Tuesday, September 24, 2019

Need a Loan? Subscribe to a Magazine

Thanks to the big-data revolution, subscribing to a magazine may help you overcome a weak credit score.

Many lenders are looking beyond credit scores to determine the credit-worthiness of consumers who have limited or somewhat checkered credit histories, according to a recent article in The Wall Street Journal.

About 53 million U.S. adults have no credit scores and another 56 million have sub-prime scores, writes the Journal’s AnnaMaria Andriotis.

“Now, revenue-hungry companies are considering metrics both mundane and peculiar, like whether applicants shop at discount stores, subscribe to magazines or pay their phone bills on time.”

That’s the power of data analytics at work – identifying more people who can be loaned money to buy stuff they can’t afford.

Think big! Live large! File Chapter 11!
“TransUnion says it sells alternative data to U.S. lenders that can include whether consumers subscribe to and pay for magazines. ‘It’s an indicator of stability,’ said Mike Mondelli, senior vice president of global data strategy.”

Now you may be wondering, “Do my favorite magazines really sell information about me that helps the banks poke into my spending habits?” Mr. Tree pleads the Fifth.

There’s no indication whether only print subscriptions count as an indicator of stability. But it doesn’t really matter because no one buys digital magazines.

(Editor’s note: Mr. Tree, as usual, is exaggerating. After all, Meredith Corporation, the largest magazine publisher in the U.S. and a leader in the shift to digital magazines, recently reported that subscriptions and single-copy sales for its digital editions represent a whopping “4.5% of our total rate base.” So there actually are a few people who buy digital magazines.)

Quiz: Which of these titles are still in print?
If you're hoping that signing up for a magazine will help you get your hands on that Jaguar you’ve been eyeing, act fast. This gravy train will screech to a halt once the big-data analysts realize that magazine subscription lists have been invaded by the unstable, phone-reading, print-is-dead, ad-blocking, paywall-hopping hordes.

So quick, subscribe to five print magazines (before they shut down), pay your phone bill, and run to the dollar store.

Pop quiz: Of the 11 magazines depicted in this article, which five are no longer in print? Leave a comment with your answer.

Dead Tree Edition's off-the-wall, slightly more offensive commentary on the magazine-media business includes:

Monday, September 16, 2019

Meredith's Time-Management Problem: The Largest Magazine Publisher Has Some Explaining To Do

Tom Harty sounds like a guy who thought he’d bought a shiny new car, only to find out the engine had been removed right before he wrote the check. And who then failed to report the theft to his insurance company in a timely manner.

Earlier this month, the Meredith CEO made some revealing statements about the mess Meredith inherited when it acquired fellow publisher Time Inc. (My article for Publishing Executive, Meredith Stumbles with Time Inc. Purchase, provides additional explanation and insights about Meredith’s announcements.):
  • “They were holding cash and not investing in the business.” 
  • “We had two years before we acquired it with their mismanagement, the business was down 25% year-over-year in print advertising,” Harty said. “And so the base of that advertising business is much lower than what we had expected at the acquisition.” 
  • “It has taken longer than we initially expected to elevate the print and digital performance of the Time Inc. assets.” 
  • “We acknowledge the challenges we face that resulted in a reset of EBITDA expectations for fiscal 2019 and going forward. Foremost, it took longer than expected to turn around advertising performance with the legacy Time Inc. brands.”
The trouble is that these revelations and acknowledgements came more than 18 months after Meredith plunked down $2.8 billion to buy Time Inc. and become the U.S.’s largest magazine publisher.

When Meredith released a revised forecast on Sept. 5 that announced the Time-acquisition troubles, its stock price dropped more than 26% in a matter of minutes, Wall Street cried foul, and trial lawyers started circling like sharks.

Meredith headquarters
“The Company made false and misleading statements to the market,” charges one of the many law firms that have announced or are considering class-action stock-fraud lawsuits. “Meredith overinflated the profitability of the Time Inc. merger. In fact, the Company was forced to make significant investments in the Time business to improve it. These investments negatively impacted the Company’s earnings.”

Most of Meredith's previous comments about the Time deal were far rosier. Ten months ago, Harty said, “We continue to expect to achieve our goals of reducing debt by $1 billion by the end of fiscal 2019 and generating $1 billion of adjusted EBITDA in fiscal 2020, meaningfully contributing to total shareholder return.” In the Sept. 5 announcements, Meredith dialed down its FY2020 EBITDA (earnings) forecast to the $640 million to $675 million range.

Just seven months ago, Meredith’s CEO said, “We are off to a strong start in fiscal 2019, delivering results that exceeded expectations. He added that, “We delivered significantly improved year-over-year adjusted EBITDA and margins, which we expect will continue through fiscal 2019.” There was no breakout of the former Time Inc. properties’ money-losing performance or references to the sad state of their ad-sales efforts and magazine-subscription lists.

Meredith now faces a few key questions about the Time Inc. acquisition:

Savings delayed or savings lost?
Meredith had projected $550 million in “synergy” cost savings from combining the two companies. Have those gains gone “poof,” as one stock analyst charged last week, or is it just that they will come later than originally projected?

Did Meredith understand what it was buying?
Some stock analysts now question whether Meredith conducted proper due diligence. I suspect much of the trouble happened after Time realized its sale was imminent, causing it to focus on short-term gains (by shrinking its sales staff and shifting to a cash-upfront subscription strategy, for example) rather than the long-term health of its titles.

Could it have prevented Time Inc.’s deterioration? 
Because it was purchasing Time with cash and not stock, it should have realized that Time no longer had an incentive to manage for long-term sustainability. But could it have built safeguards or incentives into the deal to ensure the Time titles didn’t deteriorate while awaiting new ownership?

What did it know about Time Inc.’s troubles, and when did it know it? 
Meredith dropped the first hints of trouble with the Time deal just three months ago, when Harty said, “We believe it will take longer than originally anticipated to achieve the remainder of the synergies.” But even then he added, “we remain confident we will achieve our $550 million cost synergy goal by the end of fiscal 2020.”

In hindsight, it’s easy to say that Meredith should have realized, and revealed, months ago that there was trouble in paradise. But the acquisition was massive and complex – Time Inc. after all was bigger than Meredith – and there was the difficult matter of splitting off the operations of titles like Time and Sports Illustrated for sale to other parties.

Could Meredith have been so consumed simply with keeping the newly acquired titles running that it didn't at first notice that in Time's last days advertising sales had been neglected and many multi-year, low-profit subscriptions had been sold?

Meredith’s Fiscal Year 2019 annual report, released Friday, said that it recently discovered “incorrect coding of certain magazine subscriptions by Time” – more than a year after it acquired Time. That gives you some idea of the challenges it faces in combining the two companies’ operations, systems, and data.

Did Time cheat Meredith?
Meredith has referred to Time as a sick “patient” that was mismanaged, but it hasn’t given any indication that Time violated the terms of the acquisition deal. Still, you have to wonder whether there will be claims that Time failed to disclose information or violated terms of the deal by allowing its business to deteriorate.

Stay tuned in the coming months (and years?) as high-powered lawyers for Meredith and its investors attempt to answer these questions.

Other Dead Tree Edition articles on Meredith and the magazine industry in general include: