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Squeeze Play

The Deal, 10.16.09

Richard Morgan

No one would accuse BusinessWeek, which for years posted the most ad pages of any U.S. magazine, of being stuck in the middle. But that's exactly where the increasingly cruel dynamics of business journalism have it.

Or, more accurately, that's where the erstwhile flagship of McGraw-Hill Cos. stalled out before Bloomberg LP agreed to take it on and rebuild it as Bloomberg BusinessWeek.

Time will show that BusinessWeek was not alone. Forbes and Fortune are stuck in the middle, too, a declaration that diminishes the former Big Three of business publishing to a remaining Middle Two.

The middle, moreover, is not a good place to be. Just ask Condé Nast Publications Inc., whose Portfolio entry found itself in that position despite benefiting from an infrastructure that's still in place for 19 titles. Fortune also stands to learn that lesson as it tries to survive as one of Time Inc.'s 22 domestic magazines.

This is partly because there's a new big. Rupert Murdoch's buying Dow Jones & Co. in 2007 and depositing it in multicultural, multimedia and multiplatform News Corp. -- now that's big. The merger of Thomson Corp. and Reuters Group plc in 2008 to create the same Thomson Reuters Corp. that paired with private equity firm ZelnickMedia Corp. to take second-place in the BusinessWeek auction -- that's big, too.

Then there's the auction's winner, Bloomberg, with a staff of 10,000, offices of 135 and terminals of 300,000 -- all devoted to creating, aggregating and delivering business data and content. Bloomberg personified the new big of business journalism even before capturing BusinessWeek. The fire-sale price it's paying for the publication, by historical standards anyway, is easily justified by the opportunity it provides to take Bloomberg beyond its core trader-analyst base and into the C-suite where self-respecting business journalists long to be.

Complementary to this new big is a new small. These are the Huffington Posts, if you will, of business media. They're lean, niche and often Internet-only.

Some, such as paidContent.org and Mediabistro.com, have already drawn the envy of traditional journalists for their lucrative exits. Others, such as Breakingviews.com, are being swallowed by one of the bigs -- Thomson Reuters, in this case. And still others, such as The Business Insider (a two-year-old blog network that already boasts 2.2 million monthly uniques), are amassing impressive followings.

All are taking their toll on the middle, being, as they are, the ver drivers of the secular trend away from print. And just how big is this toll? Elevation Partners LP's 40% stake in Forbes Media LLC for an estimated $300 million offers a point of comparison. The deal, struck in 2006, valued Forbes at $750 million. And for the first nine months of that year, Forbes magazine reported ad revenues of $220 million, and BusinessWeek of $209 million.

Their respective ad revenues through September of this year are $158 million and $113 million. The three-year advertising declines explicit in these numbers -- 28% and 46% -- are disturbing indeed. But they're nowhere near the valuation declines indicated by Forbes' worth of $750 million in 2006 and BusinessWeek's sale for $35 million in 2009. (One shudders to think what Fortune's valuation will be when Time Inc. realizes its once august business title is stuck in the middle, too.)

Business media's new big and new small, meanwhile, are getting surprisingly conversant with each other. In its pursuit of BusinessWeek, ZelnickMedia not only teamed with an institution, Thomson Reuters, but with a person, Gordon Crovitz, the former publisher of The Wall Street Journal. ZelnickMedia partner Jim Friedlich, the former Dow Jones chief of global sales and marketing, had worked alongside Crovitz to establish WSJ.com as a successful paid online site.

However, in addition to making a run at BusinessWeek this year and Reed Business Information last year, Crovitz and Friedlich have been chasing deals in business media's new small sector. Last May, for instance, they joined investors Herbert Allen, Kevin Ryan and Marc Andreessen in backing The Business Insider.

This previously mentioned blog network, like other members of business media's new small, seems destined to be scooped up someday by a member of the new big. And by then it will likely command a valuation that exceeds the one Fortune fetches when that stuck-in-the-middle title gets sold.

Richard Morgan covers media for The Deal.