MEDIA FORUM: What is the future for the Ministry of Magazines? Many in the advertising industry were relieved that IPC was sold to a management buyout rather than falling into the hands of a rival publisher such as Emap. But what can we expect from the Mi

Financial commentators were surprisingly sniffy about last week’s IPC sale. Reed-Elsevier’s decision to let the Ministry of Magazines go to a management buyout backed by the Cinven venture capital company was not considered ideal. Analysts argued that the pounds 860 million agreement wasn’t good value for Reed shareholders - they argued that heavyweights among the other possible bidders would be prepared to pay more. Bertelsmann, say, or Bauer, or Emap.

Financial commentators were surprisingly sniffy about last week’s

IPC sale. Reed-Elsevier’s decision to let the Ministry of Magazines go

to a management buyout backed by the Cinven venture capital company was

not considered ideal. Analysts argued that the pounds 860 million

agreement wasn’t good value for Reed shareholders - they argued that

heavyweights among the other possible bidders would be prepared to pay

more. Bertelsmann, say, or Bauer, or Emap.



What’s more, they added, an Emap or a Bauer could have paid more and

still extracted better value from the deal. Synergy, economies of scale,

critical mass - the usual City slogans - were trotted out in defence of

this line.



Perhaps - but Reed has a proposed merger with the Dutch publisher,

Wolters Kluwer, at the top of its agenda and was obviously keen on a

quick sale.



And an Emap-IPC merger would have created a virtual monopoly in several

sectors of the market - women’s fashion, young women, parenting, music,

and young men’s titles. A Bauer merger would have sewn up the weeklies

market. So from the perspective of agencies and advertisers, the Cinven

deal had to be the best solution, didn’t it? It should guarantee healthy

competition in terms of product development and ad rates.



Absolutely, agrees Tim McCloskey, the deputy managing director of BMP

Optimum. ’This is a good result for us. IPC will remain a dominant group

but it doesn’t have sufficient strength in any one sector to abuse its

position. I suppose we like to have things both ways with regard to the

size of media owners because we also want them to be strong enough to

keep things moving forward,’ he says.



But that ’moving forward’ factor remains the biggest question mark

hanging over the deal. Mike Matthew, the chief executive of IPC,

revealed last week that this was a serious concern for him too. He is

determined to introduce a stream of new titles to the IPC portfolio -

even if it means closing some magazines that are underperforming.



IPC sources say at least eight titles are being developed for launch in

the very near future. Matthew has indicated that he hopes to own 100

titles (the current tally is 69) by the year 2000 and he insists Cinven

will give him more room to manoeuvre. He comments: ’I am not knocking

Reed-Elsevier in any way - it has always been clear about its strategy

and has pursued its destiny in a singleminded manner. IPC acquisitions

would have sent the wrong signals to the City and would have led to

accusations that the strategy had become confused. And, to some extent,

some of IPC’s profit and cashflow was used to spur Reed-Elsevier’s

growth (in business information and professional publishing). We can now

plough that cashflow back into our business.’



Reassuring words. But many in the advertising industry are sceptical of

their worth. Venture capital companies such as Cinven are, according to

popular wisdom, ’asset strippers’. But a publishing company doesn’t have

many tangible assets to be stripped. IPC doesn’t own King’s Reach Tower,

for instance. Apart from its collection of desirable mastheads, its main

assets get in the lifts and leave the building each evening.



They’re called employees.



And even if Cinven was ever to be tempted by a virulent downsizing

strategy, it would soon see sense. That’s certainly the view of Caroline

Simpson, head of press at Zenith Media: ’I’m sure a structured programme

of cost-cutting will already have begun and this may include one or two

weaker titles being culled. However, with only a few market-share points

separating IPC from the National Magazine Company in the monthlies

market and from Bauer in the weeklies market, IPC will be conscious of

retaining its market-leader position. Investment in magazine launches

will be crucial in maintaining this strategy.’



No-one doubts the fact that margins will come under ever closer

scrutiny.



In 1996, IPC made profits of pounds 63 million on turnover of pounds 314

million - which isn’t half bad. But the magazine industry has had an

exceptional couple of years. The good times will not last forever. And

at pounds 860 million, Cinven is paying over 13 times profits. If

margins slide, that ratio isn’t going to look very clever.



Matthew admits that IPC will continue to get ’leaner and fitter’ under a

policy that has been running for many years now. But it will also be

looking to increase revenues. And we all know that there are only three

ways to do this - increase circulations, increase cover prices, or hike

ad rates.



Many agencies suspect IPC will put its emphasis on the last of these

options. ’My guess is that we’ll see IPC trying to introduce stiff

ratecard increases, regardless of circulation performance. It’s unlikely

to be successful given that IPC has some titles that are actually

struggling pretty noticeably in circulation terms,’ Chris Shaw, the

joint managing director of Universal McCann, points out.



But successful launches can also increase revenues - as can

acquisitions.



Everyone in the media industry hopes that the new-look IPC can improve

the market in terms of copy sales. But in which direction? Where, in

particular, are IPC’s weak spots? Many point to fashion glossies. And

there is universal agreement that it should attempt to do something soon

in the teenage market.



Matthew doesn’t duck the issue. ’That market has exploded in the past

couple of years. We weren’t quick enough off the block and we’ve been

behind the pace. We have to do more,’ he says.



The obvious solution would be to buy Attic Futura, the major teenage

magazine thorn in IPC’s side. Can we safely assume that it’s now on the

list of possible IPC targets? Matthew won’t talk about individual

examples but he does admit that a company of Attic’s size could be well

within the scope of IPC’s future acquisition plans. ’We will continue,

as we did under Reed-Elsevier ownership, to look at companies with one

or two titles that will provide infills to our portfolio. But I think

that we can safely say that acquisitions of some scale are also on our

agenda.’



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