The BoSacks Interview: Reed Phillips, Co-founder of DeSilva+Phillips
Reed Phillips is co-founder of DeSilva+Phillips, one of the leading M&A advisors to the media and marketing industries. DeSilva+Phillips have advised and invested in our industry on more than 250 transactions valued at over $8.5 billion.
When it comes to the publishing world, Reed is an advisor to media kings, sometimes known as publishers, and is always worth listening to.
1) You once said, "Magazines are based on their profitability and that is how investors must look at it." In the last decade, from an investor's perspective, what changes have you noticed about magazines' profitability?
Yes, I said valuations of magazines today are based solely on how profitable they are. That is because the magazine industry is now a mature one and is on the cusp of a transition from print to digital. In the past decade, and particularly in the past five years, the profitability of magazines has come down, for the most part. The reasons for the decline are the recession that reduced advertising in many magazines by as much as 30%, the continuing decline in newsstand sales and the ongoing transition from print to digital.
2) It's pretty clear that steady, recurring publishing revenue streams would be a very important consideration to an investor. Have you noticed changes in revenue streams in the publishing world? If so, have you changed your criteria for where to invest?
We are not investors in magazines at DeSilva+Phillips, but as investment bankers representing sellers of magazine companies we interact with investors every day, and I can share their thinking with you. The biggest change is that when Lehman Brothers crumpled and we went into a recession, investors who owned magazines that were dependent on advertising saw how quickly their profit margins could decline, or disappear altogether. As a result, investors are spooked about investing in ad-driven properties and instead seek subscription-driven ones.
3) There is a cerebral battle going on in the publishing business that distills down to an exercise in survival. Do you see print and digital coexisting as revenue partners?
The general consensus among investors is that print will go away and digital will replace it. A handful of more sophisticated investors, like Warren Buffett and Jeff Bezos, recognize that the brands should endure and that it might be many years before print disappears altogether.
4) How important is advertising revenue in your decision making process? Can you foresee a time when the brands that you invest in will be predominantly reader/consumer supported?
As I said, investors are now wary of advertising and prefer subscription-driven or consumer-driven properties. If advertising rebounds in magazines, they may rethink that position. In general, though, one of the biggest strengths most consumer magazines have is their dual revenue stream from readers and advertisers.
5) The long-term decline of the consumer magazine market has seen publishers trying to move into alternative media distribution. Would you care to comment from your perspective as a banker on the continuing newsstand slide?
The continuing newsstand sales decline means that magazines MUST find alternate ways of getting their magazines into the hands of readers.
6) What are some of the opportunities or sectors that you hope to work with over the next several years?
Because M&A activity in the magazine industry has declined so much, our firm is spending time with digital media companies, advertising agencies, marketing services firms, information services businesses and education companies.
7) If you were trying to reinvent the magazine business model, what areas need the most immediate attention for future success?
Reinventing the magazine model requires 100% focus on digital and what a magazine should be in a digital format to satisfy both readers and advertisers.
8) How do you see the continued revenue challenges evolving in a digital information society?
The digital transformation means that a lot of legacy businesses, including magazines, are not going to survive. The reason is that revenues from advertisers and readers are going to seek other outlets that are more appealing, unless you can reinvent your business to be one of the survivors.