The hurt at G+J's Inc. and Fast Co.

The hurt at G+J's
Inc. and Fast Co.

Deep it is, but Germans are still out shopping

By Jeff Bercovici

    Gruner + Jahr may have trimmed some of the fat from its business magazine division in last week's reorganization, but that doesn't mean its ambitions for the unit have diminished.
    Quite the opposite. Bertelsmann, the German media conglomerate that owns Gruner + Jahr, is still aggressively looking for properties, especially business titles, to add to its U.S. holdings.
    Bertelsmann executives are thinking big, reportedly eying as possible acquisition targets Hachette Filipacchi Magazines, Forbes Inc. and BusinessWeek (all of which avow that they're not for sale).
    But G+J may be getting ahead of itself. While the company looks to resume its spending spree, its two newest acquisitions, Fast Company and Inc., face serious problems that go beyond the torpid economy.
    Newsstand sales figures appear to indicate that an effort undertaken last year to reposition Inc. may have weakened its appeal to readers.
    Meanwhile, as Fast Company continues to struggle to shed its New Economy image, competitors, especially Time Inc.'s Business 2.0, are ramping up fast.
    Last week, G+J dissolved its Business Innovator Group, the unit it had established to generate efficiencies and cross-sales of the two titles, and dismissed its president, former Ziff Davis Media executive Scott Crystal.
    G+J bought Inc. and Fast Company two years ago for a combined price of $560 million, and the timing could hardly have been worse.
   Both were among the hardest hit in the downturn that started shortly after the acquisitions and has lasted until now.
    Year-to-date through June, Inc.'s ad pages were down 23.6 percent to 365.4, while Fast Company's, at 350, were off 31.7 percent. For full-year 2001, Fast Company's pages were down 53.6 percent versus the previous year, and Inc.'s were down 44.1 percent.
    For G+J, which financed 2000's acquisitions with cash from Bertelsmann's $8 billion sale of AOL Europe, finding a suitable target for acquisition will be no easy task, given how many titles have either gone out of business, like The Industry Standard and Smart Business, or been acquired, like Business 2.0, since the start of the downturn.
   "There’s really nothing out there for them to buy, and the whole category is still in deep shit," says magazine consultant Martin Walker.
    Of the consumer titles that remain, most are either not worth buying or owned by companies that can afford to keep them until the economy revives, he says.
    Roland DeSilva, managing partner at media investment bank DeSilva & Phillips, says there are "absolutely" worthwhile business publications available for acquisition.
Although he declines to name names, DeSilva suggests that G+J may do well to focus its efforts on business-to-business titles rather than business-to-consumer magazines.
"That's a strategic initiative that they should be following and are following," he says.
    But is G+J getting ahead of itself by adding to its portfolio while Fast Company and Inc. are still, to put it delicately, in the toilet?
    More than one rival publisher thinks so.
    "They're so far below their numbers," notes the publisher of a competing magazine.
   "A lot of people over there are kind of worried about their jobs, so it's strange to say that G+J is looking to go out and spend another $200 million on a new magazine."
Critics say last summer's Inc. redesign diluted the magazine's focus on small-business and related technologies in favor of more lifestyle editorial, the idea being to attract advertising from outside the comatose business sector.
   Inc.'s newsstand sales plunged 57.1 percent in the second half of last year, according to the Audit Bureau of Circulations, although even before the drop single-copy sales accounted for less than 5 percent of the magazine's total circulation.
   Meanwhile, Fast Company styles itself as a competitor to BusinessWeek, Forbes and Fortune, but its hopes of a rebound are more fragile than theirs.
   "Even though Fast Company is not a computer and technology magazine in the sense Red Herring and The Industry Standard were, it attracted a lot of the same advertising," says Walker. "The question is, will that advertising ever come back?"
Competitors concede, at least, that G+J has done the smart thing by dismantling the Business Innovators Group in favor of a simpler structure for the time being.
   Says one, "From the beginning, I didn't see the synergy there."

-Jeff Bercovici is a staff writer for Media Life.

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