Informa: Buy Rating

Following the apparent sale of Emap's businesses over the past month, analysts have cast a look over the rest of the industry for potential upside (Reuters). Analysts at Bear Sterns and Panmure Gordon have rated Informa as 'out perform' and 'buy' respectively. Informa's share price surged 7% in trading following the recommendations. In mid December, Informa gave the following trading update:

The Board is confident that the 2007 performance will be in line with our significant growth expectations. Organic revenue on a constant currency basis* is projected to increase by 9%. All three of Informa's divisions: Academic & Scientific, Professional and Commercial, are contributing well to the year on year increase. Commercial is having a particularly strong 2007 of double digit growth. Trading within each of the divisions is good across all of Informa's business activities: events, performance improvement and publishing.

Shares in Informa have under performed the UK market by 22% and are currently trading at 466p. Panmure is targeting a price between 530 and 550p. Over the past six months the stock has traded over 550 but has fallen recently.

CafeScribe: e-Textbooks are working

Interesting article from Inside Higher Ed on the recent success of CafeScribe and CourseSmart. From the article:

Like iTunes, the model features a type of digital rights management that allows users to download individually purchased e-textbooks to three separate computers or laptops. But like Apple’s digital music service, the success of ventures like CaféScribe depend on the availability of content. Johnson estimated that the company would have some 15 publishers on board in the first quarter of 2008, including more content from Oxford. Still, he conceded, he receives hundreds of requests for titles each day. “Content is our biggest obstacle right now,” he said.

Quebecor in Strife: More News

Quebecor has been given a reprieve of sorts in that lending banks have lifted some of their loan covenants for the company's fourth quarter. It may be all for naught however because in the short term the company must come up with $125mm in short term financing and refinance $500mm in debt. Failure in either case could force the company into bankruptcy. From The Toronto Star:

Quebecor World said it agreed to a requirement to obtain $125-million in new financing by Jan. 15, and also agreed to complete a "refinancing transaction" by Jan. 31. That transaction will require the company to reduce its current credit facility to $500-million by Feb. 29. In addition, the company said it must repay the full borrowing facility and terminate its North American securitization program by June 30. The company said it is in "active discussions" with financial institutions, but no firm commitments have been obtained so far "and there can be no assurance that such financing commitments will be obtained."

It is probable that the company will cover the $125mm if for no other reason than this will give their primary shareholder some breathing room to review their alternatives. Regardless, the amounts in question - quoted in the article an analyst says 'it is a lot of money' - and the present difficult market for financing Quebecor is certainly in a lot of difficulty.

How Literary Reading is like the Dodo

Publishers received the literary equivalent of coal in their stocking over Christmas courtesy of Caleb Crain at The New Yorker. His article Twilight of the Books presented a depressing synopis of the state of reading in the US. It has long been the case that few people read more than a few books per year. Many read none; however, as Crian points out in his introduction to his essay, that so concerned where pollsters that they began changing the questions in order to make the results seem less bad. From ‘are you reading a book’in 1933 to ‘have you read anything in the past 12 months’ in 2007.

To those in the publishing industry the recent confirmation of the decline in book and newspaper reading merits significant concern and reaction. Most of us recognize that reading is still being conducted but not of ‘publishing’ material as we know it. In his article however, Crain takes the stats a step further and suggests that the impact of the decline in formal reading that helps readers develop and hone their ability to evaluate character, argument, plot and perspective is leading to a population of dumber readers.

More alarming are indications that Americans are losing not just the will to read but even the ability. According to the Department of Education, between 1992 and 2003 the average adult’s skill in reading prose slipped one point on a five-hundred-point scale, and the proportion who were proficient—capable of such tasks as “comparing viewpoints in two editorials”—declined from fifteen per cent to thirteen. The Department of Education found that reading skills have improved moderately among fourth and eighth graders in the past decade and a half, with the largest jump occurring just before the No Child Left Behind Act took effect, but twelfth graders seem to be taking after their elders. Their reading scores fell an average of six points between 1992 and 2005, and the share of proficient twelfth-grade readers dropped from forty per cent to thirty-five per cent. The steepest declines were in “reading for literary experience”—the kind that involves “exploring themes, events, characters, settings, and the language of literary works,” in the words of the department’s test-makers. In 1992, fifty-four per cent of twelfth graders told the Department of Education that they talked about their reading with friends at least once a week. By 2005, only thirty-seven per cent said they did.

Reading for pleasure is a relatively recent phenomenon in human history. It is possible (and maybe a Phd project) that the development of mass market reading also wrought massive hand wringing and consternation from those who controlled media in the 18th and 19th century. No doubt these owners and social and political leaders believed that society was being eroded and undermined and that the youth (and/or the lower classes) of the day were dooming the traditional publishing business to ignominious death. Whether the comparison with the drivers of change we currently see – social networking, gaming, television, etc. – represents a similar transition I do not know. What is certain however, it that publishing and reading will not disappear but will change and adapt to suit the market and perhaps evolution.

Why evolution? Read the article to understand how the brain develops based on external stimuli. This discussion might lead you to conclude that ‘new media’ could lead future generations to develop different cognitive powers than we currently possess.

Emap Break-up

Earlier in December, I noted the sale of Emap consumer publications to Bauer. At the time (mid December) Emap announced they would keep their business to business publications as presumably the offers were not high enough. It was always the intention of the Emap board to sell all the businesses completely if they could.

On Christmas Eve, it was announced by Emap and Apax that Apax and Guardian Media Group had presented Emap with an offer to buy the outstanding shares of Emap for just over £1billion. Apax/GMG already own b2b publisher Incisive Media and hope to merge the two businesses together to produce a £2.0billion publisher.

Despite the announcement there is some speculation that a rival bid may emerge and the Emap share price has traded above the 931p offer price. Apax/GMG have already purchases a 19& holding in Emap.

Telegraph

Predictions 2008

This is the time of year when prognosticators attempt to handicap the future while, at the same time, trying to explain why they were so horribly wrong with respect to the prior year. I am no different. 2007 saw some stunning developments in the publishing and media space--particularly in mergers & acquisitions—and, broadly speaking, I see several trends emerging. First, I expect more change driven by M & A activity in 2008. Second, as more companies bound by traditional publishing models migrate online and join those already there, the application of technology in our industry will accelerate. Third, we will see a ‘squeezing’ of the value-chain (from author to publisher to consumer) driven by publishers looking to build community models around content and authors.

Associated media markets, such as broadcasting, newspapers and games, also influence our industry in interesting ways. We are starting to see our traditional segment descriptors – publishing, newspaper, broadcasting, information – become meaningless as content becomes ubiquitous and network access (or distribution) becomes universal. Publishers and information providers must expand their capabilities beyond traditional market segments if they want to remain competitive. On a related note, there is an escalating ‘compacting of media’ taking place, where the interests of all media players are converging on issues like rights, piracy, market concentration and access to markets or even consumer attention. (Text) book content, broadcast TV programs, movies, music, games and news can all be delivered via Xbox or Ipod: In this environment, where does the power lie? Who “owns” the customer? And how are content-selection decisions made? A publisher can no longer be one-dimensional and hope to survive, which is why companies like Lexis, West and Pearson are building delivery ‘platforms’ where (traditional) content is only a part of the offering.

In the not-too-distant future, we may look back on 2007 as a significant transition year for the media business. In education, a number of large companies were taken private and will reemerge five years from now as fundamentally different, platform-based companies. The Hollywood writers strike will redefine how content producers are compensated as content distribution expands to the Internet. Journal publishers will trace the history of their ad-based revenue models back to Reed Elsevier’s experiment with oncologyonline. And in the news & information segment, NewsCorp’s purchase of Dow Jones and Thomson’s acquisition of Reuters will radically change the model of information delivery. Even the self-publishing market showed a level of maturity with the consolidation of AuthorHouse and iUniverse.com. Outside our immediate universe (but no less relevant as advertising becomes a more important revenue stream) is the purchase by Google of adserver Doubleclick.

Here are my predictions for 2008:

Education:

• Recognizing the potential for aggressive competition, McGraw-Hill will reorganize its business much as Thomson has done. MGH education could be sold to private equity.
  Cengage will spend aggressively to round out its content and assessment products with course management and school resource planning tools.

Information:

• We will see at least one mega-deal involving, perhaps, D&B, the information assets of McGraw (S&P) or Bloomberg. Following closely on the heels of past investments in tax, legal, financial information, the insurance segment will become a focus of aggressive new investment for information providers.

Trade:

• It also seems inevitable that there will be some additional consolidation in trade and this could result in a higher profile for Hachette, Bloomsbury and/or Macmillan. One publisher may get out of the self-publishing market but another will jump in with both feet. A company like Lulu.com or the AuthorHouse/iUniverse combination could be targeted by a trade publisher seeking to expand its market and build an author community. More trade publishers will eliminate imprints in favor of theme-specific content.

Retail:

• The ongoing rumors of a Barnes&Noble/Borders combination will continue until one of these retailers purchases a third. This new combination will not materially change the book retail market, but the combination of the two companies will result in a financially stronger retailer.

Other:

• Broadcasters will have a strong advertising year due to the political calendar and the Olympics. (A three-party race for President will be an added boost).
• Facebook and Linkedin will join forces, but we will also see the development of more ‘by invitation only’ social networks. (Potentially, these could be administered by the current incumbents but they are more likely to be new entrants).
• As many as ten brand-name magazines will cease publication or reduce their frequency due to ad-base declines and the rise of specialty web sites.
• News sites (either branded or not) will ramp up efforts to harness niche bloggers and online publishers (either by acquisition or association) in an effort to boost traffic, broaden audience and develop more relevant op/ed and reportage. Incumbent news providers are realizing that acquiring an established online presence with a built-in audience represents a path to growth and they will begin to employ this tactic during 2008.

As always, it looks like the coming year will be an exciting one in media. At least according to me.

The Year In Reading 2007

I barely purchased any books this year; however, I managed to read over 20 titles. Around this time last year, I rearranged my book shelves to place all the unread books on one shelf. I was more than a little surprised to find I needed two and a half shelves (or six and a half feet). So, I determined that I would aggressively winnow the back log down before I started buying again. Success of sorts then in the number completed. I have selected the easier titles to read and the next 20 titles will be tougher.

I was anticipating a hard slog through McCullough's John Adams but this was my personal favorite of the books I read this year. It was especially rewarding to be half way through it when Romney (Presidential hopeful) explained on Meet the Press how Adams would have agreed with him that you can't have freedom without religious morality. That was certainly not my interpretation of what Adams believed. Another notable nonfiction title I enjoyed was Overthrow written by NY Times reporter Stephan Kinzer. Kinzer takes the reader through all our foreign affair blunders from Hawaii to Afghanistan showing how the country and the leadership keep repeating the same mistakes time after time. He shows, using before and after comparisons, that the US involvement had appalling results for the citizens of the countries in question. Naturally, there are highly appropriate references to the current Iraq incursion. Rounding out the top three non-fiction titles was Dawkin's The God Delusion which I found immensely enjoyable. Just knowing our smirking, giggling, singing the wrong lyrics and generally clowning around during required weekly chapel at Melbourne Grammar School is not going to get me in trouble in the hereafter is enough for me.

Fiction. The Night Gardener (Pellecanos), One Good Turn (Atkinson) and Bangkok Haunts (Burdett) were my top three reads this year. Pellecanos sets his crime dramas in Washington DC and this one has the same tight character development and story line. Mrs PND has read Atkinson and I picked this up on her recommendation: She is as good a crime writer as you will find and I look forward to reading her other titles. Burdett launched his Thai/American protagonist about three books ago and he improves with each successive title. I also met the author at the Strand this year which is an added bonus. Read his books to understand more about Thailand and Bangkok generally. Of note, Burdett comes up with some of the most elaborate killing scenarios you will ever find.

Other notable books were Perry Garfinkel's Budda or Bust and Patrick White's A Fringe of Leaves. White won a Noble and is one of Australia's greatest authors. This title sat on my parents shelf since it was published (1976) and I decided to read it based on some controversy reported regarding the current state of Australian literature.

Here's looking forward to another year of reading.

A Year of Reading at The Millions