Good news on several fronts in the media world this week. According to Advertising Age, the media business saw a real turnaround this year. After a disastrous 2009, during which the 100 Leading Media Companies saw revenues fall (they dropped 3.8%) for the first time since Ad Age started paying attention in 1981, the picture turned positive again in the first half of 2010.
Revenue for the group jumped 6.1% in the first half of 2010. Even more interesting is the fact that employment by the top media companies, which had dropped to their lowest level in May of this year, has also started to rebound. Again, according to Ad Age, U.S. Media Employment has added 4,600 jobs since May. MaganGlobal, the forecasting arm of Interpublic (NYSE:IPG) agencies, predicts the final tally for all of 2010 will be 6.9%. They expect growth to continue throughout 2011, but at a slightly reduced pace of 5.4%
Another indication of an improving Media environment came this week when American Media, Inc., announced that a judge had approved its reorganization and that it would be coming out of bankruptcy a mere 5 weeks after it entered it. (Full Disclosure, I am a board member at AMI). American Media, publisher of Star Magazine, The National Enquirer, Shape and Mens’ Fitness, among others, was one of 14 companies in the Ad Age top 100 that went through or are going through bankruptcy reorganization over the past two years.
The good news is that many of these companies, particularly those like Readers Digest and American Media, were actually functioning rather well with significant profits, but could not carry the huge debt loads they had been saddled with when they were purchased by financially driven buyers before the advertising recession.
The lesson the industry learned, again, is that advertising-dependent companies get vulnerable quickly during economic downturns. The economics of high leverage deals can work in robust times, but when advertising goes south, a high debt burden can’t be “Managed” away by tightening operations or cutting costs. The danger is that in trying to carry a huge debt load while cutting costs, a company has to cut so much the products are damaged forever.
Fortunately, in the case of American Media, Readers Digest and others, many of the debt holders have participated in debt for equity swaps that demonstrate their appetite for not only saving the company in question but positioning it for the kind of growth that will make those equity investments pay off.
It’s nice for confidence in the industry and it’s a testimony to several companies that learned to manage through tough times, even saddled with huge debt, and maintain companies worth saving and investing in. They often redefined lean and mean and give us hope that the improved profitability of those firms going forward will come from increased revenues, not decreased costs.