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| Passion Investments: Media |
Moguls in the Making
Bryant Urstadt
07/01/2005
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Steve Bernstein was a managing director at Citigroup in 2000 when he
purchased Relix, an underground music magazine that began its life in 1974 as a
staple-bound newsletter for Grateful Dead concert-tape traders. By the time
Bernstein came along, the magazine had evolved to cover an assortment of
improvisational jam bands like the Dead and Phish—those that rarely appear on
the charts but draw hordes of fans to concerts and festivals. A follower of the
music himself—he plays the guitar and mandolin—Bernstein saw both a chance to
become more involved in something he loved and an opportunity to expand an
established brand. He hired an investment banker, called the magazine’s owners
and made an offer.
 Bernstein, a youthful 44-year-old, used to work in Midtown
Manhattan, spending 18-hour days coordinating disaster plans for Citigroup’s
270,000 employees. He now devotes all his time to Relix, and shares office space
with a staff of 12 in Soho. Posters of Jerry Garcia line the walls; musicians
frequently stop by to showcase their talents. Bernstein’s efforts to bring the
magazine to a wider audience have been successful. He has seen Relix circulation
jump from 8,000 to 110,000, with 83,000 subscribers, on his watch.
Bernstein
will not reveal what he paid for the magazine, but he boasts one of the rare
success stories in the annals of media passion investments. “Stop, look, listen
and educate yourself before you make your move,” warns Robert Garrett, president
of AdMedia Partners, a New York investment bank that specializes in media
acquisitions. The difficulties of running a publication as a business, while
producing quality editorial material, often come as a shock to newcomers. The
risk-averse and thin-skinned make poor candidates for media mogulship. Profits
are elusive; publications, particularly newspapers, are often money
pits.
VALUE JUDGMENT
Buying a newspaper or magazine can be an alluring proposition for investors who
want to shape public attitudes or build a community of like-minded enthusiasts.
But media companies can be financial black holes. The newspaper business is
mired in a long-term commercial malaise, and popular magazines are often
commanding prices far above their intrinsic value. |
Indeed, most newspapers have seen their circulation ebb in recent
decades. Last summer’s imbroglio, when four of the nation’s largest
newspapers—the Tribune Co.’s Newsday and Hoy, Hollinger International’s Chicago
Sun-Times and Belo Corp.’s Dallas Morning News—admitted to misstating
circulation figures in order to boost advertising rates, compounded the problem
by reducing advertisers’ confidence.
Printed in Red
Would-be Horace Greeleys may find newspapers alluring, but
most investors avoid them altogether. They incur daunting costs—dailies are
expensive to print and circulate, and require large editorial staffs. The
potential advertising base and readership of most cities is only large enough to
support one daily newspaper. Michael Steinhardt and Roger Hertog, both Wall
Street money managers, have poured millions into the New York Sun, a paper aimed
at what the editor terms “the right wing of the Democratic party.” Since its
launch in 2002, it has grown to roughly 40,000 readers—barely a blip on the
radar screen for the New York Times and its 1.1-million circulation. Hertog
concedes that he expects the paper to require a total investment of up to $25
million to achieve profitability.
 In 1975, David Mitchell bought the Point
Reyes Light, a local newspaper in Point Reyes Station, Calif., for $37,500. Four
years later the paper won a Pulitzer Prize for reporting on a cult operating in
Marshall, six miles to the north. Unfortunately, he found that you cannot eat
prestige; the paper has since endured 25 years of commercial struggle. The Light
was highly respected, but rarely in the black, drawing year after year on money
Mitchell inherited from his father. Now in his 60s, he has finally run through
that inheritance. When a reporter from the San Francisco Weekly visited Mitchell
in December, he found him rushing home to get his checkbook. The paper’s bank
account was overdrawn again, and Mitchell’s dwindling personal funds were the
paper’s last redoubt.
Niche Hunters
There were 18,821 consumer magazines published in North
America in 2004, according to Oxbridge Communications’ National Directory of
Magazines. There were more than 1,500 new titles in 2003 alone, according to the
Directory’s figures. This growth most likely reflects the improvement in the
overall economy and, therefore, better advertising revenue prospects and
publishers’ access to financing for new titles.
Specialist magazines such as
Relix, that have a narrow but clearly defined audience, have the best chance of
becoming steady earners. Indeed, most new launches have a fairly well-defined
ambit, as the chart on the next page illustrates.
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