Business Analysis
Media and publishing is a ruff and tumble business. History is marked by many high profile successes and littered with just as many failures. At the end of the day, success is all about advertising.
The key is having the right media assets to enable advertisers to deliver their sales message to consumers.
The value of media assets can change just like stock prices. The internet has been disrupting traditional television and print markets for more than 15 years. Those who have succeeded have found ways of adapting their media platform to a far more mobile internet customer.
Meredith is unique in that it is one of the last remaining media companies to maintain publishing and TV businesses under one company. It wouldn’t surprise me if the company spun off its publishing business in the future, as its TV operations are seemingly more valuable.
The Federal Communications Commission and other agencies regulate TV station ownership, which makes this entry fairly difficult to enter for potential newcomers.
Rule changes over the years have considerably lessened previous restrictions on the concentration, opening the industry to a long-term series of asset swapping and consolidation among its participants.
The attraction to the business is simple. Meredith receives a fee from cable companies to carry its network stations (i.e. retransmission fees) and also keeps some ad space to sell to local merchants. The cash flow is very appealing both for funding operations and to finance expansion.
MDP’s television assets reach metropolitan areas containing 11% of the US population. None of its stations are in major top 10 media markets like New York, Los Angeles, or Chicago.
Rather than being just another fish in big markets, MDP has chosen to seek market leadership in smaller places like Portland, Oregon, that are attracting lots of newcomers to the area.
The majority of the company’s stations maintain #1 or #2 ratings in their markets, which helps Meredith negotiate favorable retransmission fees with cable companies and receive a healthy return for its advertising slots.
According to CSIMarket.com, Meredith ranks #3 overall in Local Broadcasting with a 0.61% share of market close behind E.W. Scripps at 0.74%. In terms of advertising sales, MDP does not rank in the top 10 as measured by market share.
In publishing, MDP comes in ranked #5 by CSIMarket.com with a 0.14% share of the national market. However, these rankings can be deceptive since they include giant newspaper publishers like market leader News Corp at 0.59% things like The Wall Street Journal or Gannett Co. at 0.31% with USA Today.
What this shows is just how extremely fragmented the publishing business has always been. What this data does not reveal is who has made the right moves in the modern world of digital communication.
As seen below, Meredith’s publishing business has been rapidly transitioning to a more online and mobile audience over the last five years.
The company is working hard to transition its 30 million monthly subscribers to digital subscriptions, which are more profitable and can benefit from higher renewal rates.
Source: Meredith Investor Presentation
When combined with higher retransmission fees from its TV stations in recent years, Meredith has been able to reliably generate operating margins in the double-digits.
The company achieved record revenue last fiscal year and continued to report growth in print advertising, indicating that Meredith has so far found its way under changing industry conditions.
