The privately-owned Bauer Media Group started to get interesting in 2008. After more than 30 years of high-margin profit from formulaic, low-cost magazines in Germany, Eastern Europe, the UK and US, the company paid £1.14bn for the UK’s high-flying EMAP magazines and radio group. It was a huge splash that surprised industry insiders. It was followed – four years later – by the only slightly less dramatic £350m purchase of Australia’s largest magazines group ACP.
The £1.5bn spending spree made Bauer a global force in magazines and substantially increased its exposure to advertising. But the deals were striking for other reasons too. They were (by far) the largest acquisitions ever made by the Hamburg-based company which had grown largely by launching its own magazines.
The deals signalled a new era for the low-profile company whose most successful leader, Heinz Bauer, had marked his 70th birthday – between the two big acquisitions – by handing over control to his 30-something, second-youngest daughter Yvonne. He announced he was stepping back from day-to-day management of the company he had lived and breathed since becoming CEO in 1961. Everything seemed to be changing.
The new generation was marked by Yvonne Bauer’s unprecedented decision to give newspaper interviews in Australia. She enthused: “Right from the outset, Bauer Media and ACP shared a passion for high-quality and well-produced magazines because we love the printed medium. …With its cleverly devised digital strategy, ACP is a perfect component of the Bauer Media Group – and that’s not all: through the acquisition…. our hope was also to boost our international business…ACP
represents our vision for the future…. Australians are willing to pay adequately for information and entertainment. In contrast to our home country Germany, it seems perfectly natural for them to pay for digital products. This is interesting for our company and will undoubtedly also trigger innovation in other markets.”
Her euphoria was projected into a colourful new slogan (another Bauer first) proclaiming: “We Think Popular”. Years of steady and boring profitability had exploded into a brave new world of international magazine brands, digital plans, and global expansion. But the EMAP deal had already gone sour with the collapse of copy sales and profits from magazines like Heat and FHM only partly compensated by the resurgent growth of radio. But, compared with what happened next in Australia, the disrupted but well-managed former EMAP company was media heaven.
Bauer’s launch into the southern hemisphere had been braver than the larger EMAP deal, not least because they were new to Australia, a media market notoriously challenging for foreign companies. Although most observers considered that Bauer over-paid for ACP, the price (5 x profit) seemed to be almost half the multiple of the EMAP deal. But what had been an EBITDA profit of A$100m for ACP Magazines the year before Bauer signed and was expected to be at least A$70m the year after, is now only about A$35m on a turnover of A$400m. And it’s still sliding. So the plunge into Australia has become very expensive – and not much of a “vision for the future”.
The Aussie story began with James Packer selling his family-controlled PBL magazine and TV business for an amazing A$5bn to private equity firm CVC which was so salivating for the deal that it rushed its own process to snatch it from the clutches of rival KKR. Australia is a country where the combination of high profits and big personalities has always kept media in the headlines. And you could almost taste the thrill of the CVC leader as he was pictured on the front pages and variously described as the new Kerry Packer or Rupert Murdoch. But it didn’t last long. Within two years, the tortured private equity boss was trying to extricate his investors from ACP Magazines and Channel 9 TV at a fraction of the price his investors had paid for them.
In the event, CVC lost most of its investment, its regional boss lost his job, and ACP Magazines lost most of its value – and seemed to be going cheap, while investor-lenders prepared to IPO the TV channel. That was the scene as the company’s battered bosses enjoyed a last hurrah at the London Olympics and negotiated the sale of what was still (by far) the largest and most profitable magazines group in Australia and New Zealand. Cue the German deal, and Yvonne Bauer’s euphoric announcements and interviews as she walked in the Sydney sunshine. But her joy was short-lived too as the Aussie business lurched from one crisis to another, culminating in the appointment of David Goodchild as CEO almost two years after she had bought the company.
Critics of Goodchild’s left-field appointment almost didn’t know where to begin. The London-based CEO of H.Bauer (the company’s long-term UK publisher of listings, real life and puzzle magazines) seemed to lack the experience of premium priced, advertising-rich magazines, had only managed a much smaller business anyway, and was due to keep his UK job while simultaneously taking on responsibility for the much larger company 12,000 miles away.
The unsurprising upshot was a year of PR and trading disasters including poorly-managed magazine closures, a virtual standstill in digital development, the loss of key people, and a fall in advertising – and profits – to almost 50% of what they had been just four years previously. Goodchild left Sydney after less than 12 months.
That disastrous 2015 completed Bauer’s first three years in Australia and and has now prompted the following changes:
- AsiaPacific: The highly-experienced Australian media executive, Nick Chan has been appointed to succeed David Goodchild as CEO of Bauer Media in Sydney. In the 16 years since he left the former ACP Magazines (where he had directly managed all the company’s major brands), the ultra-smart Chan has become arguably the country’s most successful CEO in print-centric media.
- UK: The former EMAP businesses are this month being merged with the pre-existing H.Bauer in London, and David
Goodchild abruptly quit the company last week after 23 years. All Bauer’s UK and Nordic operations will now be led by Paul Keenan who had been CEO of EMAP Consumer Media and has continued to manage it since acquisition – but, until now, always at arm’s length from the smaller H.Bauer business.
- Germany: The announcements were made not by Yvonne Bauer but by Andreas Schoo. He is a well-connected and popular member of the Bauer Executive Board, who joined the company 25 years ago as a lawyer and had been variously responsible for managing its TV listings and real life magazines and for acting as interim CEO in Australia. He is viewed by insiders as acting CEO of Bauer Media Group itself, except for the operations in Germany and Poland which are managed by fellow Board members, Jorg Hausendorf and Witold Wozniak.
It was all because:
- The Australian acquisition has been disastrous, now with its third CEO in three years.
- Bauer is seeking to focus on future growth in digital and broadcasting, but is still overwhelmingly a print business.
- The Bauer family recognises the need for a stronger management team for the international operations which now account for two-thirds of all revenues.
- Yvonne Bauer has discreetly pulled back from day-to-day management of the company following the birth of her twins. The ‘retired’ Heinz Bauer remains deeply involved in all key decisions. There is inevitable speculation that Yvonne Bauer will not return to the CEO role.
Those changes are a landmark in the company which started in 1875, when the young Ludolph Bauer went into business as a printer on a borrowed press in his Hamburg home. Ten years later, Bauer and his son Heinrich became publishers with the free newspapers Rothenburgsorter Zeitung and Hammerbrooker Zeitung. By 1927, when they had moved to the city address that has been the Bauer headquarters ever since, the family had achieved its greatest success with a circulation of 500,000 for the weekly Rundfunkkritik. They were on their way.
Post-War, Bauer quickly became the country’s largest magazine publisher with the launch of the illustrated weekly Quick in 1948, and the bestselling TV listings magazine Horen ind Sehen, which is still selling more than 700,000 copies. Along the way, Bauer bought up magazine and children’s comic companies, culminating in the acquisition of Neue Post, still one of Germany’s biggest-selling women’s weeklies. That was in 1961, the year the 22-year-old Heinz Bauer, great grandson of the company’s founder, became CEO.
Heinz, who had trained as a printer and studied business at university, hit the ground running. He set about acquiring and launching magazines, including the now 450,000 circulation women’s weeklies Tina and Fernsehwoche – and built ever more modern full-colour printing presses. In 1981, at the regulatory limit of his ability to expand much further in Germany, Bauer set out to conquer the world. He chose to start in the United States.
The New York media establishment were sniffy about Bauer’s decision to make its base in suburban New Jersey, away from the fashionable publishers of high-cost Manhattan. They were even more sniffy about the company’s first magazine launch: the supermarket weekly Woman’s World. It launched regionally in 1981 and went national three years later. Within 10 years, it had a circulation of 1.5m and revenues of $15m. Bauer disregarded the fundamental difference between German/UK/Australia news-stand magazines (where most revenues come from readers) and the US where low-priced subscriptions are used to establish a ‘rate base’ for maximising advertising. It ignored subscriptions and became America’s largest news-stand publisher.
But the company showed it could follow careful testing and solid success with extravagant folly. The 1989 launch of First for Women (later known as First) lost a cool $60m within two years, on the back of a $15m TV launch campaign, generous retail incentives, and 8million copies selling at an introductory cover price of 25cents which retailers were able to keep. This was an attempt to disrupt the US women’s “service” magazine market. First‘s circulation rate base of 4m, emphasised the advertising revenues it was chasing. Bauer said it would only carry one-third advertising pages, compared with the 50% norm for its competitors. They needn’t have bothered: the new magazine slashed its rate base, struggled for ads, chopped and changed editors, and piled up losses.
Tough start in the US
One commentator cited First as “an example of how transferring foreign publishing ideas to the United States can be difficult.” The magazine survived but did not thrive, and today has altogether more modest budgets and 1.2m copy sales. But Bauer quickly cracked the soap opera market. And by 2004, it was publishing two celebrity weeklies In Touch (launched in 2002) and Life & Style (2004). It launched Closer Weekly (based on its UK brand) in 2013.
Bauer’s UK adventure began in 1987, when Konrad Wiederholz, Heinz Bauer’s lifelong friend and US chief, stopped in London with his wife on the way from Hamburg to New York. They bought UK copies of ‘real life’ magazines (then the backbone of their German
magazines business) decided they weren’t up to scratch, and launched Bella the same year – just as G&J launched Best magazine. Together, the German publishers shook up the UK market which had long been dominated by five women’s weeklies, the four biggest of which dated from the first half of the twentieth century and were published by market leader IPC. Bella made its mark by mixing real-life stories with classic women’s magazine content like fashion, beauty, cookery and home features. It had low-cost content and production – and a competitively-low cover price.
More significantly, Bella represented the Bauer publishing formula at its best: it was a version of Tina in Germany, Maxi in France and Woman’s World in the US. Another key to Bauer thinking was to concentrate on the content, printing and distribution: for 20 years, they actually outsourced advertising sales in the UK, US, France, Mexico and Poland to former Hearst UK sales director Mike McCafferty.
“Konnie” and Heinz brought to London the aggressive tactics of their US business. By printing the UK magazines on their own presses in Germany or Poland, the newcomers were able to surprise their competitors – and keep costs down. Bauer spent £30m on the Bella launch, distributing a sample copy to every UK household and then letting newsagents have the first issues free of charge. But they also turned the retail market upside down by making their new title ‘sale or return’, breaking the UK convention of magazines being supplied ‘firm sale’ to newsagents which, therefore, themselves suffered losses on unsold magazines. All other publishers eventually followed suit, but not before Bella had eaten into the sales of the traditional women’s weeklies.
Three years after Bella, came Bauer’s mould-breaking launch of Take a Break, which quickly became the UK’s biggest selling women’s weekly. The magazine peaked at 1.3m circulation and still sells almost 600,000, having carved out its role with puzzles, prizes and, most of all, dramatically-written true life stories. John Dale, the former Fleet Street journalist who edited Take a Break for an extraordinary 20 years, once described it as “writing news stories backwards” to emphasise the personal drama of the news. Bauer promptly exported the winning formula to Germany.
Take a Break helped define Bauer’s success with un-flashy, un-glamorous magazines deriving at least 70% of their revenues from copy sales. From a launch budget of just £5m, Bauer managed to build a weekly magazine which probably accounted for more than 50% of its UK profits for more than a decade.
By 2000, Bauer was making UK profits of some £40m. The big splashes were long-forgotten and Bauer was profiting from TV listings, real life magazines and puzzle books with the market’s lowest costs and lowest cover prices. Gone were the expensive advertising campaigns in the name of growing profits and piling up cash. Heinz Bauer was narrowly outbid by private equity in the 1997 auction for the UK’s largest magazine publisher IPC, which was subsequently bought by Time Inc.
But it was still a surprise when Bauer swooped to buy the EMAP consumer operations 10 years later. Nobody could miss the stark differences between Bauer and EMAP. H. Bauer was based in North London’s low-rent Camden Town, and published Take a Break for socio group C1-C2 women. EMAP was based in London’s theatre-land and published Closer for fashionable ABC1 women. The paper, print and staffing levels seemed to reflect the differences in location, management, style and profile of the two companies. They were chalk and cheese. As a result, Bauer chose to keep its two operations separate (until now), while merging ‘back end’ accounting, distribution and IT.
EMAP had not always been so fashionable. It had risen from humble origins as a regional newspaper publisher to become the UK’s second largest magazine group through 20 glittering years of building brands like Heat, Grazia, Closer, Q, Mojo, Empire, FHM, Kerrang, Motorcycle News and Max Power. Despite also developing strong commercial radio and business information operations, the high-flying EMAP had fallen to earth, victim of a hubristic US acquisition, falling magazine sales, and management upheaval.
News of the Bauer acquisition sent the UK media scurrying for information on the almost unknown German company that had overnight become the country’s leading magazine publisher and the second largest radio station owner. Bauer’s newest employees had just as many questions. In uncharacteristically showy gestures, Heinz Bauer piloted his new UK executives round Britain by private jet to visit the company’s radio stations. And another jet whisked them over to a celebratory Bauer-wide conference in Germany.
For other employees, though, Bauer’s arrival was marked by a single sheet of paper on every desk followed by “nothing much initially, then gradually the changes seeped in and there was a very real fear,” according to a former executive. “It was scary at first because there was such a big battle to maintain the benefits we already had as EMAP employees. Bauer doesn’t like to offer benefits, just straight salary. So they argued and argued against having a pension scheme, although eventually they did concede. But all the incentive schemes were scrapped in favour of completely discretionary arrangements where Bauer would decide at the end of each year what bonuses to pay to
whom. It seemed like a pretty ominous start from a company we thought was not very creative and with which there seemed precious little synergy. It was a pretty dark time.”
That was just the start.
The EMAP success had been based on being adventurous, creative and collegiate. Most of its employees had been shareholders. Now, UK executives found themselves confronted by the serious faces of Heinz Bauer and his daughters who would spend hours picking through the specific detail of individual items in the trading accounts on even the smallest magazines.
One executive says: “They would just go on and on about the smallest details and it was very difficult to get their approval for, say, the choice of an editor for even the smallest magazines. They would demand to know why there were so few pictures on this page or that, when more pictures would supposedly be better value.
“They were passionate about the print quality. But the discussions were almost always about quantitative things not qualitative, almost the opposite to EMAP. We could spend 4-5 hours discussing a single caption on page 36 of my smallest magazine. I am not joking! It was all about cost cutting and then about putting in the same publishing, page planning and accounting systems they had in Germany. There was no serious consultation. It was all about ‘we know best’. They seemed to be all about micro management.”
The early atmospherics were momentarily lightened when one former EMAP publisher challenged Heinz Bauer on the stairs as he was
found wandering round the building: nobody had recognised the company’s new billionaire owner.
Former EMAP managers identified a pattern in Bauer’s management. The whole clan were said to attend family lunch in Hamburg every Sunday, following which executives would frequently receive emailed lists of highly-detailed and abrupt comments about specific magazines, trading items and policy: Things to do. No more cuddly, collegiate EMAP.
Heinz Bauer and daughter Saskia, who had led the relationship with their new UK business, seldom engaged in small talk or polite conversation, even before meetings. They seemed uninterested in their new colleagues. The company with major international ambitions always seemed strangely parochial, despite generating post-EMAP profits of some £100m from the UK. Then, three big things happened.
First, in 2010, Heinz Bauer passed a 85% shareholding in the company to Yvonne. Her three sisters were each given 5%. Second, two years later, Bauer bought the German editions of Cosmopolitan, Joy and Shape from Swiss publisher Marquard. Yvonne Bauer’s breathless announcement said it all: “We are breaking new ground with this move, putting Bauer Media Group directly into a strong position in the premium magazine market. Alongside our strong, circulation-driven portfolio comes expansion into the lifestyle and luxury segment with its vast potential in advertising revenues. This transaction opens up new commercial and distribution channels for us with fantastic brands in both print and digital.” Third, six months later, came the acquisition of ACP Magazines.
‘A future in print’
That was Yvonne Bauer’s deal and almost her debut on the public stage, just two years after she became CEO. That’s why
Bauer’s early days in Sydney were so different to the dark days after the EMAP acquisition in London. But Ms Bauer still echoed her father’s longtime confidence in the future of printed magazines, in a newspaper interview: “Print is our core business: we make popular, emotional magazines that are read by millions of people every week. Well-made magazines will always find their readers. This has become apparent in the new developments of the past few years, and the adaptation of foreign publications in new markets. Strong media brands are the currency we can use to thrive in the digital world. Print and digital offerings profit from each other’s media strengths and are interconnected.” And she even discussed ambitions to get into Australian radio, which had always had a larger share of the advertising market than its UK counterpart.
Yvonne Bauer’s warm words played well in a country where foreign buy-outs of Aussie companies, media ownership, and iconic brands like The Australian Women’s Weekly are hot buttons. But her comments also reflected a change in corporate style. She seemed to understand that the sheer scale of Bauer, as one of the world’s largest media groups, now called for a new open-ness and accountability.
The interruption now to Yvonne’s hands-on control creates the opportunity for Messrs Schoo, Keenan and Chan. to refine the strategy for a company which generates revenues of €2.3bn (75% from print) from 600 magazines and over 100 radio and TV stations in 19 countries on four continents. Bauer is the profitable magazine market leader in Germany, the UK, Poland, Australia and New Zealand. It is the commercial radio leader in the UK, Poland, and across Scandinavia. And, lest we forget, the Bauer real life and puzzle magazines still generate profit margins of 30%+ in Germany, Poland and the UK.
Towards a global strategy
The reality is that Bauer’s print dominance demands a matching digital strategy which offers something more than the feeble assertion on its web site: “Our worldwide portfolio includes more than 400 ePapers, eMagazines, apps and online portals – both as supplements to the printed word and stand-alone products.” But that is also the task of many traditional media groups which must find digital viability for their brands and relationships – unencumbered by the still-profitable print. (Bauer has the extra baggage of still printing almost all its European magazines on its own presses).
It is important to recognise that it is not the losses but the profits of print that weigh most heavily on digital development right across the magazine industry. Last week’s compelling PPA Festival of magazine publishers in London underlined the challenges even for some of the most innovative media companies. Some Bauer managers noted the risk that intra-magazine rivalry can fool companies into not facing up to the real competition: agile, digital-only operators.
However, the strength of Bauer’s radio businesses can help it to bridge the gap between existing profits in print and prospective profits in digital, especially in the UK and Poland. The action plan is becoming clearer:
UK: The management changes will see some obvious efficiencies from merging the two companies which have been strangely semi-detached for the past eight years. Bauer UK currently makes total operating profits of some £70m, about 35% from radio. Beyond the obvious economies, Paul Keenan’s team may be keen to exploit the digitalisation of Bauer’s puzzles-stories-listings expertise. They might well study the way that the New York Times has been able to win 200,000 digital subscribers just for its daily crossword. Why wouldn’t puzzle-doers and even real-life readers in other markets respond to that kind of offering?
Media everywhere needs to be focused on unbundling information that was once packaged for print, in order to give readers-users the opportunity to pay only for what they actually want. Nowhere is this easier than in markets where readers account for most of the revenues – like many of those sectors traditionally dominated by Bauer.
The company has a raft of strong print brands and a solidly profitable specialist consumer magazine and digital portfolio, which can be the catalyst for a stronger move into events. But music may become the defining business for Bauer whose radio profits increased by 19% in 2014. It now claims to be the largest radio group in Europe (just ahead of Bertelsmann’s CLT), which will help it address the increasing challenges of all things digital. These clearly include music streaming, and the move of broadcasting to online may multiply the competition right across the world.
New technologies may soon enable streaming services like Spotify and Apple Music to offer consumers their own bespoke radio station involving not just their choice of music but also of information like news, weather, travel and sport. Bauer’s UK development of audience data should lead it increasingly to use its entertainment media (radio, TV, digital and magazines) to create strong collaborations in music, whether live or via digital. There will clearly be a fusion of digital and live events in music – and also in sport. The digital-live experiments with theatre in the UK and elsewhere are just the tentative first steps in the next entertainment revolution, which Bauer is well-placed to exploit.
Australia/ New Zealand: There is plenty of scope for Nick Chan to apply his unrivalled knowledge of Bauer’s AsiaPacific magazines. This group is still the runaway market leader both in Australia and New Zealand. Its
dominance of what remains an attractive magazine market comprises more than 50 brands, custom publishing, internationally best-selling cookery books, and classified-only media. It dominates mass market magazines as well as most specialist sectors.
Its most successful brand is The Australian Women’s Weekly. This 400k circulation monthly (yes) is highly profitable with a total print and digital reach of more than 30% of Australian women. It is unarguably one of the country’s most trusted brands of any kind and could secure some highly profitable licensing deals in retail, consumer products or education. This 83-year-old Australian institution may actually be worth 50% of what Bauer paid for the whole company.
We should expect the new CEO to get through plenty of cost-cutting and to focus strongly on the core brands which can spawn brand licensing deals, high-value digital services, and collaborations that will help restore profit growth. We should, then, expect the company to use its European expertise to secure a role in the music business whether through radio, events or online streaming. It’s a natural for the company’s brand power and audience – and for Nick Chan himself.
Global: It is two years since the launch of Bauer Xcel Media to accelerate digital development worldwide. It also marked a new prominence for Andreas Schoo who has headed the initiative. But, although this operation has recruited some good people in its major markets, it does not yet look anything like one that will revolutionise Bauer’s digital footprint.
Like many other print-centric companies, Bauer needs to distinguish between: simple-enough web sites that complement magazines and digital businesses best developed independently. The UK and AsiaPacific subsidiaries may be best placed to develop their own digital opportunities, so the management revolution at
Bauer makes it seem likely that the Xcel plan will be quietly re-written over the next year or so. We should expect also the nascent Bauer Venture Partners to play a part in the opening up of digital opportunities, albeit not quite on the scale of Axel Springer which has built a huge portfolio of shareholdings in tech start-ups. But they should start trying.
After the revolution…
Bauer Media is a fascinating story for so many reasons. The next 12-18 months may well see the world’s largest magazine publisher starting to imitate Germany’s Axel Springer and Hearst, in the US, in becoming a corporation owned and/or controlled by family but managed by non-family executives. Heinz and Yvonne Bauer realise that the family company, where strategic decisions were made over Sunday lunch, was changed forever by its problematic investments in the UK and AsiaPacific and by the sheer scale of what it has become.
Insiders note that the negotiations for both the major acquisitions were characterised by Bauer mistakes and omissions that have exacerbated lost profits. The sum total is that the family simply does not have the ‘bandwidth’ to manage and develop the sprawling Bauer Media Group as it wrestles with digital disruption.
It had prospered for decades from a dominant position in the solidly profitable and relatively slow-changing German media market with adjacent businesses in Eastern Europe and very focused, high-margin magazines in the UK and US. But now it must bring the worldwide business under control. That is why the the appointment of Nick Chan in Australia, the extension of Paul Keenan’s role across the UK and Nordic countries, and the growing overall influence of Andreas Schoo are so significant.
This management team can powerfully transform the performance and culture of Bauer Media Group over the next few years. Yvonne Bauer is now almost the age Friede Springer was when she inherited control of Axel Springer on the death of her husband. Ms Bauer may be encouraged to heed the lessons of the increasingly-successful Axel Springer and – like Ms Springer – could become chairman of a Supervisory Board rather than CEO. The Springer-Döpfner partnership might just look like the best plan for Bauer too. Keep watching.
27 Sept 2016 UPDATE (from The Australian)
The Bauer Media Group’s global publisher is backing print as the “platform” for the Germany-based company’s success, despite its strong growth in radio. Bauer, which bought the former ACP Magazines from Nine Entertainment in 2012, said yesterday it had generated sales of €2.316 billion ($3.422bn) for the year ending December 2015, the second-highest turnover in the family-owned company’s history. “Our growth is based on innovative products and the constant nurturing of our brands,” Yvonne Bauer said. “Print is the platform for our success. In addition, we will continue to expand the pillars radio and digital and make further strategic investments in all our business fields.” Europe’s biggest magazine publisher generated €1.689bn in global revenue from its print business, which was down 2.5 per cent from the previous year. Bauer’s radio business generated revenue growth of 38.5 per cent to €320 million, though the division was boosted by acquisitions in Britain and Scandinavia. Bauer’s sales outside Germany accounted for 66 per cent of total revenue last year. (www.theaustralian.com.au)
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