Alan Kohler's Business Spectator and Eureka Report acquired by News Limited for $30 million
Alan Kohler's Business Spectator and Eureka Report acquired by News Limited for $30 million; Interested parties also included Fairfax Media, Financial Times, Euromoney and Reuters
Tweet Topic Started: 27 Jan 2012, 10:23 PM (1,341 Views)
Australian business information and opinion website Business Spectator may be sold as part of a “strategic review,” the company revealed today. Chairman and editor-in-chief Alan Kohler of Australian Independent Business Media, which owns the website and subscription-based online newsletter The Eureka Report, told staff today the company was undergoing a review of whether part of all of the company would be sold.
“We have had several approaches to buy our company, and the board and management have therefore decided that, rather than continue to field ad hoc offers, we should go through a proper strategic review process to clarify the position once and for all,” said Mr Kohler in a speech made to staff.
“The process is at a very early stage, but an Information Memorandum has been sent to interested parties and it could eventually result in a media company or investor buying some or all of our company - but only if we received a fantastic price," said Mr Kohler.
A News Ltd website reported that interested parties have included Fairfax Media, Financial Times, Euromoney and Reuters.
Fairfax Media is in exclusive talks to acquire the publisher of independent news and opinion website Business Spectator, a source with direct knowledge of the situation said on Tuesday.
Fairfax and Australian Independent Business Media (AIBM), which owns Business Spectator, have been in exclusive talks for a week, said the source, who declined to be identified because the matter is confidential.
Media reports, which have put the value of a deal around $20 million, have said that Fairfax was vying with News Corp's Australian arm News Ltd for AIBM. Business Spectator had revenues of $3.6 million in the last fiscal year, according to reports.
Fairfax, which publishes the Australian Financial Review, the Sydney Morning Herald and The Age in Melbourne, has said it is in the hunt for acquisitions.
In February last year I published a controversial op-ed for The Drum proposing a new business model for incoming Fairfax CEO, Greg Hywood.
This advice triggered an animated and highly defensive response from the former CEO of the Financial Review Group (AFR), which was promptly published by The Drum and highlighted in a tweet by Mark Scott.
The AFR's former boss claimed that my analysis was "wrong", "pathetic", and "appalling". Frankly, his reaction was not overly surprising given I had implicitly called for his removal.
A more revealing response was found in the direct emails I received from senior AFR journalists complimenting me on the article. In fact, I was informed that the journalists' union had forwarded it around with an endorsement.
Eighteen months later, it is an opportune juncture to revisit my analysis to see which, if any, of the ideas in my seven point plan have been accepted or rejected.
One of the main recommendations was to replace the incumbent leadership with a "world-class financial journalist(s) with deep digital experience to run the whole show for you". I cautioned Hywood "not [to] allow one of your existing executives to do the job - they've likely already been contaminated by Fairfax's less-than-ideal DNA".
Hywood complied. The AFR's senior management was junked for two relative outsiders: the up-and-coming deputy CEO of The Australian, Brett Clegg, and The Australian's top economics columnist, Michael Stutchbury. Both had worked with the AFR before.
Since the duo's arrival there has been a striking transformation of the masthead's once-dull and rarely newsworthy online and print copy.
Many business folks I know who let the AFR go in preference for new substitutes, like Business Spectator, are returning to the fold as a commercial imperative. Today the AFR has too many breaking stories, and too much differentiated content, for serious players to ignore it.
A second key proposal was that Hywood "ditch the AFR's current online publishing system, and allow summaries of all news and articles to be accessible in searchable form via the internet." I also argued that he should "permit 'commodity' news and some other richer content to be read for free in order to generate subscriptions".
Both these changes have been taken up. After years of being shuttered-away from the internet (including, amazingly, all search engines), the AFR's product is now completely "searchable", and can be copied and pasted into emails and documents, which facilitates wide brand dissemination (with proper acknowledgments). The AFR also selectively makes important copy free for non-subscribers.
Perhaps the most contentious suggestion I had was for Hywood to "buy Business Spectator and that cash-cow, Eureka Report, now why you can still afford to do so (or before News Ltd does)".
If I can say so, this proved prescient. In recent months Fairfax and News Limited have both made bids for Eureka Report and Business Spectator. Exiting shareholders include Mark Carnegie, John Wylie, Eric Beecher, and possibly a partial sell-down by Alan Kohler. Stephen Bartholomeusz and the ever-green Robert Gottliebsen will reportedly keep their equity.
Beecher is also the founder and chairman of the Private Media group, which runs a stable of specialist sites including Crikey, Property Observer and Smart Company.
Relations between the Business Spectator and Private Media teams have become inevitably tense as the commercial markets they target overlap. This climaxed with the creation of the successful Property Observer product, which covers the advertising-rich commercial and residential real estate sectors.
After initially "low-balling" the owners with a $10 to $20 million bid, it understood that Fairfax has significantly boosted its offer, and secured exclusive negotiation rights.
The key thing Fairfax decision-makers will be focusing on is "opportunity cost": are they better off spending, say, $20 million-plus competing against Eureka Report and Business Spectator with new, wholly-owned products (and/or enhancements to existing ones), or does it make more commercial sense to simply take them out now, as I originally recommended?
This issue ultimately hinges on "price": there will be a price threshold beyond which the opportunity cost for Fairfax is too great. To get to that specific price, one needs to project the business's future cash-flows, and discount them back to today with appropriate "risk-adjustment".
The two obvious risks are: (1) that Eureka's retail investment space has extremely low barriers to entry with brand goodwill being its principal asset; and (2) if, over the long-run, you plan on integrating Business Spectator into Fairfax's infrastructure, will you just create another commercial vacuum for a new entrant to fill? There may, therefore, be tactical merit in keeping Business Spectator as an independent concern that you can chisel away at over time.
Much of the decision-making here depends in turn on whether Fairfax's management can fully reinvigorate the AFR, and its derivative products, to the point where the expected profits from these wholly-owned businesses are greater than the profits forecast from acquiring control of Eureka and Business Spectator.
In my February 2011 op-ed I complained loudly about the withering away of the AFR's human talent, which together with its Stalinistic approach to the internet, dissuaded third-party op-ed contributors:
"With the exception of perhaps Laura Tingle, Andrew Cornell and Alan Mitchell, all of the AFR's most highly regarded columnists have left the building ... The op-ed pages, once so influential, are now a veritable ghost town. After all, who would write for a paper that locks their content away behind both paywalls, and, remarkably, the internet itself ... As a consequence, publishing with the AFR threatens one with irrelevance, as Rupert Murdoch might say."
Clegg and Stutchbury have worked hard to eliminate these shortcomings by substantially beefing-up the group's journalistic and editorial resources, co-opting in third-party contributors and sector specialists, and, critically, re-orientating what is a financial markets product back to the "centre-right" of the policy spectrum. (One historical oddity was the AFR's centre-left predispositions.)
Having noted these accomplishments, significant challenges still remain in wait. In particular, three of my seven points have yet to be embraced:
1). Merge all of the business resources across The Age, The Sydney Morning Herald, and The Australian Financial Review to create a single, unified financial news centre, and treat each separate platform as a conduit of information from this central content-producing hub. Think of journalism as being manufactured in a factory, with the output distributed to shop-fronts around the country. So more generic and retail business news can be farmed out as freeware via The Age and The SMH online, and through their print iterations. The higher value-add product would be made available via subscriber-only channels, such as The AFR/Business Spectator, Eureka Report, and other specialist offshoots (on this note, Australia is desperately in need of a weekly property investment equivalent of Eureka Report [subsequently addressed by Property Observer]).
2). Create a bona fide online business television channel as a small-scale competitor to the paywalled Sky that is largely free and employed as an alternative platform for delivering visual advertising. This is a huge opportunity, and precedents have been set by the likes of Bloomberg Television.
3). Replicate the very successful and mostly free Financial Times and Wall Street Journal blog strategies, such as FT Alphaville, Money Supply, and Real Time Economics, as uber high-end forums that aggregate sophisticated research and trading talk, to stimulate 24/7 traffic among your deepest-pocket users: institutions. Blogs are also a powerful way of engaging your readership to dynamically and interactively produce content for you.
My best guess is that Hywood and Clegg will eventually get around to acting on these ideas.
Christopher Joye is a financial economist who writes for Property Observer, Business Spectator, Eureka Report, Crikey and, occasionally, the AFR. View his full profile here.
EXCLUSIVE: Fairfax Media and Alan Kohler’s media independent, which houses Business Spectator and the Eureka Report, are in advanced discussions about forming a new unit which would include BRW and Smart Investor under Kohler’s chairmanship.
A deal is yet to be inked but AdNews understands both sides are enthusiastic about the prospects, which is expected to see Fairfax Media take a 75% stake in Australian Independent Business Media (AIBM) and drop in some of its publishing assets into a new division.
Crikey.com.au has already raised a price of $22.5 million which Fairfax was willing to pay for a 75% stake in AIBM. However, there are indications Fairfax may have backtracked on its initial, non-binding offer because of concerns about the subscription growth prospects of the Eureka Report, which has been a cash cow until now for AIBM. Some have suggested Eureka might be under some pressure to retain subscribers at the attractive yields it has operated on historically. Eureka has about 16,000 subscribers with a rack rate of $385 per year.
Fairfax is working through due diligence on the deal and although reports from both sides have them keen to strike an arrangement and upbeat about a repositioning of titles like BRW within the new group, there may be some sticking points around the size of a Fairfax offer.
AIBM chairman Alan Kohler would not confirm the developments. “I can’t comment,” he told AdNews. “I wish I could.” News Ltd has also showed interest in AIBM although Fairfax appears to be in the box seat at present.
Some have suggested, if a deal proceeds, the new unit will be housed in the Financial Review Group under CEO Brett Clegg but autonomously managed to the Australian Financial Review.
Fairfax is said to be upbeat about using its audience network to grow Eureka Report subscriptions although it is a category with increasing competition.
If the two sides can come to an agreement, AIBM’s current management structure is likely to remain to run the expanded portfolio although AIBM’s advertising sales operation would shift across to the Financial Review Group.
My media home for much of the last three and a half years, Business Spectator, was wholly acquired by News Limited today. It was a tremendous outcome for the founders of the business, which includes the very profitable Eureka Report, although sad in the sense that it arguably closes a significant chapter in Australian media history.
Business Spectator and Eureka Report will no longer exist as economically independent concerns, and management will once again report to a major media organisation.
Having said that, it was a very smart and well-timed decision by the owners, which include the canny investment banking couple, John Wylie and Mark Carnegie, and the experienced media proprietor, Eric Beecher. There is a case that the business was right in the middle of its valuation "sweat-spot" from an internal rate of return perspective. There is also the fact that venture capitalists like Carnegie and Wylie need an exit within a reasonable time-frame.
Business Spectator and Eureka Report were iconic, game-changing media start-ups. Of course, the success of these new entrants was entirely attributable to the people running them. I've worked with a lot of motivated, intense individuals throughout my life. On any measure, Alan Kohler, Stephen Bartholomeusz, James Kirby and Bob Gottliebsen toiled like Trojans to get their shared vision off the ground. And they deserve to reap the rewards.
Business Spectator and Eureka Report were "disruptive" innovations in the Australian media industry. Initially dismissed by their competitors as irrelevant non-entities, they matured to become serious commercial threats. It is no exaggeration to say that they contributed to accelerating the changes outlined by Fairfax and News Limited over the past few days.
As an instinctive anti-establishment character, I was delighted to be invited to join this band of brothers (and sisters) on their journey way back in December 2008. I think it was Bartho who originally suggested bringing me on board.
I started off blogging, and then transitioned into one of the "spectators". As the guys know, I was never backwards in coming forwards with critical advice. And notwithstanding distinct differences of opinion on the subjects about which we were writing, I found all the executives--every single one of them--to be terrific human beings. And they seemed to share that common entrepreneurial thread.
I'd like to single out Alan Kohler in particular. Alan is a wonderfully capable and compassionate man. Every time you speak with him you leave the conversation thinking, Wow, that guy has grace.
There were many highlights along the way. Episodes that spring to mind include: the big intellectual battles during the global financial crisis over what would happen to the domestic economy (and house prices specifically); kick-starting the debate around the optimal cash, fixed-income, and equities allocations in super funds’ portfolios; advancing the opportunity cost critique of the NBN; the call for a “Son of Wallis” financial system inquiry; breaking the news of Malcolm Turnbull’s return to politics; pushing the dialogue on the role banks should play in our community, and helping introduce the arguments that they are quasi-public utilities, that expected future returns should be lower given the introduction of taxpayer guarantees, and the need to properly price implicit subsidies; and, finally, opening up new ground on our understanding of the conduct of, and assorted influences swirling around, central banking and monetary policy in this country.
Some time ago I informed Business Spectator's leadership that I had agreed to partner with another player. This was before the News Limited deal had been consummated. It was not an easy decision to make, and the team were very kind in working hard to persuade me to stay. So I will eventually emerge in a new place.
I want to emphasise how pleased I am for the originators of this undertaking. This is one of those new business stories that has a happy ending. Alongside the Private Media network, which encompasses Property Observer, Smart Company, and Crikey, it offers a powerful precedent for those brave souls that aspire to one day shake-up the media orthodoxy. It can be done.
And while this is in no way the current transaction's commercial intent, News Limited's acquisition of Business Spectator and Eureka Report will invariably create additional industry "space". The key strategic question is now whether the two duopolists--Fairfax and News--aggressively defend that prospective territory, and erect formidable barriers to entry, or whether history is permitted to clone itself, over and over again. The human condition would put better-than-even odds on the latter.
THE ABC's finance guru, Alan Kohler, has come under fire on the national broadcaster's own website over an apparent conflict of interest between his nightly TV news spot and his new role with media giant News Limited.
Kohler is to continue his slot during the ABC's 7pm bulletin, following the sale of the Australian Independent Business Media empire he runs with partners Robert Gottliebsen and Stephen Bartholomeusz to News for $30 million.
Writing on the ABC's The Drum website, freelance journalist Ben Eltham - who declared his own conflict of interest as a contributor to the Crikey website run by AIBM part-owner Eric Beecher - said that Kohler's role at News ''undermines the independence and integrity of the ABC's editorial content''.
''He now works for the ABC's main competitor. This is an open and shut case,'' he said.
News Corp paid a cool $30 million for Alan Kohler’s business websites in 2012. But with Business Spectator and Eureka Report costing money, did News overpay?
A year after being acquired by News Corp, Business Spectator cost the company $2.5 million despite pulling in revenues of $3.4 million. Its stablemate Eureka Report added only $671,000 in operating income.
News Corp bought Business Spectator and Eureka Report from Australian Independent Business Media in June 2012 for $30 million.
The analysis for the business unit shows subscription revenues were running behind budget, pulling in just $4.4 million, while the budget had planned for $5.1 million. Advertising revenue was also behind targets — $3.9 million instead of $4.2 million.
Meanwhile, total wages for the division’s 52 staff — 27 at Business Spectator and 21 at Eureka Report – ran to $6.7 million. Total expenses for the division before depreciation were $10.3 million.
Despite Eureka Report being widely seen as the jewel in the crown of AIBM, it couldn’t counteract the losses at the rest of the division. Total operating income was -$1.9 million. That amounts to the $2.5 million lost in Business Spectator, offset by the $670,000 made at the Eureka Report.
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