Opinion

Felix Salmon

BusinessWeek’s subscription liabilities

By Felix Salmon
August 19, 2009

We know that BusinessWeek is for sale. But is there a good chance the print magazine could die completely? That would seem to be the subtext of Keith Kelly’s column today, in which he writes:

OpenGate, at least on paper, might be considered a likely candidate as well. However, even with magazine veteran and acting CEO Jack Kliger on hand for the management presentation from McGraw-Hill, OpenGate might not be able to absorb the estimated $40 million in subscription liabilities that would come with the 900,000-circulation weekly.

What’s a subscription liability? It’s basically all the money which BusinessWeek has already been paid, in subscription revenues, for magazines it has yet to deliver. It’s a liability because if it can’t deliver the magazines, BusinessWeek would have to refund its subscribers their money, or somehow try to fob them off with an equivalent product.

One would assume that the winner of the BusinessWeek auction, which is currently being conducted between nine different potential acquirers, would intend to continue to publish the magazine weekly. If they do so, however, the subscriber base isn’t really a liability at all: it’s an asset, to be treasured. The only time you start worrying about things like “$40 million in subscription liabilities” is if you’re thinking about going web-only, or biweekly, or something like that. Which would be especially difficult given the name of the book.

So for all that numbers in the $35 million range have been bandied around as the purchase price for BusinessWeek, that might just be the headline number, which would then be offset by a “refund of subscription liabilities” or the like. We might yet end up with another $1 purchase price.

Comments
2 comments so far | RSS Comments RSS

That reminds me, I just recieved a check from Conde Nast for $4 bucks after I refused their offer to accept issues of Details(!) in lieu of my remaining issues of Portfolio.

Posted by Shnaps | Report as abusive
 

A key point that you are overlooking is that the subscriber liability is not a real liability to these private equity companies who will form LLC’s and protect themselves completely from any future claims. If an unscrupulous PE firm wants to take the working capital and significant amount of the cash flow for themselves and run the business into bankruptcy, the sub liability is a non-issue because individual subscribers have no ability(and probably no desire) to recoup their prepaid subscription unless there is some type of class-action suit and attorney general involvement. Again, unlikely because the individual dollars are so low compared to other class action litigation. Plus, once it is in bankruptcy there are other creditors who will be demanding restitution such as the employees, printers, paper suppliers and other vendors who may have been harmed along with the subscribers.
A strategic partner or public company does have an obligation to fulfill the subscriber liability which is why they are better potential partners for the business being run properly and existing for the long term…perhaps short term as well! It would be very sad indeed to see such a wonderful iconic brand like Business Week fall into the hands of a bottom-feeder PE firm that really has no plans to invest in and preserve/build the brand. One would hope that the current Mcgraw Hill owners require that specific covenants are put in place to prevent new owners from just taking out cash and that certified proof of appropriate resources(ie–a cash fund) exist for the purpose of running/investing in the business.
Lastly, If Business Week is truly losing $40-$50million per year, then they have far greater problems and issues to resolve than worrying about the sub liability.

Posted by jack | Report as abusive
 

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