Wednesday, Jul 9, 2008
How did IDG's chairman build a $2.35 billion business?
Sep 24, 1999 | Pat McGovern thought he had a deal to buy PC, an independent technology trade magazine. So did PC's co-founder and publisher, David Bunnell, when he left his San Francisco office one Friday night in 1982. But the following Monday, Manhattan-based Ziff-Davis executives revealed that they had signed a deal with Bunnell's partner, financier Tony Gold, to buy what is now known as PC Magazine. Displeased with the sudden switch, Bunnell -- and most of the editorial and sales staff that had made PC a hot title -- walked out. Ziff had bought a hollow book; and McGovern, not one to fret over something he couldn't fix, seized on a fresh opportunity.
With the same entrepreneurial chutzpah that has characterized his leadership of IDG, a $2.35 billion technology publishing, research and conference company, McGovern gave Bunnell the financial backing to hire his former staff and launch PC World. (The name distinguished the magazine as an IDG title, like InfoWorld, ComputerWorld and, later, Macworld.) Ziff-Davis promptly filed for an injunction to prevent PC World from publishing and sued most of the former PC staff -- an action Bunnell likens to "sending troops into Vietnam." And so began a nasty publishing war that defined computer magazine publishing for more than a decade.
Throughout the 1980s and early 1990s, IDG publications battled titles from Ziff-Davis (including PC Magazine, PC Week and PC/Computing) and CMP (which publishes Windows, Computer Reseller News, VAR Business and others) for the lion's share of the computer industry's advertising dollars. (The war was still raging when I joined Ziff's PC/Computing in 1992 and subsequently, when I freelanced for IDG.) All three publishers milked the advertising revenues to expand into new print titles, comprehensive technology-news Web sites and popular trade shows. But as McGovern continued to build his empire -- flooding the computing industry with 290 publications in 75 countries, including many local editions of PC World, creating the "... for Dummies" series of technology and business help titles, popular trade shows like Macworld and more recently gambling on a more business-oriented approach with the year-old, highly successful Industry Standard -- his competitors fell apart.
Firstly, Ziff-Davis fell woe to family issues. In 1995, the three Ziff sons decided that they would rather invest on Wall Street than run the family company that their father, Bill Ziff, had given them. They had already sold off the company's trade-show division (which now includes the Comdex, Java One and Seybold Seminars); then in 1995, they sold Ziff-Davis -- including the magazines and Web sites -- to investor Forstman Little & Co. for $1.4 billion. Forstman flipped it in February 1996 to Japanese tycoon Masayoshi Son's Softbank Corp. for $2.1 billion, which in turn floated the company in an initial public offering in April 1998. But going public has not been the cure-all that Son had hoped for the debt-strangled company. The stock has bounced as high as $29 and as low as $3.62, but is currently hovering near its original opening price of $15.50. And in July, Ziff Davis announced it had retained Morgan Stanley Dean Witter "to explore strategic alternatives to maximize shareholder value" -- a move that news reports indicated may include selling off the print titles.
Son might have avoided the Ziff IPO if he had paid closer attention to the experiences of the Leeds family that owned rival tech publisher CMP. After cashing in a portion of their holdings through an IPO in July 1997, the Leeds watched CMP's stock implode as print-ad revenue dried up. The once-fat Windows folded shop as a magazine (it's now a Web zine). Uncomfortable with the public scrutiny of company finances, the Leeds sold their 68-percent stake in CMP to the British company United News and Media PLC on April 29. UNM stock is off 20 percent since then.
Ziff and CMP are suffering from the transition to online advertising, says Forrester Research analyst Charlene Li. Although both organizations have substantial Web properties, most of their revenue comes from their print titles. Li says that print magazines will lose 11.1 percent of their ad revenue to online media over the next five years. "IDG is a little more business-oriented, a little more targeted," she notes, "but it's still in danger."
But in the midst of all this technology sturm und drang, IDG chairman McGovern successfully sold off a single division (IDG Books Worldwide, creator of the "... for Dummies" series) via an IPO, launched some healthy new print titles like the Industry Standard and hatched a score of online magazines. As one former CMP editor notes: "IDG is the last huge American technology publishing company." Can McGovern keep IDG on top?
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