Staff at Australia’s largest magazine publisher, Australian Consolidated Press, were not the only ones sighing with relief this week when their private equity paymasters, CVC, announced the business will be sold to family publishers, Hamburg-based Bauer Media Group.
”I think they’re very relieved that it is in the hands of someone who knows the business, and not somebody who is only intent on buying into the company to make money,” says Ita Buttrose, the legendary magazine publisher who will forever be associated with ACP.
”They’re regarded as a good company,” she says of Bauer, ”and they’re a family company, and in a way that’s not unlike the Packers when it [ACP] was at its heyday. It was very much a family company.”
The magazines division featured prominently in the popular ABC production Paper Giants, which focused on the launch of Cleo magazine by Buttrose as its editor, and publisher Kerry Packer.
The appeal of family control was not just a sentimental view from a former employee.
Steve Allen, the head of Essence Media & Fusion Strategy, also says ”it is fantastic to go back to family ownership because that’s a very good model that ACP thrived under”. His point is that ACP will now need to shed the cost-cutting mentality foisted on the company by CVC and rejuvenate its publishing culture at senior levels.
”CVC have been managing costs. [The] people that are in charge now are cost managers, they are not visionaries, they are not dyed-in-the-wool magazine people,” he says.
With a pedigree in magazine publishing extending back to the 19th century, the Bauer family’s credentials are not in question. But they represent a very different kettle of fish to the Packer family, who owned the business until James Packer sold out to CVC five years ago.
Bauer, a tightly family-controlled publishing house, made its name in Germany in the 1960s and 1970s with its stable of TV guides, mass-market women’s and gossip rags, and erotic men’s mags, but has struggled to break into the quality end of its home market.
With a reputation for unhappy working conditions in some of its publications, there was an old adage in the German media industry: ”People don’t go to Bauer, they come from Bauer.”
But a better test of what’s in store for venerable ACP titles like The Australian Women’s Weekly might be provided by Bauer’s track record with its overseas acquisitions. The company has built a global portfolio of quality titles, and revenues of more than €2 billion ($2.44 billion).
Bauer acquired a British consumer magazine business from EMAP in 2007, which included premium titles such as Zoo, FHM, and Grazia, around the same time that ACP acquired many of the same titles from EMAP in Australia.
On the cusp of the worst financial crisis since the great depression, there were already misgivings about what changes would be made to the British publisher, which had been highly successful with the launch of the above-mentioned titles over the preceding seven years.
Pioneering British men’s monthly Arena was closed in 2009 and jobs were cut in other divisions, but Bauer’s UK chief executive, Paul Keenan, said this was a result of the structural change and the economic climate that was forcing ”huge change” in the media industry.
Keenan had remained head of the British publications after Bauer acquired EMAP. In an interview with The Guardian last year – something which the deeply private Bauer family almost never indulge – said ”going into a private, long-term, cash-rich [group]” was ”a fantastic place to be”.
It may be telling that the former EMAP business has not produced a blockbuster publication since the takeover, although it has not been through lack of effort.
An attempt to re-enter the quality men’s market following the closure of Arena, with Gaz7etta, failed to gain traction last year.
And Keenan’s comment on the family? ”They’re just interested in us producing the best product we can.”
Keenan made reference to the ”Bauer personality” talking of obsessional attention to detail and being operationally excellent.
Bauer is ”quietly and confidently trying to produce world-class product day in and day out”, he says.
But private control also comes with the idiosyncrasies of the Bauer family who are very much in charge. This includes marathon boardroom grillings by the fifth generation of Bauers who run the publisher and remain largely unknown.
Heinz Bauer led the family business for more than four decades before handing over the reigns to his 35-year old daughter, Yvonne, two years ago.
Despite his privacy, Bauer ran the company long enough for stories to seep out about his notorious frugality.
This includes staff having to hide the true cost of his accommodation in New York while there on business trips to his US operations. They would arrange in advance with hotel management to change the room tariffs on the back of his door.
In a rare media interview in 2009, the notoriously media-shy media patriarch dismissed the publisher’s public image of a penny-pincher ”as a cliche to talk down our success”.
Then he confirmed that ”patronage is not my thing”. Publishers had to make products that would entertain and sell, rather than seek to improve the world. ”We don’t want to educate our readers, but distract them.” While publishing houses relied on the editorial input of journalists, it was hard to include journalists in management decisions as they ”don’t like to surrender to the constraints of economic logic”, he said.
Yvonne Bauer now controls the group with 85 per cent of the limited partnership which owns the business. The remainder is split among her three sisters, who also work in the business. At the traditional annual press conference in December 2010, her first in the publisher’s role, Ms Bauer reaffirmed the company’s clear commitment to the magazine medium despite its strong forays into digital and cross-platform business.
”Bauer is print and Bauer shall remain print,” she said at what is traditionally the family’s only communication with the outside world.
A prepared statement released with this week’s announcement of the ACP deal did offer more of a nod to the future.
”ACP fits our strategy of developing the Bauer Media Group globally, we believe in print, and ACP’s strong brands in Australian and New Zealand are strong platforms to extend into digital areas,” it said.
This is expected to be one of the challenges for Bauer once the transaction passes hurdles that include a review by the foreign investment review board and approval by Nine Entertainment’s creditors, who have waged a campaign to take control of the debt-laden media business.
”The biggest issue is how integrated Nine Entertainment is in all respects. Not just from content, from cross-platform selling [etc],” Allen says.
Bauer needs to extract ACP from Nine Entertainment without damaging the value derived from Nine’s cross-platform sales and promotion between its web, TV operations, and the magazines which will soon be owned by Bauer.
According to Allen, Bauer do not have any experience managing an integrated media empire like Nine Entertainment. As ”much as they have an appreciation for this, they’ve never done it as far as we can see”.
The details of the deal they work out over the coming months will be crucial to how successful the investment is, and at about $500 million, it is a major bet for the family company.
According to Fusion, Australia is set to represent Bauer’s second-largest territory by revenue once the deal is done.
And while the impact of the global downturn has been felt in Bauer’s markets globally, turning around the Australian operation – which is generating about one-third of the earnings it did before CVC’s takeover – will not be easy.
With the vast majority of Australian magazine sales bought over-the-counter, rather than through subscription, the market is especially sensitive to the consumer malaise and its impact on discretionary spending.
Theoretically it means that most of the reader sales lost in recent years should return when confidence returns to the hip pocket.
But that depends how much of the issue is structural – readers moving away to the internet – or cyclical, a temporary effect of the economic cycle.
It also depends on how much it represents the market share ACP may have lost while under the control of the bean-counters.
Fusion points out that Seven’s magazine business, Pacific Magazines, claims it has increased its market share over each of the past five years.
The impending sale of ACP to Bauer has extended a lifeline to its parent, Nine Entertainment, and owners CVC, who effectively paid James Packer about $5 billion for the business. Most of the payment was in the form of debt, which is strangling the media empire and necessitated the sale of ACP by reluctant Nine chief David Gyngell.
”The decision to sell the magazine business is not one we have made lightly,” he said in a prepared statement this week.
The deal will help Nine avoid breaching debt covenants which would leave it at the mercy of
The company still faces pressure from hedge funds Apollo and Oaktree, which have acquired $1 billion of Nine’s senior debt in an attempt to force CVC to relinquish control of the company if it cannot refinance Nine’s debt next year.
CVC must repay $2.8 billion of debt by February and a further $1 billion a year later, but a breach of its quarterly debt covenants could trigger immediate payment of all the debt, according to Nine’s financial accounts from last year.
”In those circumstances, the assets of the group may not be realised and liabilities may not be discharged in the normal course of business,” the accounts said.
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