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  • 标题:Don't rely on formulas
  • 作者:Hershel Sarbin
  • 期刊名称:Folio: The Magazine for Magazine Management
  • 印刷版ISSN:0046-4333
  • 出版年度:1987
  • 卷号:Sept 1987
  • 出版社:Red 7 Media, LLC

Don't rely on formulas

Hershel Sarbin

Don't rely on formulas

Publishers who participate in our seminars on maximizing growth and profitability of special interest consumer and trade publications often ask "How do I decide what an acquisition is worth?' or, "How many times pre-tax earnings should I pay for a title?'

A quick answer to these questions would be a great disservice to these publishers because there really is no mathematical formula that allows one to make an intelligent decision about an acquisition price. Acquisition is more of an art than a science. While I'm aware that the marketplace sets general standards about multiples of pre-tax earnings, I think it's disastrous for someone planning to expand through acquisitions to begin with these standards.

My first response to any query about acquisitions is to ask the publisher whether he has done all he can to solidify his present publications and get the most out of them. Often the riskiest thing anyone can do is take the energy and money that could be used to improve a current market position and divert it to a new idea.

In some cases, a publisher may decide that his present publication is mature and lacks growth potential. Or maybe a mistake was made at the outset that limits that magazine's further growth. But I suggest looking first at revenue streams that can be generated from the market already entered: newsletters, seminars or directories.

If a publisher does decide to go the acquisition route, I suggest the following approach. It must be obvious-- though surprisingly it gets passed over lightly--that, in looking at a potential acquisition, the first and most important consideration is the editorial need for the product. The next priority is to evaluate the pool of advertising money to be spent in the market and to understand the magazine's ad potential in that market. A lot of attention is usually given to circulation costs and revenues, and production and editorial costs, but rarely is enough effort spent to evaluate advertising potential--in spite of the fact that most publishing companies depend on ad revenue for their growth.

But even a strong ad market won't mean much without the right sales staff. I suggest sizing up the sales organization's enthusiasm, spirit and discipline and comparing it to the competition's, if possible. Determine whether the ad director or publisher of the acquisition property works up real annual market plans, how he organizes target account activity, how he interfaces with the research and promotion departments, and how he organizes his sales reps. You should particularly want to know how well he understands the market the magazine serves. Speaking of markets, you should analyze the prospective market yourself very carefully: Look at changes in consumer demand; check what's happening to distribution, to pricing patterns and technology; and learn which segments are up, down or flat.

Other suggestions for evaluating acquisitions:

Don't be shy about challenging the assumptions presented in the review document generally prepared by the seller in an acquisition situation. Although the projected ad linage, rates and revenues may look plausible, the document is likely to have been prepared by someone with a special interest in making the sale.

Be sensitive to differences in style between your organization and the seller's. Without a sense of fit, of accommodation of styles, you could be buying problems rather than profits.

Do a really vigorous examination of the editorial niche of the publication being considered for acquisition. The publication should not only deliver useful material, but should also have something unique to offer so that people will choose it over other publications in the field. You can make changes in the editorial after acquiring the magazine, but you should discount the acquisition price to reflect the cost of those changes.

One of the problems you run into in acquisition analysis is time pressure. The seller's timetable may dictate how deeply you can get into your subject, and too often the need for secrecy or discretion makes it difficult to use experts or to probe key decision makers.

In 1984, I worked with Rupert Murdoch in his acquisition of 12 Ziff business titles. In each of the fields we examined the share of the advertising market held by the Ziff publications compared to other magazines. We also considered the key target accounts in each field and determined how every competitive publication was doing with them. Analysis of position and potential was the focus, not the multiple being paid.

I cannot remember a Ziff acquisition for which we could have justified the price we paid without significantly improving its ad sales performance. But when we talk in our seminars about how to improve ad sales management of a newly acquired publication, formula questions are raised. For example, I'm often asked, "What should my cost ratio be for a new publication?' (This is the ratio of the costs incurred by the advertising and promotion departments to total revenues, which, on paid magazines, will include both circulation and advertising revenue.) Again, people want a single, quick answer. At Ziff, our sales and promotion costs ran from 9 percent to 21 percent of our advertising revenues; there was no "correct' ratio. What is important is not the formula, but what is needed to get the job done. There are publications with cost ratios of 20 percent that produce as much for the bottom line as publications with a 9 percent or 10 percent ratio.

What you must do is pay attention to your sales efficiency, and then the ratio will take care of itself. There are many ways to be aggressive and sophisticated in sales management and improve sales significantly without spending much money--a topic I addresed in my April column. Let's take a simple example. Complimentary copies are one of the most important tools you have. By conscientiously and aggressively sending comp copies to the right people, you are taking an important step that doesn't cost any additional money. Nine times out of 10, the selling company didn't do enough in this area.

Too many publishers fail to send out complimentary copies with a tipon, insert or cover letter promoting some important aspect of the selling proposition. Salespeople make the error of bringing to sales calls comp copies that don't carry a promotional message.

Target account management is another inexpensive sales tool. For some reason, too many people assume that it requires a significant expenditure to rank accounts and concentrate on getting the most linage and dollars out of the best prospects. When I mention target account programs, people assume they have to use a computer; however, although a software program that produces a target account sales strategy is useful and not too expensive, it isn't necessary. A publisher could employ a secretary to keep track of target accounts at a cost of a few thousand dollars per year and almost certainly improve the efficiency of the sales organization; this could easily lead to the elimination of a few salespeople from the payroll.

Publishers must also be informed about how much advertising their publications are attracting, compared to the competition, from each advertiser. People are surprised when I say this essential job is easy to do. It is done, of course, through the utilization of linage tracking companies. If you can't afford them, then you can't afford not to track the linage yourself. It makes no sense to argue that the additional cost raises the cost ratio from 16 percent to 16.2 percent.

Look at the winners

Don't look at formulas to decide what you should or should not do; look at the things that need to be done and are being done by successful magazines. That's not an invitation to blithely spend 30 percent of revenues on ad promotion and sales.

But if I had spent one million dollars to buy a magazine in a field where no one was doing a solid market study, I would invest $100,000 to produce that study. If somebody says to me that by spending the $100,000 I will be over budget and my ratio will be 35 percent, I don't care. I will do the study because it will make my publication and me big winners over time. I will treat it as a capital expense, amortizing the cost over time. I will not be dissuaded by somebody who says that it doesn't fit the formula.

Photo: In evaluating these publications for acquisition in 1984, Murdoch Magazines examined their share of the advertising market--particularly among target accounts--compared to that of competitive publications. The titles' market position and potential were considered vastly more important than the multiple of pre-tax earnings being paid to acquire the magazines.

COPYRIGHT 1987 Copyright by Media Central Inc., A PRIMEDIA Company. All rights reserved.
COPYRIGHT 2004 Gale Group

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