Can Anyone Make Ziff Davis Sexy?

Buyout artists Willis Stein want to bring the publisher's plodding magazines up to Net speed

Publishing folk still shake their heads in disbelief over how buyout firm Willis Stein & Partners flipped Petersen Cos., a middling magazine group including such titles as Hot Rod and Motor Trend, for a cool $1 billion profit just 2 1/2 years after buying it. That was a year ago. Now, Willis Stein is out to work some more media alchemy, shelling out $780 million to buy Ziff-Davis Publishing, whose big titles PC Computing and PC Magazine have been slumping amid the Net explosion. What are these low-profile Chicagoans on to now? "When they asked Wayne Gretzky when he retired what made him such a great hockey player, he said, `Most people skate to where the puck is. I skate to where the puck is going to be,"' says partner Avy H. Stein. "And that's what we try to do."

In the past year, the blades have been sharpened at Willis Stein's offices. The firm has done several deals in publishing but also some in technology-related businesses. And after raising more than $1 billion in two earlier funds, Willis Stein is in the process of putting together a third, with up to $2 billion.

CONTRARIANS. Although media is only part of its repertoire, buying Ziff-Davis is Willis Stein's largest investment--and challenge--so far. Refocusing its 80 titles toward the Web and away from computer hardware is hard enough. But Ziff-Davis also is in the peculiar position of pushing its own way online while continuing to provide content to ZDNet, the tech-info portal that former Ziff-Davis owner Softbank Corp. is hanging on to. With Ziff-Davis, "there's a lot of possible downside, but it's not clear what the upside is" says a senior executive at a publishing group that declined to bid for it.

Stein, 45, a Harvard-trained lawyer, and partner Willis, a 50-year-old University of Chicago MBA, clearly enjoy a contrarian play. They have tapped veteran publisher James D. Dunning Jr.--who led the Petersen turnaround for them--as CEO of newly created parent Ziff-Davis Holdings. The game plan after the deal's expected close in March: revamp existing titles, create new magazines and spin-offs, and link up with trade shows and other media.

As a sign of things to come, the monthly PC Computing will be relaunched in May, tentatively called Ziff-Davis Smart Business for the New Economy. Another move: Following the success of its Yahoo! Internet Life, Ziff-Davis and announced on Jan. 26 a new bimonthly travel magazine, as yet unnamed, keyed to the Microsoft Corp.-led travel Web site. And the company is already looking at new titles covering the fast-moving realm of music technology. "We are going to build these brands across multiple media," says Dunning.

The presence of Dunning, a onetime president of Rolling Stone, gives Willis and Stein an ambassador in the cliquish corridors of New York publishing. They're better known in the buyout world, where they ran the LBO group at the Continental Illinois Bank from 1989 to 1995. After Continental was bought by Bank of America, they went out on their own. In all, over the past 11 years, Willis and Stein have done 37 deals, cashing out on 21. Along with media companies, they oversee businesses in telecommunications, software, manufacturing, and even a veterinary hospital chain. With just six partners and a coterie of staffers, Willis and Stein prefer to stay in the background. "We're coaches, not quarterbacks," says Willis.

TRUCK BABES. They will need Dunning's quarterbacking to spruce up Ziff-Davis. While trendier publications such as The Industry Standard and Fast Company are thick as phone books from ads, pages of advertising in PC Computing have dropped 26% since 1997. PC Magazine still ranks among the top five magazines in the U.S. in terms of ad pages and accounts for 25% of Ziff-Davis' revenues of $560 million. But its ad pages are off 29% over the past two years. The reason: While too machine-oriented for Webheads, it lost advertising from computer-resellers that folded under stiff competition from the likes of Dell Computer Corp. "You're going to see a lot of refocusing," says industry expert Martin S. Walker.

Certainly that's the Petersen playbook. There, Dunning built on its 28 monthly and bimonthly magazines, acquiring or creating scores of titles around niche markets. In two years, Petersen launched 51 magazines, ranging from the incomparable Girls of Sport Truck to the better-known NFL Insider, which hit 1 million in circulation. Bought for $450 million, Petersen was sold by Willis Stein to British publisher Emap PLC for $1.5 billion in January, 1999.

With Ziff-Davis, though, the Web is a question mark. ZDNet will keep the exclusive online rights to the Ziff-Davis magazines' content for three years, paying the publisher a royalty. But Ziff-Davis will control the sites for whatever new titles it creates. Willis and Stein insist this is not problematic, saying the popular ZDNet site will drive traffic to them. "We will obviously have a significant Internet strategy out of the gate," says Stein. If they don't, Ziff-Davis may prove a tougher sell than Willis Stein's last magazine bonanza.

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