Emap review - Emap looks to up its corporate value

The media conglomerate with interests in magazines, radio, TV and online is currently undertaking a "pre-budget review". Robin Parker reports on the business options open to the company.

Emap is expected to report a 2% fall in underlying revenues with its first half results today (Tuesday), a result it blames largely on declining circulations and revenues in its men's and motoring magazines and weak B2B recruitment advertising.

The recent appointments of Boston Consulting Group and former BBC corporate strategist Simon Walker as consultants, have led to claims Emap is undertaking a strategic review of its businesses in the face of pressure for greater shareholder value.

Emap insists there is no strategic review underway, but merely an annual "ordinary course of business pre-budget review", running in tandem with Magazines 2010, a project to address business efficiencies within the consumer magazines group. Nevertheless, questions are being asked about Emap's disparate media group and how its assets can be better utilised in realising digital opportunities.

With a £27m new product war-chest at its disposal, this may involve digital acquisitions.

At the same time, the market expects Emap to apply the same ruthless thinking that led to the demise of Smash Hits! magazine to more of its underperforming titles, and to transfer more brands onto digital platforms. This can be an inexact science. Some in the industry question whether Heat Radio's music format, and Kerrang!'s mainstream rock TV and radio channels risk confusion with their host magazines' brand values.

Digital revenues

Meanwhile, Emap is growing its online activity and building on-demand services for its smaller TV division, which has formed partnerships with Channel 4 and BT Vision. It claims to be on track to double digital revenues within three years, which will be crucial to offset the expected falls in magazine revenue as it gravitates online.

Richard Hitchcock, an analyst at investment firm Numis, says: "A lot of Emap's media is aimed at the demographic most driving the changes in media usage.

"It takes huge investment to keep up, but while maintaining momentum, increasing NPD spend raises its risk profile."

The widening of Emap Consumer Media chief executive Paul Keenan's brief to include radio could be a sign of increasing integration to harness Emap's portfolio more effectively across different markets, breaking out of silos.

Paul Sullivan, an analyst at finance firm Merrill Lynch, says Emap needs to simplify the management structure, and that merging business divisions could provide shareholder value by giving more consistency across the group and enabling more organic growth.

With its purchase of Scottish Radio Holdings in a deal valuing the company at £391m, it now has an audience reach of 24% in the radio market, compared to GCap's 33%.

Emap could grow this share through acquisitions. This could be expensive while prices remain high, although Virgin Radio and Chrysalis would provide scale and complementary audiences.

Patrick Yau, an analyst at investment bank Bridgewell, believes radio will remain an important business for Emap. "It is one of the few groups with good exposure to the main population areas in England, Scotland, Northern Ireland and Eire, making it probably the most viable competitor to GCap in terms of national coverage," he says.

Revenue model

However, expanding its business-to-business arm, building on the recent purchase of fashion industry website WGSN, may be a better prospect, according to some. "They are a signal of where Emap is heading - information products with a clear revenue model, rather than vulnerable faddish products such as social network sites," says Alex de Groote, a media analyst at stockbroker Panmure.

Such moves will be needed to cushion the blow of tumbling public sector recruitment advertising, due to the NHS' launch of its own job ads site, and revisions to government ad rates for titles such as Nursing Times and Health Service Journal.

Some analysts say Emap should exit public sector publishing, although it might already have missed the boat in getting a premium price for the business.

Whichever path Emap takes, the market wants to see either a short-term return in value or a clear strategy for long-term growth. This will require marrying its myriad media entities to achieve a value greater than the sum of their parts.

EMAP'S MEDIA PORTFOLIO

- Consumer magazines

Flagship brands: FHM, Zoo, Heat, Closer, Grazia, Kerrang!, More!, New Woman

Market share: 18.1% by retail sales value

- Radio Flagship brands: Kiss, Magic, The Hits

Total audience market share: 10.4%

- Digital

Websites and mobile platforms hosting brand extensions of Emap's consumer and business-to-business brands

Flagship brands: FHM.com, empireonline.com, Kiss 100 podcasts, closerdiets.com

- B2B magazines

Focused on five sectors: retail, construction, public sector, media and automotive, with magazines, websites, conferences and exhibitions

Flagship brands: Nursing Times, Health Service Journal, Local Government Chronicle, Retail Week, Broadcast

- TV

Flagship brands: The Box, Smash Hits TV, Kerrang! TV

Market share: Emap claims that it is second to Viacom in music TV, with its seven channels accounting for 35% of music TV viewing in multi-channel homes

- International

Flagship brand: FHM (now in 31 countries). Sold Malaysian and Singapore businesses last year, followed by Emap France this year. Australian operation has 25 magazines and several websites.

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