At a time when many major magazine publishers are shedding their niche titles, an El Segundo-based company has taken the contrarian approach, buying hobby publications and associated trade shows.
Just last month, Active Interest Media Inc. purchased “Backpacker Magazine” from Rodale Press for a reported price of $14 million. In October 2006, the company bought Yachts magazine. The same month it launched “Wild Oats Magazine,” a custom publication for the supermarket chain of the same name. In September, it bought Yoga Journal along with its conferences, DVDs and books. And in March 2006, it acquired Yachting Promotions, producer of the Fort Lauderdale International Boat Show, the largest boat show in the world.
The company now has 13 titles in four vertical segments: Healthy Living, Marine, Homebuyer and Western Art and Living. Its better-known publications include Vegetarian Times, Black Belt, Log Home Design, Southwest Art and American Cowboy.
Circulation at the properties ranges from 350,000 copies at Yoga Journal to 50,000 and 60,000 at Southwest Art and Building Systems. Those numbers look small compared to the circulation of consumer magazines, but Active Media’s financials are healthy.
“Our revenues are growing, excluding acquisitions, in the 8 percent range. With acquisitions, they’re growing in excess of 100 percent per year,” said Efrem Zimbalist III, chief executive officer. “Profits are growing even faster, about 20 percent per year excluding acquisitions.”
Zimbalist, the son of an actor and the former chairman of the Times-Mirror Magazine Group, started the company in 2003. He hooked up with Wind Point Partners, a private equity firm that put up an initial $40 million to buy Enthusiast Media. Based in Michigan, Wind Point follows a strategy of bankrolling top executives with track records in specific industries who want to acquire middle-market companies.
At the very time that Zimbalist is trying to buy special-interest magazines, several big publishers have sold or closed many of the same types of publications. In January, Time Warner sold 18 of its smaller titles to a Swedish company. Hachette Filipacchi Media has shut down two U.S. magazines in the past year. Primedia Inc., once among the largest magazine publishers in the nation, put its last 70 titles up for sale in March.
For Zimbalist, “it’s a good market because there are a lot of things for sale. But the reason is that there are a lot of buyers out there, especially private equity buyers,” he said. “That bids up the price, so you have to be disciplined about it.”
When looking at potential acquisitions, Active Media examines four criteria, Zimbalist said. First, the hobby or interest needs a fan base with critical mass. As a general rule only one of every 10 fans will subscribe to a magazine, so if the publisher wants to reach 100,000 in circulation, the special interest needs at least 1 million adherents. Second, that number of fans should be growing, even incrementally, rather than shrinking.
Third, the fan base should need a constant flow of information about new products, artists or developments. Fourth, the activity should demand that its followers spend money, since that money flow will attract advertisers to the magazine.
To make its magazine acquisitions more profitable, Active Media tries to develop or buy related trade shows. In the case of its marine group, that order was reversed, but the strategy remained valid.
“The Yachts Magazine team has had a long-standing partnership with our boat shows. By now bringing Active Media’s publishing resources to bear on Yachts’ behalf, we can accelerate the magazine’s already rapid growth,” said Andrew Clurman, chief operating officer, when the company purchased the boating magazine.
“Having more than one leg of the stool is important,” added Zimbalist, referring to his three-pronged strategy of events, magazines and Internet sites, an approach the larger media companies rarely take.
“It takes a different mindset to run a special interest magazine than a general interest magazine. You have to be a leader in the industry, not just an observer. That’s a different mindset than a lot of big publishers.”
While Active Media looks for niche audiences, it often sells ads for groups of titles, looking for advertisers targeting the health-conscious crowd or the Western lifestyle types, for example. Most of the advertisers have a direct stake in the industry covered by the corresponding magazine. In fact, most of the ads work more like direct response instead of display print.
“If they stop advertising, their phone stops ringing. Their sales are hurt. That’s not true of general advertising trying to build a brand. Most of our ads have an 800 number attached,” said Zimbalist.
But a magazine built around a specific industry assumes the risks of that industry; if the industry tanks, so will the publication, according to John Burks, professor of journalism at San Francisco State University. “If you don’t know the industry, you’re in trouble,” he said.
The rise of the Internet poises a special challenge to niche publishers, especially for ones like Active Media that focus on growing audiences. One or several Web sites can siphon off readers and ad dollars by offering information on new products. If visitors want to buy a product, a simple link can connect them to advertisers.
“You better not be vulnerable to a digital competitor that can knock you off the map,” Burks warned. “That’s not as big a problem if you’re local, but if you’re national or international, look out.”
But Zimbalist counts on his reader’s long-term commitment to their hobby, and by extension, its publication. “It makes them happy and when they can’t be doing it, they enjoy it vicariously in the pages of a magazine,” he said. “This is something people like to savor, as opposed to getting their news fix or their sports fix and moving on.”
