Entrepreneurism In Consolidating Markets

Folio: The Magazine for Magazine Management, Feb, 2001 by Bob Moseley

Does consolidation have a tendency to depress or jump-start entrepreneurial ventures?

Joe Webb

Partner, Trendwatch

Consolidation does create, in time, more new titles and properties. There are many reasons why, but the most important ones are based in the economic concept of specialization. The people who sell any business have skills and insights into that industry. These insights and skills are often subtle and not always transferable to other industries. So it's no surprise that people who have sold their businesses often start new titles.

Another aspect is that they are often better skilled at starting new businesses and taking on the risks associated with starting new enterprises than the larger companies that acquired their old business. These entrepreneurial capabilities are not unlike those of all people who start new businesses and then find that they are dysfunctional (if they're mature enough to admit it) once their businesses start to grow in size. They sell their businesses when they feel that they are losing their grasp on things. It stops being fun and starts to become bureaucratic.

Samir Husni

Head, Magazine Program, Univ. of Mississippi

It never fails. Every time a major publisher releases a new title or acquires one, entrepreneurs retreat and take a wait-and-see attitude. My observation is that when the big guns are on the field, the individual start-ups slow down. Since big guns like Time Inc. aren't happy anymore with a magazine launch--but rather a media launch with a minimum print and online combination--you see multiple entries that scare the fool out of the individual start-ups and send them to the back. The last few years have probably decreased the number of individual entries from a high of 95 percent to less than 80 percent, with the leading 100 media companies growing in number of new launches to fill that void.

It used to be said that the pen is mightier than the sword, but now it appears that the cannon is mightier than the pistol.

Tom Kemp

CEO, Penton Media

Industry consolidation can have a depressing effect on start-ups and launches, particularly within those publishing companies being acquired. The reason for this is that most acquisitions are being executed at high multiples using debt financing. Therefore, there is a need to significantly increase operating cashflow in the short term to satisfy both the banks and the investors.

This is particularly true among financial buyers (private equity firms), which require significant returns--usually above 30 percent annual compounded return on equity--and which hope for a relatively quick exit strategy of three to four years.

The good news is that our industry remains very regenerative in that there are many private companies and entrepreneurs who are constantly launching new magazines, trade shows and Web businesses. It is not a coincidence that many of our most successful recent magazine launches were all executed by private companies, including Industry Standard (IDG), Business 2.0 (which was launched by Imagine Media when it was still a private company), Red Herring, and Fast Company.

Regardless of the risks associated with new launches, allowing entrepreneurial activity to flourish within any media company is still the best way to create value.

Jerry Guttman

President, Lexicon Group

Since the early 1970s, the market for startups has gradually become more difficult and selective, except for a brief window, now defunct, for anything related to the dot-com world. What has happened is that the massive industry consolidation has tended to shift financing for start-ups away from the industry itself and over to private venture capital, and quite often to self-financing schemes. Ironically, although I don't have 1999-2000 statistics on hand, I am confident that an analysis would show that the number of launches has not changed significantly, while the nature of the financing has changed indeed. Will this shift produce better longevity for these start-ups? I doubt it, but let's ask the question again in 2002.