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Free Spirited Strauss Zelnick; Room in Media for a Guy with a Dream
March, 5 2004

Advertising Age, 03.05.04
Diane Mermigas

In these days of rampant consolidation, the entrepreneurial spirit is alive and well with Strauss Zelnick and his New York-based Zelnick Media.

The private holding company recently met its goal of reaching $1 billion in revenues within three years, which it now hopes to quadruple over the next three years without an alliance with a large partner.

Many of Mr. Zelnick's peers who also have worked at media conglomerates for the likes of Rupert Murdoch and Barry Diller, continue to stake their fortunes on that corporate turf.

But not Strauss, as he is endearingly referred to throughout an industry that considers him an uncommon and most welcome free spirit. "Being autonomous and entrepreneurial is its own reward," Mr. Zelnick said in a recent interview with Mermigas on Media.

To modest to compare himself to a young John Malone in his maverick pursuit of building his own media empire, Mr. Zelnick has relied on private equity firms such as Ripplewood Holdings and Pilot to contribute about $100 million, with the remainder of his estimated $500 million in overall capital needs coming from banks and other institutional lenders. He raises the capital on a deal-by-deal basis.

Although he declines to comment of specific finances, sources close to the company said Zelnick Media generated between $50 million and $100 million in earnings on nearly $1 billion in overall revenues last year, about half of which are generated by its international operations.

But his portfolio companies have the vitality of being on the cusp of a broadband rollout for the masses with everything from online research to multi-media direct marketing, to targeted television production.

"I was fortunate to work for some terrific people in the media business such as Barry Diller and Rupert Murdoch. And there are a lot of people I admire in the business. But I spent most of my career running divisions for big media conglomerates starting at Columbia Pictures. And I decided a long time ago I wanted to build my own a so that's what I am doing. I essentially traded a salary for equity in what I do but I wanted to play for equity and that terribly important to me," Mr. Zelnick said.

In fact, his six years at BMG was the longest he stayed in any one media job Having commanded a studio as president at the age of 32 and of a major music company at age 37, Mr. Zelnick said he simply was ready to try other things. Sources close to Mr. Zelnick say he still gets a steady stream of queries from major media firms hoping to lure him back to the corporate fray. But, it appears Mr. Zelnick is having too much fun tweaking the sensibilities of much bigger players with his own small but spry, and almost always profitable businesses. Although he has 6,500 employees in countries every where but Latin America, his core management is comprised of seven professionals and five staff in offices in New York, Los Angeles and Tokyo.

Each of Mr. Zelnick's partners is an industry segment leader in his own right. Ben Feder, who founded MessageClick and was a top executive at News Corp., specialized in technology and telecommunications. Jim Friedlich is a Dow Jones veteran specializing in global and electronic publishing, Scott Siegler, former president of KnowledgBroadcasting and Columbia Pictures Television, and a one-time executive at NBC and CBS, specializes in television, film and new media. Karl Slatoff, who also specializes in new media, worked with Mr. Zelnick at BMG.

Mr. Zelnick, a Harvard Law School graduate, was president and chief executive officer of BMG Entertainment after being president and CEO at Vestron Inc. and vice president of international television for Columbia Pictures before forming his own company in 2000. But, at a time when other with his resume are still clamoring their way up the industry food chain, Mr. Zelnick is indulging himself in finding undervalued gems to acquire or invest in to build his own media portfolio.

"This has been a lot of hard work to get to this stage, I have supportive partners and a great wife and my health and the brain power," Mr. Zelnick. "Not too many people want to take the risk to build their own thing, and maybe that's because this is a high-paying business and it's hard to turn that down. But this is the pursuit of a dream," he said.

For instance, Zelnick has a minority stake in Arkadium, one of the few legal gaming software providers, while UGO is the leading online media network for Fantasy Entertainment catering primarily to males 18 to 34. Zelnick's other minority investments include National Lampoon, the Pro Cycling Tour and the leading wireless rights and production company WFX Rights Group. WFX most recently brought Justin Timberlake and Pepsi together to promote Fox's "American Idol" on Wireless devices.

Zelnick's fully owned and controlled companies include Japan-based publicly traded Columbia Music Entertainment, one of the largest independent labels in the world; Direct Holdings, which includes the Time Life and Lillian Vernon direct marketing businesses; and OTX, a leading provider of consumer market research. "We don't like sexy deals," Mr. Zelnick quipped.

But, it doesn't stop there. Zelnick has an active search in wireless, telecommunications and content-related investments. "The strategy is to have a direct relationship with customers and to offer them compelling high-margin products that they want but don't need through every channel known to man," Mr. Zelnick said of his direct marketing efforts. "We're focused on broad array of channel and 50 million consumers."

Like Mr. Diller, Mr. Zelnick is acquiring some of his assets as undervalued electronic retailing businesses His acquisition earlier this year of Time Life Inc., the under performing music and video direct marketing operations of Time Warner, nearly doubled his company's revenue base.

Mr. Zelnick said he primarily is focused on investing in or buying businesses in any of five areas: direct marketing, marketing services, music, television and radio, and publishing. "We're more likely to grow horizontally. We'd like to own our customers and sell them a lot of things in a lot of different ways," he said.

Zelnick already has plenty of evidence among its businesses that his primary constituents are consumers empowered by digital broadband interactivity, that is beginning to radically change the media, entertainment communications and transaction worlds to which Mr. Zelnick is attracted. research and fragmentation. In world where ABC, NBC have 80 percent collective ratings 10 years ago. But in a world of many more channels and fragments shared, they need to know who their consumers are and what they want. We believe in the online world only way to have significant statistical sample size is online.