Hard Times at Inc. and Fast Company

In a stunningly frank memo to the staff, CEO John Koten admits to a $10 million combined loss and optimistically outlines the planned remedy

Doubtless it will come as little surprise to those struggling firsthand with the broad dynamics affecting business media. Nevertheless, the numbers are impressive: Mansueto Ventures magazines Inc. and Fast Company, purchased last year from Gruner + Jahr USA Publishing, lost more than $10 million in 2005, according to an internal memo from CEO John Koten.

"The final numbers on 2005 are not all in yet, but [Mansueto Ventures Chief Financial Officer] Mark Rosenberg and I expect that our net loss as a company will exceed $10 million for the year," reads one section of Koten's remarkably candid seven-page memo to staffers.

CHOPPING LOSSES. "This is one of the drawbacks of open-book management," Koten drolly observed about an interview in which he confirmed the details of the memo. "But it won't deter me from the idea there is a greater good in letting employees know what is going on."

Koten's memo said profitability in 2006 was unlikely, and goals for this year involve halving 2005's loss and doing that again in 2007.

"If we can accomplish that...we should have a good shot at breaking even or turning a profit three years from now," wrote Koten. Joe Mansueto, who made his fortune as founder of Morningstar, has spoken about the magazines in similar terms, says an executive who has discussed the situation with him. (Disclosure: John Byrne, executive editor of BusinessWeek, was until last summer editor-in-chief of Fast Company.)

EXEMPLARY WOE. All of which speaks volumes about how Inc. and Fast Company ended up with a best-case-scenario owner (industry watchers had expected other bidders for the titles to shutter Fast Company) and underscores the challenges the businesses still have.

"Our success in meeting our financial goals in 2006 will therefore rest primarily in the hands of the advertising departments," the memo states. "Inc. and Fast Company also need to achieve significant increases in ad sales on an issue-to-issue basis to hit our target."

Few magazines better embodied the magazine industry's last boom and the painful correction that followed it than Inc. and Fast Company. In retrospect, that boom appears to have imploded in impressive fashion almost immediately after G+J's announcement, in December, 2000, that it would purchase Fast Company for around $340 million. (G+J had bought Inc. in June of that year for around $200 million.)

MASSIVE AD DECLINE. Since then, the magazine industry has suffered significant ad setbacks and has yet to evidence broad signs of recovery, And while business magazines, including BusinessWeek, have found themselves hit especially hard by ad spending reductions in sector standbys like technology and automotive, the bite taken out of Fast Company and Inc. is gargantuan.

In 2005, Inc. posted 817.4 ad pages, and Fast Company had 477. In 2000, by contrast, Inc. ran 1,735.3 ad pages, and Fast Company boasted 2,126.2. This nets out to cumulative ad page declines of 52.9% and 77.6%.

Mansueto purchased the magazines in June of last year for around $34 million, plus the assumption of certain liabilities -- some $500 million less than what G+J paid for them. Ironists take note: $34 million is roughly equivalent, according to the reckoning of executives and published reports at the time, to the combined profit of Inc. and Fast Company in that long-ago boom year of 2000.

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Fine is BusinessWeek's MediaCentric columnist and Fine on Media blogger

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