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April 21, 1997
At International Data Group,
Diversification Strategy Is KeyBy GLENN RIFKIN
OSTON -- International Data Group sees itself as the Procter & Gamble of the technology media marketplace.
With a wide range of brand-name publications like Computerworld, Infoworld and PC World, as well as IDG Books, the privately held company has grabbed shelf space in a crowded marketplace to become the No. 2 producer of technology publications, after Ziff-Davis Publishing.
Moreover, when its widely quoted research division, International Data Corp., and its trade show business are included, IDG is actually larger than rival Ziff, with $1.7 billion in revenue.
Kirsten Elstner for The New York Times Patrick McGovern, head of the International Data Group, says that the varying units of the company will balance one another's cycles.
Its position seems at face value to be so strong that Patrick J. McGovern, the company's billionaire founder and chairman, is planning a series of public offerings of stock in IDG's businesses.
In an interview in his Boston office, McGovern said he was aiming for a fall sale of stock in IDG Books, which publishes the popular "For Dummies" series of how-to books. Computerworld, Infoworld or PC World publications could follow in 1998, he said.
McGovern's hope is that Wall Street will put a substantial price on IDG's fastest-growing parts, thus increasing the value of the entire company. The stock offerings are aimed at raising capital for new projects at the various business units, although McGovern offered no specifics.
Moreover, the offerings could provide an additional enticement to both current and potential IDG employees employees by creating a market for the company's stock. Many of the company's 3,500 American employees have holdings valued at tens of thousands of dollars in IDG's employee stock ownership plan. A score of longtime employees have accounts with more than $1 million in them.
Yet IDG faces some serious challenges. For one thing, growth in the company's largest business -- technology publishing -- has slowed as a result of a crush of new publications and competition from the Internet. Ziff-Davis, the publisher of PC Magazine and PC Computing, remains a formible rival, as does CMP Publications, the publisher of Information Week and Computer Reseller News. And several IDG publications have actually lost advertising revenue over the last year.
In addition, there is no guarantee that Wall Street will be receptive to an IDG stock offering by the fall, especially if the increasingly volatile stock market retreats sharply, pulling technology issues downward.
So far, the company has not chosen an underwriter or filed for a stock offering with the Securities and Exchange Commission, although Goldman, Sachs & Co. has been hired as an adviser.
McGovern is undaunted by the potential obstacles. "We have in our family of business units companies that are visible, rapidly growing, very profitable and have great futures," he said. "We believe the sum of the parts would actually exceed the whole." Stock offerings in individual units would "enhance their visibility and ability to recruit top people," he added.
Based on his track record, the 59-year-old McGovern says he has good reason to expect continued success, even on Wall Street. After more than three decades in business, IDG now boasts publications on all seven continents. Earlier this year, McGovern trekked to the South Pole to start Computerworld Antarctica, IDG's 280th publication.
McGovern asserts that his global philosophy is now paying off. IDG, which holds 25 percent of the world market for information technology advertising -- Ziff holds 12 percent and CMP 3 percent -- can offer "one-stop shopping" for its customers, McGovern said. He said sales from such global advertising packages now make up 8 percent of IDG's revenue.
Over all, McGovern asserts, IDG has sustained annual growth rates of 20 percent to 30 percent for the last 20 years.
McGovern has been talking about an initial public offering for more than 15 years. But even as IDG's revenue passed the $1 billion mark in 1994 -- the figure McGovern had said in the early 1980s would be the catalyst for a stock offering -- he hesitated. With $250 million in the bank and no bank debt, he would say, the company did not need the pressure that quarterly earnings reports would bring. Those who know him also believed he was reluctant to cede control.
But times have changed. "Right now, the outside appraiser who evaluates IDG gives us a conservative value of one times sales," McGovern said. The public marketplace seems to be supporting valuations that are two to three times sales."
Some others share McGovern's belief in IDGs attractiveness as an investment.
"IDG is a well-run company at the center of one of the fastest-growing parts of the economy, the technology sector," Bradley Johnson, technology editor for Advertising Age in Los Angeles, said. "If you look at the market caps of these little Internet startups, imagine what a real company like IDG is worth."
Richard Shaffer, editor of Technologic Partners, a newsletter that tracks the initial public offerings of technology-related companies, concurred. "They have a dominant position in a rapidly growing and important publishing market and they are very profitable," he said. "That ought to command a substantial multiple."
Related Article
Magazine on Commercial Web May Be Ahead of Its Time
Still, IDGs core business -- technology publications -- has come under pressure. Although sales of advertising pages in technology publications had been growing by 10 percent to 13 percent a year for much of the decade, according to Adscope, a Eugene, Ore., research firm, that growth has slowed to a crawl.
Sales of ad pages for IDGs 14 domestic publications actually slipped just under 1 percent in 1996, Adscope said. Advertising pages for PC World, IDGs largest publication in terms of ad sales, for example, dropped 3.8 percent in 1996. Taken together, advertising sales at the four leading consumer personal computer magazines, including PC World and Ziff-Davis' PC Magazine, dropped more than 10 percent in 1996.
In contrast, Information Week magazine, CMP's direct competitor to the IDG publication Computerworld, had 10 percent growth in ad pages in 1996. Computerworld, long the crown jewel of IDG's publishing empire, actually dropped 7 percent in advertising pages.
And Ziff-Davis remains a determined competitor, perhaps stronger since it was sold by the Ziff family in 1994 to the investment firm Forstmann-Little. It was subsequently acquired by the Japanese software giant Softbank for $2.1 billion. The company now publishes 35 magazines and licenses more than 50 other titles. Its ZDNet online technology information service has established itself as a highly popular Web site.
To compete with ZDNet, Kelly Conlin, IDG's president, said the company had made the Internet a primary focus. The company's 90 business units have created more than 140 Web sites, and IDG is planning to start a new online search service in April that would enable users to customize the sites to their own individual needs.
Diversification has reduced IDG's dependence on magazine advertising sales. In 1996, for the first time, more than 50 percent of IDG's revenue came from sources other than advertising sales, like research subscriptions, books and trade shows, Conlin said.
IDG Books, for example, has been successful since it was started in 1991 with the publication of "DOS for Dummies" by Dan Gookin, which sold 2.5 million copies. The company has since published more than 450 "For Dummies" titles in the series, from technology subjects to "Sex for Dummies" by Dr. Ruth Westheimer.
In view of these trends, Shaffer of Technologic Partners questioned McGovern's desire to take the company public in pieces. "I'd be much more interested in owning IDG over all," Shaffer said. "The good thing about IDG is that it's diversified, so if the publishing side doesn't do well, the book division or trade show division will. I'm much less interested in individual units."
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