Running For The Exit

Caveat emptor.

Whoever is considering bidding on Forbes, which announced Friday that it is up for sale, must first address two questions:

1)     Is revenue growth based on its aggressive branded-content and unpaid-blogger strategies sustainable?

2)     If the answer the first question is “yes,” why would the owners sell?

Hint: If the answer to question #1 is “no,” never mind question #2.

Before we address the sustainability issue, though, let’s consider how we ever got to the point that the management of Forbes could, with a straight face, seek $400 million in the open market. That market has, after all, seen values of media properties plunging for the entirety of the 21st century. The Washington Post was recently sold for $250 million. The Boston Globe just changed hands for $70 million, a slight 94.6% erosion of value over 20 years. Maxim is on the block for $20 million. Six years ago, Quadrangle Capital acquired it with two other titles for $250 million. The other titles have since been shut down.

So where does Forbes get off seeking a sum that would represent a mere $130 million haircut over its 2006 valuation? The answer to that one is that if you squint real hard, it almost looks as if Forbes CEO Michael Perlis has cracked the code. Plummeting CPMs and general ad avoidance have cast doubt on the emergence of any business model for publishing, online or off, yet hasn’t Perlis sharply reduced costs and generated a whole category of new revenue without wholesale losses in readership? He has indeed.

On the cost side, he brought in Lewis DVorkin to Huffingtonize the editorial product. The roster of professional writers has been trimmed, replaced (and then some) by 1200 contributing bloggers, mainly businesspeople and academics with a perspective on certain subjects (arguably) elusive even to Forbes’ famously analytical specialty journalists. These folks produce a lot of copy -- some of it worthy, some of it self-serving, some of it barely comprehensible -- which in the aggregate generates a lot of audience, which is to say, a lot of clicks.

Meanwhile, Forbes has pioneered so-called “native advertising” with its BrandVoice program through which advertisers offer “content” that looks very much like editorial matter. They do a decent job of disclosing its essential marketing-ness, and the advertisers in general do a decent job of making the material readable (sometimes even interesting.) Most importantly, the audience is paying some attention. The click-through on some BrandVoice “articles” approaches that of actual editorial content. Considering that the click-through rate on display advertising is functionally zero, many look at BrandVoice as the template for all publishers’ revenue future.

The sales staffs at otherwise respectable publications are falling all over one another to deliver similar opportunities to agencies and their clients. Because -- miracle of miracles, if the privately held company can be taken at its word -- Forbes Media is profitable.

Once again, however, “profitable” is not enough information. Is the company sustainably profitable?

No. Of course it isn’t. Why? Have you ever visited Forbes.com? It’s like being trapped inside a pinball machine.

There are “top stories.” Video (on unconscionable, noisy autoplay). “Most popular” stories. Stuff trending in social media. Feature stories (how they differ from “top” or “popular” in unclear). BrandVoice “articles.” Forbes videos. “Recommended” (by whom and based on what is also anybody’s guess). And Forbes Lists, including the billionaires lists and the Celebrity 100, but not including the list of all the endless varieties of text and video you’ve just bounced around within. Clicking on any of these items sends you afresh inside -- BING BING BONG BING -- another unpredictable arcade game.

The experience is confusing and it is exhausting. And visitors will tire of it. 

They will tire of separating the wheat from the chaff. They will tire of not knowing the agenda of whoever wrote a given article. They will tire of giving Forbes the benefit of the doubt each time they get sucked into purely promotional text. They will tire of audio blaring in their ears without permission or warning. They will tire of wondering what exactly, under the banner of Forbes Media, is not for sale.

In short, the more they experience the content bazaar, the less they will like it. My best guess -- and it is only a guess -- is that the numbers are already beginning to reveal Forbes fatigue. This would explain the sudden attempt at what VCs and private-equity funders call an “exit.”

On that subject, I would pose to any prospective buyer yet one more question:

3)     Is this really an exit…or just an attempted escape?

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10 comments about "Running For The Exit".
  1. Paula Lynn from Who Else Unlimited , November 18, 2013 at 7:59 a.m.
    They are throwing in a bridge for good measure, maybe even the Crooklyn Bridge.
  2. Leslie Singer from SingerSalt , November 18, 2013 at 8:23 a.m.
    I worked with Forbes quite a bit back in the day, and it was a wonderful company filled with smart dedicated people that had a lot of integrity. I find the whole thing sad and hope this great American brand gets a Hail Mary whether it's and exit or an escape.
  3. Jaffer Ali from PulseTV , November 18, 2013 at 8:26 a.m.
    Thanks Bob, for telling it like it is once again. There is little doubt you are correct.
  4. Nicholas Theodore from Self-Employed , November 18, 2013 at 8:27 a.m.
    In my opinion, someone is going to get screwed if Forbes is successful in selling for the advertised price of 400$M. I have the feeling that because Bono 'sees' that the value of Elevation and his investment in Forbes has increased by almost 90$M, he is being targeted by Forbes as a serious potential buyer for something that will only decrease rapidly in value.
  5. Mike Einstein from the Brothers Einstein , November 18, 2013 at 9:45 a.m.
    Never mind question #2.
  6. Stephen Mindich from phoenix media group , November 18, 2013 at 11:14 a.m.
    Sadly, very sadly, I think this analysis is pretty much on target. And so I ask, “With no apparent successful business model yet in sight, (pay walls?), what does this auger for the future of vetted, edited QUALITY journalism?” Answer: Nothing good. And this should worry everyone!!!
  7. Paula Lynn from Who Else Unlimited , November 18, 2013 at 11:25 a.m.
    Yes, Stephen, we should worried, very worried. Who is controlling the Pied Pipers ?
  8. Stephen Mindich from phoenix media group , November 18, 2013 at noon
    This is not written as a criticism, but just as an observation – Advertisers/marketers are interested in only one thing: selling their goods and services using the least expensive means available to achieve their sales/profit goals and the highest ROI. A perfectly reasonable objective. But when they control the content, (“Native Advertising” and the like), we will have finally slipped down that very slippery slope of purveying contaminated/distorted information for the primary (sole?) purpose of profit. This, however, while likely to be a short term gain for them – it will also likely be a long term loss when consumers abandon what they come to realize is another form of infomercials and their credibility is gone. But worse, far worse, will be the loss of the means, (the institutions, e.g. the “old” Forbes, etc.), to pay for the gathering and reporting of real news and information. And we the people/the citizenry will be the biggest losers of all.
  9. R.J. Lewis from e-Healthcare Solutions, LLC , November 18, 2013 at 12:28 p.m.
    Good piece. What is the purchase price as a revenue multiple and EBITDA multiple? How does that compare to the other recent publisher transactions?
  10. jeff johnson from j and j , November 18, 2013 at 12:55 p.m.
    I'm confused, weren't you just singing the praises of Forbes? http://www.mediapost.com/publications/article/194212/no-swimsuit-issue-but-forbes-still-has-a-buxom.html#axzz2M6mzOE00