From a Wall Street Journal Heard on the Street column by Jon Sindreu headlined “Publisher Cracks the Ad Game”:
In the era of free gaming forums, YouTube guitar tutorials and Instagram décor tips, selling magazines such as PC Gamer, Guitar Player and Homes & Gardens might seem like a business of the past. But Future has given it a new life.
The U.K.-based publisher of magazines that include all of the above, as well as the storied Horse & Hound and big online names such as TechRadar, was barely breaking even a few years ago. Now, thanks to the pandemic-driven boom in indoor hobbies, it is projected to make more than £140 million in 2021, equivalent to $193.76 million, with a net profit margin of 23%.
On the surface, it looks like a short-lived reprieve for a beleaguered industry….Print newspapers and magazines have lost millions of readers world-wide over the past decade and their market will keep shrinking….
The internet is the main culprit. Companies discovered that eyes tend to gloss over advertisements placed next to online magazine articles, and the medium’s share of global ad spending dropped to 3.9% in 2020, from 7.6% in 2014. Digital marketing often only makes sense when targeted at specific audiences using browsing data, which is why Google, Facebook and Amazon pocket two-thirds of that money in the U.S.
But Future may have cracked the long game too.
The first ingredient is size. Future had been retrenching for years when current Chief Executive Zillah Byng-Thorne took over in 2014. While the early stages of her tenure featured cuts and layoffs, she soon went on an acquisition spree that led revenues to double by 2019. That brought economies of scale into play: Administrative expenses haven’t risen as fast as sales, boosting profit margins. This was already happening a year before the pandemic, even if most of the windfall didn’t filter through because of one-off accounting items.
Bringing together 163 different niche audiences revives the media industry’s traditional “two-way market” between readers and advertisers by providing the type of segmented messaging offered by technology giants. By contrast, big newspapers such as the New York Times and The Wall Street Journal have based their recent financial recoveries on subscribers, who contribute to only 8% of Future’s revenues.
“Advertising on our sites means reaching an endemic audience, so that allows us to charge a premium,” Ms. Byng-Thorne said. “But we also needed to get bigger, because advertisers don’t want to spread their money around five different companies.”
The second leg of the strategy has been building an e-commerce arm—now 31% of total income—by acquiring sites such as GoCompare, a British price-comparison service. Ms. Byng-Thorne learned during her time at car trading firm Auto Trader that specialized audiences like to explore what’s on offer, so articles can be a good way to channel people to price-comparison websites without paying Google for online positioning. Conversely, their data can be a great starting point for lifestyle stories….
Future sees particular promise in North America and among its female readers, which its titles have neglected in recent decades. That accounts for the purchase of the Marie Claire U.S. lifestyle brand earlier this year.
Far from the stock being a hobby they put down after Covid-19, investors may find themselves going back to the Future.
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