Private equity's media obsession
Two big deals were announced this week involving private equity groups buying into media properties. Media companies have taken a beating in the last year, and carefully accumulated media empires have, in come cases, been disassembled. But equity funds see them as having some kind of future, in spite of the revolutions in the industry.
The first was the purchase of the Reader's Digest Association by a group led by Ripplewood Holdings in a $1.6 billion deal. The company publishes a variety of magazines, but its flagship is the Readers' Digest itself, which is published in 50 editions worldwide in 21 different languages, from Slovakian to Thai. It is the world's #1 general interest magazine. The company also sells a number of more focused magazines (such as American Handyman. Parenting, and Backyard Living), as well as variety of books. Its book fair division has been declining as well. It has a major mailing list for direct marketing. It has also moved onto the net with allrecipes.com.
The thought is that Ripplewood can combine the company with its other purchases, including Time-Life Books and the Weekly Reader. Reader's Digest, like most magazine properties, is in a long-term slump, with a small loss in gross income and a negative net income last year. The explanation, according to a Wall Street Journal article ("Top Task at Reader's Digest: Revival", 11/16/06) is "shifts in consumer habits brought on by the Internet and other new media. Reader's Digest, well known to many older Americans and people overseas, has been losing circulation for many years."
Ripplewood has ambitious plans, including pushing some successful new publications like Every Day with Rachael Ray, and by selling more via the Web.
The second big deal announced is that for Clear Channel, the #1 radio and billboard group. A group led by Thomas H. Lee Partners LP and Bain Capital LLC has proposed an $18.7 billion buyout.
According to the Wall Street Journal ("In a Big Bet on Radio, Private-Equity Group Buys Clear Channel," 11/17/06) "Separately, Clear Channel said it was selling its 42 television stations and 448 of its radio stations in smaller and medium-size markets. That would still leave the company a radio giant, with more than 700 stations around the country."
The two principal buyers have experience already with the radio business. They have a major stakes in Cumulus Media Partners, which runs more than 30 stations in big markets. Thomas Lee is part of a group that bought Univision, with both TV and radio Spanish-language assets in the US.
The article notes that the plan is to modernize services and do more with Internet, not very different from what Ripplewood is planning. While the investors no doubt what they are doing, you would think that buying into a declining industry will be problematic. Selling the whole chain will be difficult, since there are no players who have the money to make it a strategic buy. What seems more likely is that they plans to slice and dice, selling individual pieces, thinking the parts are worth more than the whole.
9:16:05 PM 
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