the unthinkable" - can lead bemused executives into surreal territory.

But in Emap's case, this isn't funny at all. Until it admitted it was calling in the consultants, few observers really understood the precariousness of Emap's situation. A decade ago, the company had an almost militant clarity of vision - it exuded a confidence and sense of destiny in just about everything it did.

Back then, Emap had no need for the likes of McKinsey. But much has happened in the past few years, notably the Petersen debacle in the US - bought for $1 billion, sold three years later for $366 million, a deficit that cost the then chief executive, Kevin Hand, his job. Since then, Emap has also retreated from the French market, selling to Mondadori for £380 million last year.

Now, it has responded to a run of poor results and profits warnings by asking McKinsey to point it in the right direction once more. It shouldn't be hard, according to some sources in the City. They argue that the solution to Emap's current problems is obvious.

It's the company's consumer media assets - principally magazines and radio properties - that are the weakest performers. Simple. Sell them off. Split the company in two - demerging the business-to-business assets, where all the growth is to be found. This would have been done months ago, some fund managers say, if the Emap decision-makers weren't so emotionally attached to the idea that they work for a glamorous consumer media company.

Thankfully, though, we know one thing for sure - Tom Moloney, Emap's current chief executive, can sleep easily. Like many a football manager before him, he has been given a vote of confidence by his board.

So, what unthinkable things should he be contemplating as he and his new-found friends from McKinsey ponder the future? And should the ad market have confidence in the outcome?

Paul Richards, a media analyst at Numis, points out that business media are adapting better to the challenges of the internet - in particular, they have found ways to charge for digital content. Consumer media haven't. You can no longer apply the same philosophies to consumer and business media.

He adds: "In some quarters, Emap is still regarded as a consumer media company, whereas the City tends to see it as a business-to-business company. If you look at forecasts for the year to March 2007 and even more so for the year to 2008, then the profit split will be 50 per cent business-to-business, 30 per cent consumer magazines and 20 per cent radio and television."

City logic decrees it should focus ruthlessly on the area of greatest potential. Should the ad industry agree with that rationale? Simon Mathews, the founder of Rise Communications, doesn't think so. He argues that the business cycles on the two halves of the company complement each other. There will come a time soon, he implies, where consumer media assets will be bailing out the business side. The balance gives Emap stability. "The City reaction to Emap's profits warning appears to be premature and more about bandwagon-jumping than incisive comment," he says.

Absolutely, Morag Blazey, the chief executive of PHD, agrees. But she also finds it worrying that Emap may lose control of the agenda. She says: "It's also true that there are deep structural trends (related to the rise in importance of digital content and advertising) in play. But my feeling about Emap is that it is more than capable of adapting to those structural changes - and even leading the way. Emap has always been a brave and innovative company. Am I optimistic that it can achieve the right sort of outcome? Yes - I think I am."

Chris Hayward, the head of investment at ZenithOptimedia, concurs wholeheartedly. He says: "The price you pay if you are a public company is that if you are perceived to be underperforming, the pressure is on you to produce some sort of a response. Overall, though, Emap isn't doing all that badly. It might look to consolidate its magazine interests and perhaps sell off some of the poorer performers, but radio is still profitable and it has some good stations. It's basically sound."

YES - Paul Richards, media analyst, Numis

"Ten or 15 years ago, there were those who believed that there were synergies between consumer and business media. If you were starting now, you wouldn't want consumer and business media in the same company."

NO - Simon Mathews, founder, Rise Communications

"The two sides complement each other. We need significant media companies with compelling brands, the financial engine to invent Grazia, reinvent Magic and offer sophisticated consumer communications."

NO - Morag Blazey, chief executive, PHD

"Emap has always been good at looking at what will be important over the next five years, whereas the City view tends to be about the next three months. I'd like to think Emap can go on being the sort of company that it has been."

NO - Chris Hayward, head of investment, ZenithOptimedia

"I understand what the City feels about growth potential on the business-to-business side, but the picture in two or three years' time may look very different on the consumer media side. The consumer structure it has is sound."

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