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Rogers is trying to convince investors that old media has a better shot than upstarts at generating profits on the Web. It's the same kind of thinking some analysts are starting to have about traditional retailers -- that strong brand names, profits, and deep pockets have a better chance of making a go of e-commerce than pure-plays like Amazon.com. Rogers says investors and analysts he has met with lately are interested in his ideas. "They're beginning to recognize that a traditional media company can do an Internet business," he says. "They want it done smarter and at less cost, and they're looking to us." The basic concept makes sense. Primedia, though not well known, is a large media company. It did $1.7 billion in revenues in 1999 and estimates that its extremely diverse assets reach 200 million people. Providing enticing material is one of the biggest costs of running a Web site, and Primedia has leading magazines for hundreds of special interests (from fly fishing to quilting) and industries (from the performing arts to highway construction). ALLIANCES. Rogers' plan is to turn the editorial staff and ad sales force loose on the Web, which should increase revenue and audience reach without adding significantly to costs. He's also structuring numerous Internet alliances -- 41 of them in the first six months of this year -- including "ads for equity" deals that trade space in specialty magazines for stakes in new Internet properties. And Rogers isn't just thinking about the written word. On Aug. 7, Primedia announced the launch of a new digital-video unit that will turn content into programming, building what Rogers calls "the video magazine rack of the future." The video potential in a broadband environment was part of what attracted Liberty Media and CMGI each to take a 5% stake in Primedia in March. When Rogers, a dynamic, well-respected media exec who formerly ran NBC's cable operations and launched both CNBC and MSNBC, joined Primedia last October, the stock jumped 20% the following week. Then, when he started to announce a slew of Internet deals, there was a short-term pop in the stock, and it raced to a high of $34 in March. It then fell back to around $20 when Internet stocks plummeted. It's still there. Clearly, in the current environment, announcements won't be enough to send the price soaring. "That kind of game is over," says Darren Chervitz, an analyst with Jacob Asset Management. "Now it is a matter of execution." Analysts who cover Primedia aren't pounding the tables -- yet. First Call Corp., which tracks analysts' estimates, says the consensus recommendation on the stock has been a "weak buy" for over a year now -- the same as when it was just a sleepy magazine company with a stock mired in the $10-to-$15 range. Merrill Lynch analyst Karl Choi rates the stock a tepid "accumulate" and has a $25 price target. He expects better performance closer to the end of the year, when it becomes clear that revenue is growing.
While mounting losses may be scaring off Primedia's old shareholders, Internet investors won't jump in until they see significant proof that Rogers' strategies will work. In the second quarter, Primedia increased Internet revenues to $10 million, up 75% from the year earlier, but still a tiny fraction of overall sales. Rogers believes Internet revenues will approach $50 million for all of this year and $100 million the following year. "The trajectory from there should continue to grow at that pace," he says. We'll see. A major hurdle Rogers faces is that traditional-media companies generally haven't been successful at bringing old-media assets to the Internet. For example, Time Warner's failure to make money building its own Web assets was a major reason it agreed to merge with America Online -- and the jury is still out on that epic deal. Rogers believes his experience gives him the knowledge to overcome the turf, compensation, and cultural problems that have foiled rivals' in-house Web efforts. NO MODEL YET. The truth is that there is still no clear media model for making money on the Internet. Investors are increasingly skeptical that advertising will ever be enough to drive profits. Rogers, so far, seems willing to try anything and is structuring deals that range from taking a slice of transactions generated by ads to running a business-to-business portal to investing money directly in startups through a venture-capital group. He might describe it differently, but depending on the market he's trying to reach, Rogers has adopted parts of the models of companies as diverse as CMGI, VerticalNet, and About.com. "They are in effect throwing a bunch of things against the wall and seeing what sticks," says Chris Nerney, senior analyst for Internet.com's Internet Stock Report. "Almost everyone else is doing that, too." Choi thinks Rogers' approach makes sense. Of the Internet alliances, he wrote in an Aug. 3 report, "some will work and some will not, but clearly PRM is planting a lot of seeds." "The game book hasn't been written," Rogers says. "If we do it right, we will be a real model." The positive cash flow and large revenue base from its old-media businesses give Primedia the time and resources to figure out what media model will work on the Web, even if no one has come up with it yet. In the long run, there is little doubt that Primedia would grow faster adopting a serious Web strategy than it could sticking with its old magazine business, says Nerney. "I'm continuing to watch and see if they can not only talk the talk, but walk the walk," says Chervitz. There aren't many investors willing to jump in at this stage of the company's transformation. But that could change in the future -- if Rogers has the magic touch to turn old-media assets into new-media gold. Stone is an associate editor of Business Week Online |
