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May 03, 2004
How To

M&A Special: Evaluate Traditional Publications Online Potential

SUMMARY: A private investment firm just handed former Primedia co-founder Charles McCurdy up to $200 million to acquire media companies. Hear what he's looking for.

Plus, if you're in the acquisition marketplace yourself, here are our tips on how to evaluate whether a traditional publication has what it takes to succeed online:
Former Primedia co-founder Charles McCurdy announced two weeks ago that he's secured a $175-$200 million investment promise from Spectrum Equity Investors, and he's going shopping for niche media companies.

Although his newest company, Apprise Media, is nothing more than a single "under construction" page on the Web right now, CEO McCurdy says that will change as soon as he figures out which company to buy first. "The plan is to use the Apprise umbrella to acquire and grow a variety of consumer enthusiast and b-to-b specialty publications," he told us when we caught up with him this morning.

He explained he's mostly interested in ad-based publishers for the consumer world, and content-sales publishers in b-to-b ("ideally one of each.") He's not picky about which topical niche you serve, but don't bother contacting him if your revenues are under $25-30 million or if you're mainly Internet-based, at least for now.

First McCurdy's seeking one cornerstone traditional media publisher with a leadership role in its niche as a "platform to start." Then he'll acquire more titles to compliment it.

"I'm very interested in extending traditional businesses to emerging areas. The next three-to-five years are very critical for media companies succeeding or failing. Those that do a better job of adapting technology to traditional media situations will reach a period of exceptional growth in market share, revenue, and profitability. The others won't go chapter 11, but they'll be far less successful."

If you've got the same dream of buying a non-tech-savvy traditional publication to bring into the 21st century, here's our tips list for your acquisition:

#1. What shape is the back-issue database in?

Getting content into electronic format is only half the battle. Ask for details on the indexing. In other words, is every item in the database coded by topic or interest? Or is the current publisher assuming vanilla text-search is "good enough"?

It's not. If you plan to use the database to drive online traffic via search engine optimization (critical) you'll need keywords appended to everything. If you expect most audiences to find useful information at an acceptable speed, you need to allow searching beyond keyword and date, as well as cross-indexed stories.

This is why content resellers such as Factiva put enormous effort into tagging every item three ways to Sunday. (And no, they won't sell back the tagged database to you.)

#2. Has the company invested in any expensive technology?

Many traditional publishers have tried to get with the program by investing in things like Web sites, content management systems, etc. Unfortunately, if they're not terribly tech savvy, they probably bought a platform or system that's not worth continuing on.

Or if you're doing a roll-up, you may not care about their tech platform at all because you'll be moving everything you acquire to a new centralized one.

However that publisher will want to see a return on their investment, and may expect to see their software and programming costs included in your price tag. You'll have the unwelcome task of explaining you want to buy a list and a brand name, but not the technology. Some may insist you buy it anyway -- especially if their contract with a vendor will force them to continue paying for the long-term.

#3. What shape are the email lists in?

Most traditional publishers come from the old fashioned direct mail where rules about how you can gather and use names are profoundly different than email. So, even if the publisher has a list, it probably won't be in the best shape permission-wise.

While acquiring a name without permission isn't illegal, it dramatically lowers the value of that name as a sales generation tool.

Email names acquired through append, inbound call center activity, sweeps offers, viral marketing, pre-checked boxes, lists purchased wholesale, names harvested by data entering a print directory or pile of business cards, and forms that ask for an email without clearly explaining what it will be used for, are all generally lower-quality names when it comes to performance.

Plus you should check list age and hygiene status. How frequently are hard bounces removed? How often is the list currently mailed? What percent of names are new to the file in the last 30 days?

If the publisher doesn't have much of an email list, you'll need to budget an acquisition campaign. And good names cost several dollars each these days.

#4. What competition is there online?

If the publisher tells you there's no competition online, and they are correct, it's a very bad sign. You need competition to be able to swap lists, and grow through acquisitions. Plus in niche publishing, generally if no one else has already thought of your idea, it's often a bad one.

However, chances are the publisher just doesn't know how to look properly. The competitor pool has now increased to industry vendors with educational content offers, trade associations, bloggers, message boards and email discussion groups, consultants shilling for business, and self-publishers (often editorial staff the publisher laid off in the past.)

Even if you don't plan on being a primarily online publication, email and Web are still competing with your print publication for eyeball time. Consider this -- the average American mother now spends 74% more time per week online than she does watching TV. Traditional media is under siege.

#5. How much can site traffic be increased?

If you're assuming that you can raise visitors dramatically and thus sell more ads and/or content, first you need a realistic marketplace traffic estimate.

One tactic is to review competitor media kits, Nielsen/NetRatings, and Alexa's traffic ranking service. However, if you're looking at a true niche title, there may not be much information.

So, your best bet is to ask the publisher to check their site logs to see which terms current visitors use in search engines to find the site. Then get yourself a wordtracker account and find out how much traffic search engines typically produce for those and related terms each month.

#6. Are there any back-end products to sell online?

The one area many online publishers have yet to touch is back-end sales. They've been so busy developing their main models that there's been no time. But most traditional publishers created a full-line of ancillaries -- such as special reports, article packages, teleseminars, annuals, and conferences -- years ago.

You can certainly leverage the Web and email to start selling more of these products fairly quickly and easily.

#7. Is the current advertiser base moving online?

If you're hoping to increase ad sales by opening up online inventory, first find out if the marketplace is interested. Check with an email list broker to see if they get requests for email lists in the niche. Also, check with paid search engines such as Google to see how many vendors are currently paying by the click for keywords related to the publication.

If no one's there, consider whether you want to invest in educating a niche marketplace about online ads. Lower-hanging fruit would be a niche that already advertises with some success, and may be ready to step up their program if you can prove you're the best option.

#8. How timely is customer service and shipping?

Online publishers have raised expectations among content consumers that emails will be answered within 24 hours, and content access can be instant. Offline publishers are used to very little contact with consumers -- often it's outsourced to a service bureau for the cheapest cost possible. And many magazines don't ship a first issue for 4-6 weeks ... or longer.

Even if you plan to stay offline, you can't compete with lower standards. So, budget for upgrades and look for sales opportunities (such as ancillaries) to offset them.

Useful links related to this article:

Apprise Media



Secrets of M&A Success: The Newsletter Publisher's Guide to Mergers, Acquisitions, and Banking

NEXT WEEK: Top acquisition evaluation tips for buying an online publication -- how to determine growth opportunity...
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