Monday, October 20, 2008

How To Turn $3 Billion Into $1 In Ten Years

The annual Frankfurt Book Fair is on. This is when book publishers from around the world are gathering in Germany to do a little business (mostly in foreign rights sales) and a whole lot of gossiping, eating, drinking, and cavorting. But increasingly events like Frankfurt and Book Expo America are starting to remind me of the masquerade ball in Poe's The Masque of the Red Death; yes, everyone's having fun at the party, but death is waiting for them just outside the gates.

Exhibit A in print publishing's decline: a little over a decade ago, Rupert Murdoch paid $3 billion for Triangle Publications, the publishers of TV Guide magazine. Last week, TV Guide magazine was sold for the princely sum of one United States dollar.

Think about that for a second-----almost $3 billion dollars of value in a media property evaporated in a little over a decade. Almost $3 billion!!!

While the case of TV Guide is an extreme one, the entire print publishing business is suffering severe financial problems and it's clear many (most?) magazines, newspapers, and book publishers are not going to survive in their current form. And other "legacy media," like AM/FM radio broadcasting, are also getting clobbered in financial operating results and the per-share prices of the companies that own them.

The big reason for this is the internet. It allows near-instantaneous global distribution of information at a near-zero cost. Barriers to entry are very low. The results were, in retrospect, inevitable. Newspapers are suffering because they are, in effect, "oldspapers"-----the most recent news in them is several hours old at best. By contrast, web sites can cover news that's only minutes old and they are invariably ad supported and free to visitors. It has been years since I read a print copy of, say, the New York Times or the Los Angeles Times, but I have both of their web sites marked and visit daily. But this means neither paper sells a physical copy to people like me, and the growth in ad revenues from their web sites has not been enough to offset the decline in circulation and ad revenues from their print editions. Other costs of the print editions-----like printing and distribution of papers-----have also been zooming, and the result is a terrible squeeze on the financials of both papers. (In fact, the office tower the New York Times owns is its most valuable asset now, more valuable than either the paper or the Boston Globe, which the Times also owns.)

The situation is similar for most magazines; their circulations and ad revenues have been static or declining while their associated printing and distribution costs have been rising. It's shocking to read a copy of Time or Newsweek at the doctor's office and see how thin such magazines are these days; they're more accurately described as pamphlets. And specialty book publishing, like technical and professional publishing, is getting squeezed by the amount of free information available on the internet. For example, I learned almost everything I know about ZigBee and WiMax from free "white papers" I downloaded from tech company web sites. A few months ago, Tim O'Reilly remarked that people looking to learn something like JavaScript no longer look for a book about the language. Instead, they search "JavaScript" at Google. In one of my last reports to Elsevier before I left my consulting gig last year, I said Elsevier and other technical publishers were facing a critical problem: how do you compete with tech companies that are distributing technical tutorials for free? Where can technical and reference book publishers add some value in the process? (I didn't have answers to those questions. I still don't.)

Ad revenues are being used to support most web sites, but ad revenues depend on the state of the economy and are now declining. Moreover, the amount of available ad dollars has not increased as rapidly as the number of publications, whether print or electronic, that depend on ad revenues; the pie hasn't grown as fast as the number of parties wanting a slice. Every media form that relies on advertising for a significant chunk of its revenues-----whether magazines, newspapers, or broadcasting-----is hurting now, and the pain is going to get a lot worse before it gets better. And I have this strong feeling a lot of publications and broadcasters aren't going to make it through this difficult stretch.

The financial prospects for many publishers and broadcasters are made worse by the huge debt loads many of their parent companies are carrying. Refinancing those debts will be almost impossible, with a big reason being the steep decline in the value of media assets. That was what really caught my attention about the TV Guide story-----if an established, "brand name" media property can go from a multi-billion valuation to almost zero in a decade, how much is any advertising-dependent media property worth these days? Are the values of such established media properties as Time and the New York Times equally overstated and illusory? What is their true value, and how much blood will be shed during the "price discovery" process? If media companies can't refinance their maturing debts, they will be forced to liquidate many of their assets, and the results won't be pretty. It wouldn't surprise me to read about a major daily newspaper or AM/FM station being sold for a TV Guide price in 2009. For those working in the media, and for the stockholders of media companies, it's going to be a rough journey in the months ahead. For those who had enough foresight to stash away some cash during the fat years, there will be bargains available. But they are going to need a lot of changes and "repairs" to realize their full potential in the digital age.

As for book publishing, especially for specialized professional, technical, and other niche publishing, a migration to print-on-demand inventory and direct sales to end readers-----cutting bookstores, Amazon, other retailers, etc., out of the loop altogether-----seems inevitable. In fact, authors of books on niche topics might be better served by self-publishing through or Amazon's CreateSpace and bypassing conventional publishers altogether. And while eBooks have been The Next Big Thing for over a decade now, eventually some standard for eBooks and eBook publishing will emerge, and that will definitely impact book publishing, especially for material that has an "expiration date" (say, like a book on Windows Vista) and is not the sort of book you will keep for years and re-read.

I have no idea how all of this is going to play out. All I know is that I'm glad I'm retired from the publishing business and can watch this from the safety of the sidelines!