The Loan, Own, Bankrupt Model for Publishing
April 27, 2013
Author’s Note: I was not going to make a big deal about the death of my father. He had a long, productive life. He was a pal to some heavy hitters in Illinois politics. He had a couple of good jobs. He worked hard. My family, lawyers, and advisors made the tasks associated with this life event less burdensome. There was one problem, however. The Peoria Journal Star failed to publish my father’s obituary on time. I was not going to discuss this procedural failure on the part of GateHouse Media’s newspaper until I read the article in the Wall Street Journal about companies which allegedly loan themselves money and then own the company to which the money was loaned. When the company in the loan-own mode gets into trouble, some financial tap dancing is in order. After reading the Wall Street Journal story, I decided to capture some thoughts. What’s this have to do with search? Two things: Try to find an obituary when it is not in a system is tough. Second, the modern approach to management often leaves the customer adrift. In my opinion, this is not good. Feel free to skip the write up.
Part I: The Financialing
On most days, I don’t think too much about textbook publishing, newspaper publishing, or loaning myself money and then declaring myself bankrupt. Publishing once was an interesting business, but putting ink on paper seems a bit retro for me. Isn’t digital where it is at?
A publisher who hits upon the clever idea of loaning oneself money, spending it, and then going broke is very 2013ish. The notion strikes me as an idea crafted by a couple of MBAs, a handful of attorneys, and a person suffering from sleep deprivation. I thought publishers published. Not now if the Wall Street Journal’s story is any where near accurate.
I read “Buyout Firm Gathers Cengage Debt” in the April 27, 2013 Wall Street Journal, page B2. If you are a savvy MBA you may be able to locate the story at this link. If not, be prepared to pay up. I did. (No, gentle reader of my personal blog, I do not update links in order to curry favor with the Google. You want good links, go elsewhere, please.)
The main point of the story is that an investment/financial type of firm is “both an owner and senior creditor of Cengage.” If you know your history of professional publishing and its wheeling and dealing, Cengage was once a separate firm and then once a chunk of the Thomson Reuters’ outfit. Thomson Reuters is interesting because it has run a number of senior managers though its executive suites and maintained flat revenues and modest profits for several years.
I think the way this owner and creditor thing works is that one part of a big investment/financial outfit buys a stake in something and another part of the big investment/financial outfit loans the recipient of the money some cash. In short, the big investment/financial outfit both owns the recipient of the money and is a creditor who wants money back.
Got that. I sort of do.
Part II: The Unveilingness
But what’s fascinating to me is a series of comments in the original write up and a reference to a publishing company with which I did business on April 9, 2013. Let’s look at these two blips on my aging radar screen.
Here are the quotes I marked in my dead tree copy of the venerable Wall Street Journal, which I think was or is a Rupert Murdoch property:
- “[APAX] the private equity-firm’s potentially conflicting roles as an owner and creditor”. I like the potentially conflicting, don’t you?
- “Some lawyers say wearing both owner and creditor hats can undercut the goals of bankruptcy law.” What are those goals, by the way? Undercut is an interesting word too.
- “By tacking on a debt investment, a private-equity owner can keep control of a company while sometimes using bankruptcy or other means to cut jobs, cancel contracts, or offload pensions and other obligations.” Seems reasonable to take these steps. Hey, it’s just business in 2013.
On April 9, 2013, I arranged for a mortuary to place an obituary for my father in a company mentioned in this April 27, 2013, Wall Street Journal story. The Peoria Journal Star is owned by GateHouse Media, Inc. GateHouse I learned is one of the outfits which may be both a creditor and an owner of properties which are facing financial headwinds. GateHouse Media’s tag line on its Web site says, “We can.”
Well, maybe the company can be listed in the owner-creditor story in the Wall Street Journal. The company may be able to chop staff. And, for sure, the company can mishandle an obituary like nobody’s business.
The Wall Street Journal article pointed out that some firms use various methods to lessen the financial pain. One of them, cited above, is dumping employees. The elegant phrase is “cutting jobs.”
Part III: The Pay Downing
How does this work out in real life?
Well, the Peoria Journal Star’s obituary desk is staffed on what struck me as somewhat loose hours. One person whom I finally reached by calling the City Desk at the Peoria Journal Star said, “I think someone will come in around 9 am.” Another person told me, “There have been many staff reductions at the paper. Most people wear two or three hats.” A bit of Web surfing revealed that the Peoria Journal Star’s obituary “desk” is actually part of the advertising department and that members of the family could not submit obituaries. As it turns out, a member of the family wondering why the obituary did not appear on April 22, 2013, was published only after the mortuary contacted the Peoria Journal Star’s obituary desk a second time on Monday, April 22.
Advice for Barnes and Noble
April 10, 2013
Amid the barrage of challenges faced by today’s publishers, The Motley Fool asserts that “Barnes & Nobles Need to Quickly Change Course.” Writer Peter Pham points to Barnes & Noble’s disappointing quarterly results, revealed in January, which were pulled down in part by the Nook‘s lackluster performance. He then expresses surprise at the company’s recent announcement: They have made a series of licensing deals with some major studios, like Lionsgate, Disney, and HBO to name just a few, to supply content for the beleaguered tablet. Pham states:
“There is clearly a disconnect here. B&N is caught between being a traditional bookseller and a technology startup, and the transition is clearly not working as intended. The plan was to transition its retail customers towards Nook while posting organic growth as well, and neither of the two has happened. The company is now planning a major overhaul of Nook through a hardware redesign, trimming down expenditures and increasing e-book sales.”
If that is the wrong direction, what should the company be doing instead? Well, the article suggests, it would help if Microsoft would get around to completing their 7″-tablet-form-factor version of Windows 8. Beyond that, Barnes & Noble should work to get Bing Shopping integrated into the OS and make the Windows app store available. The key, though, may be to tap emerging markets with a focus on cloud-based education functionality. Interesting advice.
Cynthia Murrell, April 10, 2013
Sponsored by ArnoldIT.com, developer of Augmentext
Penning a Bestseller Not as Profitable as It Might Seem
March 29, 2013
So you wanna be a professional writer? You might not want to make Amazon’s bestseller list your marker of success; author Patrick Wensink lets us in on how little his place on that roster did for him financially in Salon’s, “My Amazon Bestseller Made Me Nothing.” In fact, as he tells it, making less than one would like on literary success is a burden most authors must bear.
After Wensink’s novel, “Broken Piano for President“, garnered media attention and joined such entries on Amazon’s bestseller list as “Hunger Games” and “Bossypants,” some folks assumed he was suddenly raking in the dough. He writes:
“I can sort of see why people thought I was going to start wearing monogrammed silk pajamas and smoking a pipe.
“But the truth is, there’s a reason most well-known writers still teach English. There’s a reason most authors drive dented cars. There’s a reason most writers have bad teeth. It’s not because we’ve chosen a life of poverty. It’s that poverty has chosen our profession.
“Even when there’s money in writing, there’s not much money.”
Wensink reports that, before taxes, he made just $12,000 on the 4,000 copies Amazon sold of his popular book. He isn’t complaining, he says—it is much more than he has made on any single project in the past.
And that is exactly the problem; I suppose I’ll have to find another way to make my millions.
Cynthia Murrell, March 29, 2013
Sponsored by ArnoldIT.com, developer of Augmentext
Thomson Reuters: The Pointy End of a Business Sector
March 28, 2013
Thomson Reuters has been a leader in professional publishing for many years. I lost track of the company after the management shake up which accompanied the departure of Michael Brown and some other top executives. Truth be told I was involved in work for the US government, and it was new, exciting, and relevant. My work for publishing companies trying to surf the digital revolution reminded me of my part time job air hammering slag at Keystone Steel & Wire Company.
I read “Data Don’t Add Up for Thomson Reuters.” (This online link can go dead or to a pay wall without warning, and I don’t have an easy way to update links in this free blog. So, there you go.) You can find the story in the printed version of the newspaper or online if you have a subscription. The printed version appears on page C-10, March 28, 2013 edition.
The main point is that Thomson Reuters has not been able to grow organically by selling more information to professionals or by buying promising companies and surfing on surging revenue streams. This is an important point, and I will return to it in a moment. The Wall Street Journal story said:
Shares of Thomson Reuters remain 13% below where they were when the deal closed in April 2008, partly reflecting difficulty integrating two large, international companies.
The article runs though other challenges which range from Bloomberg to Dow Jones, from ProQuest to LexisNexis. The article is short, so the list of challenges has been truncated to a handful of big names.
Do the professional publishing companies have access to talent on a par with Julius Caesar’s capabilities? In my opinion, without management of exceptional skill, professional publishing companies will be sucked through the rip in the fabric of credibility which Thomson Reuters’ pointed spear has created: Flat earnings, more wrenching cost cutting, and products which confuse customers and do not increase revenue and profits. Image from Wikipedia Vercingetorix write up.
But let’s set aside Thomson Reuters. I want to look at the Thomson Reuters’ situation as the pointy end of a spear. The idea is that Thomson Reuters has worked hard for 20 or 30 years to be the best managed, smartest, and most technologically adept company in the professional publishing sector. With hundreds of brands and almost total saturation of certain markets like trademark and patent information, legal information, and data for wheeler dealers—Thomson Reuters has been trying hard, very hard, to make the right moves. Is time running out?
Like the professional publishing sector which includes outfits as diverse as Cambridge Scientific Abstracts, Ebsco Electronic Publishing, Elsevier, and Wolters Kluwers to name a few outfits with hundreds of millions in revenue. Each of these companies share some components:
- Information is “must have” as opposed nice to have
- Information is for-fee, not free
- Customer segments are not spending in the way the analysts predicted
- Deals have not delivered significant new revenue
- Management shifts replace executives with similar, snap in type people. Innovative and disruptive folks find themselves sitting alone at company meetings.
Alternative Weekly Publications Turn To Pulp
March 26, 2013
Alternative weekly prints are (were?) the younger sibling of big name newspapers. They provided an alternative viewpoint on the news and appealed to the vast subcultures that thrive in developed countries. According to Jack Shafer’s blog on Reuters this is the start of, ”The Long, Slow Decline Of Alt-Weeklies.” Much like the bigger publications, the alt-weekly titles saw plummeting sales with the digital print boom. It used to be and for a little while longer, alt-weeklies were the prime source for personals, jobs, apartments, etc. and while the publishers wanted readers to think it was the alternative views that drove sales, really it was these classified ads. Another big hit to the industry was when the record companies pulled their advertising and the retail stores that used to carry the alt-weeklies disappeared.
They alt-weeklies used to an anti-boredom device, but:
“…even a human fossil must concede that the smartphone trumps the alt-weekly as a boredom killer. How does a wedge of newsprint compete with an affordable messaging device that ferries games, social media apps, calendars, news, feature films, scores, coupons and a library’s worth of music and reading material? Ask a young person his opinion and he’ll tell you that nothing says “geezer” like a newspaper, be it daily or alt-weekly.”
Alt-weeklies are a losing business. Does this parallel the decline of search and retrieval, commercial database publishing, and content management systems. The market just drifts away. Transition periods stink.
Whitney Grace, March 26, 2013
Sponsored by ArnoldIT.com, developer of Beyond Search
Cengage: Time to Disengage?
March 25, 2013
Thomson Reuters in “Cengage Learning Hires Restructuring Advisers” reported that a former Thomson property is arranging a modest infusion of cash. “Modest” in this context is about $430 million, which is nothing when compared to the cost of a modern text book. (“See Textbook Prices Are Inflating Even Faster Than Tuition Prices: New Boston University Classifieds for Students Makes Buying Textbooks More Affordable.”)
Cengage used to be Thomson Learning, a sprawling collection of publishing companies. Some of the firms had traditional textbooks; others had combinations of traditional textbooks and electronic versions. My recollection is that the technical infrastructure of the original Thomson Learning was quite diverse. “Diverse” publishing infrastructures in the same organization add significantly to the costs of doing business. “Diverse” is also a stuck brake on innovation because repurposing content is time consuming and labor intensive. Prior to spinning off Thomson Learning to Apax Partners and Omers Capital Partners, Thomson’s senior management were focusing their considerable talents on cost efficiencies. . I assume that the technical infrastructure issues have been resolved.
Debt can be a burden as this illustration from Shape Home Loans suggests?i Does debt enhance agility or is it a financial play disconnected from structural changes such as those described in my “Gadzooks, It’s MOOCs: The Fuss over Open Source Learning” article?
One item in the Thomson Reuters news release caught my attention:
…the company said it had borrowed $430 million, almost all of its remaining credit facility to ensure its businesses have the cash they need. Stamford, Connecticut-based Cengage has a $1.5 billion term loan that matures next year and a total of $5.3 billion of debt as of Dec. 31.
Several observations:
First, this type of cash crunch in publishing is likely to become more common. I wrote a story for Online Searcher about the impact of online learning. There is also a chorus of “if you are smart, you can skip college” echoing around Kentucky. What if the online learning and the “you don’t have to go to college” blend? Companies depending upon the traditional purchasing patterns in education may find that new revenues are not sufficient to keep up with old revenue losses.
Second, the spillover from a Cengage-type of problem will have cascading effects. Examples which come to mind are revenues flowing to such organizations like Ebsco Electronic Publishing, ProQuest, and Wolters Kluwer. These companies are in the education food chain. If Cengage flu becomes contagious, these firms will face some additional financial challenges.
Third, the authors who provide content to the textbook giants have to be paid. With the shift to online courses, some of these authors may take their “fame” and their content and go a new direction. It is now possible for some textbook superstar authors to try to become celebrities. If Google needs knowledge, the company just hires the superstar. Won’t the same approach become possible in the online learning space? Maybe an existing textbook company will corner this market? I am not sure traditional textbook companies have the agility necessary to pull off a slam dunk.
Fourth, the online services like Thomson Reuters’ WestLaw and Reed Elsevier’s LexisNexis may also feel the impact of a shift. On one hand, these systems could gain new content from disaffected textbook publishers and, therefore, more revenue pulling information. On the other hand, traditional online services have been caught flatfooted by the surge in online educational content and may be too late to ride the new revenue train.
Net net: Is it time for customers of Cengage to disengage? A larger question is, “Will the professional publishing and professional online services be able to adjust to yet another sapping of their life blood?” Changes are coming. Many of these shifts will not be gentle, kind, or slow I fear.
Stephen E Arnold, March 25,2013
Another Publisher Put Under the Scope
March 20, 2013
The publishing industry has taken a big hit over the last several years as self-publishing has become a more profitable and easily obtainable way to publish material. It is however, a double-edged sword.
Evidently “O’Reilly Media Has Lost Its Soul.”
“O’Reilly Media—the publishing wing at least—appears to have lost its soul. I have no doubt that Tim O’Reilly founded the company with a great vision and high respect for authors. I don’t know when things changed, but it’s obvious that they have. It’s hard to value anything that O’Reilly Media is doing today, including its conferences, when its publishing wing is this dysfunctional.”
A reputable publishing company doesn’t just publish your book, but their reputation as well. It is a perk you can’t get with self-publishing, but things can often go wrong and this is I feel an overly harsh criticism of a publishing company as a whole based upon one undesirable experience.
Anyone can self-publish these days (anyone can write a book of nonsense and throw it up on the internet), which is why reputable publishing companies are more important than ever.
Leslie Radcliff, March 20, 2013
Sponsored by ArnoldIT.com, developer of Augmentext
Indie Bookstore Fight Back against Amazon eBooks Monopoly
March 14, 2013
Amazon seems to be at the top of its game. From the latest electronics, clothing and even school supplies they seem to have their hand in everything and be doing very well. However, not everyone is a fan of the online giant. According to the Paid Content article “Indie Bookstore Sue Amazon, Nig-6 Publishers for Using DRM to Create Monopoly on eBooks” three independent bookstores are suing Amazon and the big-six partners based on their DRM (digital rights management). The three independent bookstores involved are Manhattan-based Posman Books, Book House of Stuyvesant Plaza and Fiction Addiction of Greenville, South Carolina.
“The indies, represented by Los Angeles antitrust firm Blecher & Collins, say publisher contracts calling for the use of this DRM, which like most forms of DRM prohibits readers from copying eBooks or reading them on non-authorized devices, restrain eBook sales and that Amazon “has unlawfully monopolized or attempted to monopolize the market for eBooks in the United States.”
According to market estimates Amazon currently is the dominant leader in the eBook market with over 60 percent of uses using Amazon’s Kindle e-readers. Other well-known companies such as Barnes and Noble and even the mighty Apple are involved in the e-book market but represent only a small amount and don’t add up to much competition. The big-six publishers have contracts with Amazon that allow Amazon’s DRM eBooks but do not have any contracts or deals set up with independent bookstores. The plaintiffs are seeking an injunction that prohibits Amazon and the big six from publishing or selling eBooks that are app specific DRMs and to allow independent brick and mortar bookstores to directly sell open source eBooks published by the big six. It’s easy to see that though the big six are mentioned that the plaintiffs are clearly taking the fight straight to the front door of Amazon. Looks like digital content is alive and the battle lines have been drawn.
April Holmes, March 14, 2013
Sponsored by ArnoldIT.com, developer of Augmentext
Bookstores Take on Amazon and Publishers Over Ebook DRMs
March 13, 2013
Oh, the joys of the free market. PaidContent announces, “Indie Bookstores Sue Amazon, Big-6 Publishers for Using DRM to Create Monopoly on Ebooks.” Three brick-and-mortar bookstores seek to represent similarly positioned stores with their class-action suit filed in New York’s Southern District Court. This is the same court that oversaw the Department of Justice‘s antitrust suit over ebook pricing.
These stores assert that deals between the big publishers and Amazon, combined with the Amazon-specific reader, the Kindle, form a closed loop designed to shut out the competition. Digital rights management (DRM)software is the mechanism the mammoth online bookseller uses to enforce this exclusivity. Writer Laura Hazard Owen explains:
“The filing takes issue with Amazon’s proprietary DRM, AZW: ‘Ebooks with the AZW DRM can only be read on a Kindle device or on another device enabled with a Kindle application. . . . The Kindle app works solely with ebooks sold by Amazon.’ While the case names only the big-six publishers as defendants, Amazon places its DRM on nearly all of its ebooks from all publishers.
“The filing says that big-six publishers, through their contracts with Amazon that allow for Amazon’s proprietary DRM on their ebooks, ‘unreasonably restrain trade and commerce in the market for ebooks in violation of the Sherman Act.'”
The filing acknowledges the Nook as a Kindle competitor, with 25 percent of the market to Kindle’s more than 60 percent, but notes that Barnes & Noble is not exactly in a strong financial position at the moment. The plaintiffs hope the court will issue an injunction prohibiting Amazon and the large publishers from selling ebooks with device- and app-specific DRMs. They also call for those six publishers to let independent stores directly sell their ebooks with “open-source DRM,” though what they mean by that term is unclear.
Cynthia Murrell, March 13, 2013
Sponsored by ArnoldIT.com, developer of Augmentext
Can LinkedIn Move into Ebsco and Thomson Territory?
March 12, 2013
You may find “LinkedIn to buy Pulse Newsreader for More than $50 Million” interesting. If true, stakeholders in some large professional publishing companies may want to reconsider their holdings.
I think that the commercial business information publishers won’t pay much attention to this deal. Companies like Ebsco, Thomson Reuters, and Wolters Kluwer are trying to sustain their revenues while achieving growth. Thomson Reuters has faced some growth challenges. The other companies which compete with this venerable firm are in the same pickle in my opinion.
The reason is that LinkedIn is built of professionals who want to get jobs and sell work. Now hunting for a job may seem a far cry from searching an Ebsco database or consulting a Wolters Kluwer health database. I don’t think the gap is too big at all.
According to the write up:
LinkedIn will buy the maker of the newsreader app Pulse, according to sources familiar with the negotiations. The price of the acquisition is in the tens of millions, they said — between $50 million and $100 million.
The amount paid for Pulse is pocket change for the giants of business information publishing. But LinkedIn owns Slideshare, a collection of business information. Add that content to the base of people who want to make sure each can find a job or sell a consulting job, and you have a 21st century content system which is going to be of increasing importance.
With a nifty distribution channel like Pulse, which is a next generation magazine/journal platform, LinkedIn is in a position to start encroaching on the territory of the Thomsons, the Ebscos, and the Wolters Kluwers of the world.
LinkedIn is integrated professional publishing. Its customers and advertisers pay for value. Contrast that business model to “we have to buy this stuff” which characterizes some of the big professional publishing outfits.
What can these giants do to protect their markets? Is LinkedIn for sale? My hunch is that LinkedIn will put fragile professional publishing companies under more pressure. Why didn’t one of these giants of business information jump on the LinkedIn type of opportunity?
Perhaps none of the executives at these firms is thinking about finding a job or becoming a consultant? If the firms do not hit their financial goals, many of the senior executives at the business information and professional publishing powerhouses will have an opportunity to learn the value of LinkedIn first hand.
Stephen E Arnold, March 11, 2013
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