Inquiring Minds Want Results

Times are tougher for David Pecker's tabloid empire

How weird is the print world these days? You can't even count on appealing to the lowest common denominator.

This is the reality facing David Pecker as chairman and CEO of American Media Inc., publisher of The National Enquirer, The Star, and Shape. Pecker speaks, at hyperspeed, with a Noo Yawk accent that's all rasp and sinus. His father laid bricks in the Bronx. He became a mogul.

In 1991, at 40, Pecker became CEO of Hachette Filipacchi's U.S. magazine division, which owns Elle and Road & Track. Pecker is a cost-cutter's cost-cutter, and he boosted revenues and profits. An accountant by trade, he remade himself into a relentless salesman. (I once saw him hit a roomful of private equity guys with a sell so audacious that some audience members weren't sure whether to guffaw or write checks.) A plan to take his unit public was rejected, and he split for a better deal.

That led to his current post. Pecker's scorecard reads like this: He has spent a hair under $1.3 billion acquiring companies that for the fiscal year ended Mar. 31 posted earnings before taxes depreciation, and amortization (EBITDA) of $134 million on revenues of $536 million.

FOR THE AVERAGE MAGAZINE COMPANY, these are solid numbers. But American Media is not average. Unlike other major magazine companies, it's owned by private equity investors -- Thomas H. Lee Partners and Evercore Partners. And private equity demands serious returns that, so far, Pecker isn't delivering. American Media is carrying close to $1 billion in debt, as of June 30. EBITDA fell over 20% in each of the past two quarters. Standard & Poor's (owned, like BusinessWeek, by The McGraw-Hill Companies) downgraded the company's outlook to negative in August.

Executives at Evercore and Lee express confidence in Pecker. But they'd be right to feel nervous. The core fact of American Media is its massive newsstand-sales erosion. None of its strategies, acquisitions, or new launches have overcome this. Newsstand sales still account for more than half of American Media's operating revenue. This is not encouraging. In the first half of 1999, the National Enquirer sold 1.8 million newsstand copies; in the first half of '05 it sold 947,000. In the same time frame, the Star's sales fell from 1.4 million, to 879,356. An expensive bid to glam up the Star under Bonnie Fuller (who, for good or ill, invented Us Weekly as we know it) has not stopped the slide. Price hikes have kept circulation revenues steady. But, Pecker admits, there's no more pricing leverage. Any revenue pickup now "has to come from volume," he says.

Then there's Arnold. Recent reports on American Media's dealings with California Governor Arnold Schwarzenegger included revelations of a now-terminated seven-figure consulting gig and controversial journalistic tactics involving coverage of the governor. (Pecker declines to comment except to say he's not involved in news-gathering.) Silver lining: Since American Media is not exactly The New York Times, this may not spook advertisers.

All this puts a CEO prone to grandiose talk in the position of preaching modesty. In 2003, Pecker vowed to build a $1 billion company. Last year he talked up plans to take his company public within 18 months. Last November he predicted American Media's revenues would rise to $600 million this year and post EBITDA of $200 million. Now he says '06 will bring in revenues around $560 million and EBITDA of around $145 million. The IPO is on the back burner. "We have to show some traction," he says. "Thank God, [advertising] results at the Star have been pretty good." (They have, off a small base.)

Still, Pecker has done pretty well. He has several homes, a base salary of $1.5 million, and hobnobs with the likes of Sylvester Stallone, with whom he's testing a magazine called Sly. But "to tell you the truth, it hasn't been fun" dealing with celebs, says Pecker. "Sly's been unbelievably aggressive" in his demands for his magazine. Maybe this mogul thing isn't all it's cracked up to be. But it's a little too late to realize that, just as it's late to realize, in an increasingly tabloidized culture, that the tabloids themselves may be dispensable.

By Jon Fine

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