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nalysis: 'About' Primedia's Financial Services Group
By Erin Joyce
When Primedia (NYSE:PRM) announced a new Financial Services
Group within its business-to-business division a few weeks ago, the
strategy looked like a smart move for the $1.7 billion niche publisher
and burgeoning new media company.
The idea: use its two publications that target financial services advisors
and professionals, Trusts & Estates and Registered Representative,
to "develop new offline and online media products to establish
Primedia as the leader in the financial services media business."
The publications, part of a vast empire of over 200 niche, trade and
consumer media properties under the Primedia roof, could be key
money-makers, especially as the boomer generation starts to inherit
trillions worth of their parents' wealth over the next two decades.
If done right, targeted editorial content from the titles could find a
growth audience among the financial professionals serving the boomers, not to mention other demographic groups who will be
affected when retiring boomers take their money out of the markets.
But now that Primedia's second quarter results have been revealed this week, and the extent of the company's losses plucked
from the muddled corporate-speak around the numbers, the Financial Services Group strategy could use a second look.
Overall, Primedia's net loss for the quarter was $139.7 million, or 72 cents per share, on general sales of $436.2 million. That
compares to a net loss of $7.1 million, or 13 cents per share during the second quarter of last year when sales were slightly lower
at $397.8 million.
Given the soft economic outlook and dramatic drop in advertising revenues afflicting every sector of the media industry,
Primedia's drop in cash earnings to $49.6 million from $72.2 million during the same year-ago quarter is understandable.
But the biggest reason behind the size of Primedia's loss was the write-down on the value of its acquisition of topic-specific Web
network About.com, which by most estimates accounted for roughly half of the net loss.
Amortization and depreciation costs of past acquisitions have become the dominant theme in this year's earnings seasons and
Primedia's $690 million acquisition of About.com, at the time about a 50 percent premium on About.com's stock price, is part of
the trend.
So while it adjusts its books for the lower value of the About.com deal, Primedia appears to be using the network of sites to help
tout new media synergies with all its publications, and cross-platform targeting opportunities with advertisers, to help leverage the
purchase.
For example, the Financial Services Group is planning to accelerate "cross-company advertising and marketing initiatives in the
financial services area and work with other Primedia assets like About.com, MediaCentral, Primedia Workplace Learning and
Primedia's Integrated Sales & Marketing Group (PRISM)" to leverage the publications' growth and assets.
That cross-platform, cross-media synergy talk is part of Primedia's mantra of creating a "new tradition in media" by combining
traditional and new media, and one of the reasons behind the pricey purchase of the 700 Web sites within About.com in October
of 2000.
But using About.com, a mostly consumer-facing brand of properties, to help promote trade publications, appears to confuse an
already-crowded and many-pronged strategy of building synergy and new media properties within a trade publication.
About.com has helped sell over 100,000 subscriptions to its titles during the quarter, as the earnings release indicated. But
whether it could help get more copies of highly-targeted trade publications in the hands of financial professionals, or advertisers
interested, is another question.
Meanwhile, the cash flow within the Business Magazine and Media Group that houses the financial services group has been hit
even harder than the overall cash earnings for the quarter. Earnings before interest, taxes, depreciation and amortization for the
division were $22 million, a drop of just over 35 percent from the second quarter of 2000.
And with the advertising outlook expected to stay soft for another few quarters by some estimates, the pressure on the B2B
group to produce revenue will be even greater. Do cross-platform deals with About.com help or hurt? That could be the question
when the marching orders are to stay laser-focused on the promise of synergy.
As it decides which of its non-core assets to shed as the result of its latest acquisition of British niche publisher EMAP for $515
million, Primedia has to decide what fits and what doesn't -- and whether it wants to mix consumer-facing niches with trade
publications in its cross-platform deals.
New media is a powerful concept for any publications' online/offline strategy, including the Financial Services Group. That could
mean e-mail newsletters that leverage the titles' brand awareness, or branded Web-based interactive tools perfectly suited for
investment and financial decision-making. The question is whether using About.com as part of that strategy will help or just miss
the mark.
That's one second look among many the company is taking with its properties these days.
But at least the person leading the financial services group, Warren Bimblick, knows how to look for the right fit to fill out the
new media strategy. Before moving over to the Financial Services Group, he was in investor relations, helping to write up all the
quarterly results and revenues of Primedia's vast and crowded media properties.
July 27, 2001 |
