8th June 2012 by The Value Perspective
By Nick Kirrage.
Future Publishing is a small, illiquid company that produces specialist magazines on subjects such as cycling, music and technology. It tends to be overlooked by most investors, who see it as a ‘classic publishing business’ – in other words, one that is struggling to grow digital revenues both quickly and sizably enough to offset the inevitable declines in revenues from print and circulation.
However, Future’s recent interim results, for the six months to 31 March, suggest the company may be ahead of the curve compared with some competitors. It looks to have reached a tipping point where group digital revenues have grown enough to start making a meaningful impact on the whole business – year on year, they were up 37%, with digital advertising now comprising 44% of total advertising.
One hugely positive – if arguably fortuitous – development in Future’s favour has been the opening towards the end of last year of Apple Newsstand, which is now doing for the consumption of magazines by Apple users what iTunes has done for music.
Of course Apple takes a significant cut from any deal but Newsstand represents a whole new distribution platform. If a publisher sends a printed magazine to, say, WH Smith in Norwich, it can only be bought by someone visiting WH Smith in Norwich but a magazine published online can be bought anywhere in the world and with nothing in the way of distribution costs.
Revenues from Apple Newsstand on an annualised basis already account for more than 10% of all Future’s circulation revenues and, what is more, 90% of those consuming the company’s magazines this way are new rather than existing customers. For years this business has seen no growth but it is now coming through.
A crucial difference between a publisher of specialist content such as Future and a publisher of more general news such as, say, Trinity Mirror is you can find general news in many different places – from the BBC to blogs or Twitter. People are less fussy about where they hear about the latest world developments – indeed, in some respects, they want to hear about them from many different sources.
However, only a specialist cycling magazine, say, is likely to have preferential access to information on the latest equipment or an in-depth interview with the most recent winner of the Tour de France or a well-respected name reviewing new bikes. There is clearly a value to that – what that value might be is a different matter – but it is a value nonetheless.
One final point to note about Future is the time and effort it has spent on its various websites. The company knows bringing people through the door is one thing but encouraging them to return – and then monetising that – is another entirely. In total, Future’s websites attract 35 million unique users every month – up from 25 million 12 months ago – which is double the combined level for all the UK’s mainstream daily press. Furthermore these are generally more specialist and thus more loyal visitors.
A combination of this user growth, the distribution possibilities resulting from Apple Newsstand and digital advertising revenue reaching a tipping point should lead investors to consider whether Future’s profits might be able to grow over the next five years. If that turns out to be the case, then this is a business that is under the radar, potentially very attractive and incredibly cheap. No single factor could be seen as a silver bullet but, taken together, they suggest a bright future for Future.
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