Commentary

F+W Media Files For Chapter 11 Amid Ecommerce Fiasco

F+W Media, the publisher of Writer's Digest, Popular Woodworking and other niche service titles, this week filed for Chapter 11 bankruptcy amid falling subscriptions and ad revenue.

The publisher’s attempt to build an ecommerce business was cited by current company management as a major mistake. That should serve as a warning for any publisher that thinks it can compete with Amazon.

F+W’s court filing shows debt of $105.2 million and $2.5 million in available cash — the kind of leverage you’d expect to see from the average hedge fund, investment bank or even the U.S. government.

Aside from multimillion-dollar term loans, F+W’s biggest trade creditor is commercial printing company LSC Communications, which is owed $2.7 million. Oracle, Adobe Systems, Palm Coast Data and R.R. Donnelley are also owed money, the March 10 filing shows.

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Instead of demanding that creditors take a haircut or trying to renegotiate payment terms, a liquidation is planned. That seems unfortunate, considering F+W had $67.7 million in revenue for its enthusiast titles and $22 million for its books division last year.

However, the longer-term trend wasn't pretty. Ad sales plunged from $20.7 million in 2015 to $13.7 million last year, while subscribers dropped from 33.4 million to 21.5 million.

Those declines were partly attributed to a 2008 decision by former management to focus on ecommerce to make up for declining print sales.

“With its large library of niche information for its hobbyist customers, the company believed it was well-positioned to make this transition,” the filing said.

That monetization strategy sounds awfully familiar, doesn’t it?

But getting into ecommerce meant buying merchandise, storing it, marketing it, fulfilling it and responding to customer service requests. In other words, a total nightmare compared with selling ads and subscriptions.

De-emphasizing print and digital publishing only accelerated the decline to F+W’s media business, the filing said. The customer service debacle hurt its reputation and alienated customers.

“Because the company had ventured into fields in which it lacked expertise, it soon realized that the technology used on the company’s websites was unnecessary or flawed,” the filing said. Another classic mistake: overspending on technology that's not aligned with business demands.

F+W's craft business last year generated $3 million in revenue, but the company spent $6 million on its sales efforts.

Current CEO Greg Osberg, a former company consultant who was appointed to the job last year after F+W's board fired the former CEO and other managers, said the best way to pay back creditors is by selling the company in two parts: the book publishing business and its enthusiast titles.

F+W already went through two rounds of job cuts last year that eliminated 40% of headcount as managers worked on a turnaround strategy.

The company is still operating in bankruptcy while seeking a buyer. At the right price, any deal is viable, especially for a company that generated $90 million in revenue last year.

But any potential buyer needs to be concerned about competition from free online content, especially the zillions of free how-to videos on YouTube.

F+W’s roots date back to its founding in Cincinnati in 1913 as a publisher of automotive periodicals, The Cincinnati Enquirer’s archives show. The publisher can survive with the right strategy, including a much more cautious approach to ecommerce.

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