Meredith's MomentJon Fine
A certain kind of article is written every so often about Meredith (MDP), the Des Moines company that owns 25 magazines and 12 television stations. It goes something like this: "Media companies are supposed to be all big-city and urbane! Meredith isn't! But it's doing better than all the city slickers!" This is another one. But I can't help it, because the data points compel it.
Meredith, which derives 80% of its $1.4 billion in revenue from its hearth-y and home-y magazines such as Better Homes & Gardens, Ladies' Home Journal, and Family Circle, is substantially outperforming its print-based competition. (Its TV stations are stuck in that industry's morass, though, with ad declines topping 20% in its most recent quarter.) In June and July, according to a report from JPMorgan Chase (JPM) analyst Michael Meltz, overall ad pages for the company rose 6% and 10%. Meanwhile, in the quarter ended on June 30, the magazine industry's overall pages declined 29.5%.
"A lot of food companies are talking about a mass, middle-of-the-road consumer," says George Janson, a managing partner at media-buying firm mediaedge:cia, and Meredith's stable "is the bull's-eye" for such folk. Ad revenues were down 11% in the first six months of 2009, which is not great but nevertheless a distinct improvement on its 18% decline in the previous six months. (And, compared with the rest of print, 11% down is the new 11% up.) The company is expecting ad performance to improve further in the current quarter. It may turn out that the road out of the downturn is located pretty close to Des Moines.
Meredith's current moment is happening in part because it missed out when others feasted. Meredith's mags never grew fat on luxury ads or during any tech boom, and car ads occupy an unusually small percentage of its pages compared with other major magazine companies. It also got some pain out of the way early, as its '09 improvement over '08 testifies. Jack Griffin, Meredith's publishing head, says this happened because home-related advertising began to tank in late '07, and that category disproportionately affects Meredith. (Better Homes & Gardens also benefits from the housing bust taking down several also-rans in that space, including Meredith's Country Home, which closed in January amid significant company layoffs.)
But Meredith has also made some savvy moves of late. It's testing a new food magazine, Mixing Bowl, an offshoot of a company-owned Web site for which users create most of the content. It also has ramped up staffing of Meredith 360, which offers advertisers complex deals across the company's print and Web portfolio (an area in which it had arguably lagged behind bigger competitors such as Hearst Magazines and Time Inc.) This has helped it win ad share; its take in the overall US magazine ad market went from 10.1% to 12.8% in its last fiscal year, which ended on June 30. "Two years ago [Meredith 360] wasn't meaningful, and today it's an engine," says Griffin. The group now brings in the bulk of Meredith's cross-platform sales, which account for around 15% to 20% of magazine ad revenues.
Comments from Griffin in the company's most recent earnings call about "pricing appropriately" to "attract [ad] volume" also make it clear that some share gains stem from offering discounted ads. But a report by Meltz held that the company's ad pricing fell only 2% to 3%. (A Meredith spokesman says revenues per ad page were flat in the company's fiscal 2009.)
Still, even Meltz's calculus suggests that the company is cutting rates pretty judiciously. For its current quarter, Meredith has told analysts that publishing ad-revenue declines will abate further, to be down only in the mid-single digits from 2008. Much of this has to do with the magazines Meredith owns, which have largely avoided the land mines lurking in the landscape. And not all of the story is rosy: Virtually all major Meredith titles posted serious newsstand sales declines in the first half of '09. But the way Meredith is outperforming other contenders suggests that sharp execution is playing a significant role. In any event, Meredith's arrows are pointing in a direction—up—long unfamiliar to its competition and its industry.