AOL’s transatlantic assault with IPC

AOL Time Warner ended months of speculation last week when it bought IPC Media, the UK publisher of magazines from Woman’s Own and Country Life to NME and Loaded.

Not only does the move represent the US media group’s first substantial acquisition in the UK, it also means massive opportunities for IPC, which has long harboured a dream of being a media company as opposed to just a publishing house.

Time Inc, the US company’s magazine division, has bought IPC Group – IPC Media’s parent company – for £1.15bn cash. The deal will result in the departure of IPC chairman David Arculus, who was brought in to oversee the company following a £860m management buyout (MBO) from Anglo-Dutch publisher Reed Elsevier in 1998, backed by private equity company Cinven.

Analysts agree that Cinven, which acquired a 56 per cent stake in IPC through what was then the world’s largest MBO, is getting a good deal given the current climate of tough market conditions and diminishing advertising revenues. AOL Time Warner is reportedly paying more than 14 times IPC’s earnings before interest, tax, depreciation and amortisation – totalling £81.2m for the year ending September 2000.

Despite the recent downward turn in the market, IPC reported a 6.9 per cent rise in advertising income and a 0.8 per cent rise in circulation revenues in its interim results for the six-month period ending March 31. IPC showed total revenue of £182.4m – up 3.3 per cent on the same period last year – and a net profit of £3.8m – up £2.1m on the previous year.

The company recently closed down underperforming titles including Nova, Woman’s Realm, which was folded into Woman’s Weekly, and “lad’s mag” Later.

Time Inc president and chief executive Michael Pepe, who will oversee IPC, says: “Given IPC’s strong position in the UK, the deal will help the company become a major international player.” Pepe says there will be no immediate changes to IPC’s management team; chief executive Sly Bailey will report directly to Pepe.

MediaVest UK press director Mark Bedwell says: “The deal opens a whole raft of multi-media opportunities for IPC.”

IPC owns over 100 titles, including weekly television listings and women’s lifestyle magazines, while AOL’s magazine division has about 60 magazines, such as lifestyle title InStyle (launched in the UK in March).

AOL recently announced that half of its revenue would come from outside the US within a decade and has adopted an aggressive acquisition strategy. Last year it bought Time Mirror Magazines for $475m (£333m) and in February, the US version of technology magazine Business 2.0 from the UK’s Future Publishing for $68m (£47.8m).

According to an industry insider, the reasoning behind AOL’s acquisition of IPC lies in the fact that the US media market is increasingly over-crowded, forcing companies to expand overseas in order to meet targets.

But, the question remains as to whether the already fragmented UK market has the potential to sustain further growth.

Bedwell anticipates that any underperforming magazines in the IPC stable will be axed by the new owner. “Both AOL and IPC are quite ruthless about what is making money and what is not,” he says.

Pepe will not be drawn into any discussions about launches or cutbacks. He says: “Both Time and IPC have strong brands and are in the midst of developing the portfolio rather than adding to the mix.”

New PHD media director Laura James says: “One would hope the deal will mean that the two companies will expand and invest in their brands.”

Time is pressing ahead with the UK launch of its unisex fashion magazine, codenamed Project Palma, on August 30. The launch is being overseen by Tyler Brulé, editorial director of lifestyle magazine Wallpaper, which was sold to Time for $1.63m in 1997 (£1.14m). Pepe sees a “great affinity” between Time’s Wallpaper and InStyle brands and IPC’s Southbank titles, hinting that the two magazines could well become part of the IPC division.

IPC’s main rival, EMAP, recently sold off its US unit, Petersen, to rival Primedia at a loss of £498m, following a disastrous transatlantic foray. The debacle also cost former EMAP chief executive Kevin Hand his job.

EMAP chief executive Robin Miller says: “The consumer US publishing market is very different from the UK, where 90 per cent of the sales is through newsstands. In the US, more than 80 per cent of sales is subscription sales.”

AOL’s acquisition of IPC is likely to cause quite a stir in the UK publishing industry. Bedwell says: “Undoubtedly the merger between the two will cause concern for most publishers as it could provide some tough competition in the market.”

At a time when most media companies are being hit by a weakening global advertising market, they now also face an agonising wait to see how the UK’s largest publisher of consumer magazines will further extend its reach into the turbulent market.