Time announced about a month ago that it would be selling a majority stake in Essence, one of its portfolio of magazines that includes Sports Illustrated, People, InStyle, and more. Essence has been a staple on coffee tables in black homes for nearly 50 years (See Essence's circulation revenue chart below), and also has a dedicated community that attends the Essence Festival every year, something that you would be hard pressed to find among other media properties' subscribers.
So, why is Time, Inc. selling Essence? In it's latest 10-Q filing, Time says "For several years, Time Inc. has been making the transition from print publisher to multi-platform media company. We have migrated away from a decentralized holding company model of siloed brands to integrated platforms built for scale. We now operate as a set of unified platforms across editorial, advertising, consumer marketing and technology that we believe will enable us to more effectively pursue our key growth drivers, as well as efficiencies."
If I may translate, Essence's focus on smart and beautiful black women doesn't integrate with Time's other brands, so there you have it.
Who Should Buy the Majority Stake in Essence?
Robert Smith, CEO of Vista Equity Partners and the richest black man in America should buy the stake in Essence for two reasons:
- He is passionate about preserving African-American culture which aligns with Essence's broadcasting of intelligent, upwardly mobile black women who shape culture.
- He could facilitate partnerships between some of his private equity firm's portfolio companies that could be important partners for Essence's events business and could get Essence.com plugged into the e-commerce space.
Over the past five years or so, Robert Smith has increased his public visibility, investing $20M in the National Museum of African-American History and Culture, another $20M in the United Negro College Fund, Carnegie Center, and the list goes on.
Smith has talked about his passion for preserving African-American culture in interviews, and Essence is a part of that culture that deserves a good home. He has the balance sheet and resources to ensure that the business operates well. Further, he has a long record of not taking losses on his investments. Contrast that with Clear View Group which seems to have neither the balance sheet nor the operational expertise to turn Ebony around.
What's the Business Case?
I think Robert Smith could acquire the majority stake in Essence for around $150M, looking across its print, events, and digital businesses. We'll walk through the various parts of Essence's business that make this a worthy investment.
This past July, Essence Festival brought about 470K to New Orleans. With ticket prices ranging from $141 to $1,417.50, I'm estimating that Essence brought in $180M just off ticket sales (See ticket sales chart below). That doesn't account for the massive advertising activations that take place over that weekend.
The event management technology behind Essence Festival is currently distributed among multiple vendors - Ticketmaster for ticket sales, and Avai Mobile for the Festival's mobile app.
Last year, Smith's Vista Equity Partners acquired CVENT for $1.65B and Marketo for $1.8B. CVENT is one of the top event management platforms out there and has integrations with Marketo, the dominant marketing automation platform. Two years ago, Vista acquired Mediaocean an ad technology platform which facilitates over 20 percent of the $580B in global ad spend.
Essence could get access to all of this technology, centralizing the data it gathers from Festival attendees and position it to efficiently monetize those attendees end-to-end, and further integrating Essence Festival and its other events into it's business strategy.
Another opportunity with the events business is international expansion. Last year, Essence expanded it's festival to Durban, South Africa, drawing 10,000 attendees. Essence has an opportunity to expand the festival and host it in global cultural centers for black people. Lagos, Paris, and London should be at the top of that list.
Essence Magazine's digital platform has driven a steep increase in traction over the past four years. In 2014, Essence.com had 800K monthy unique visitors. In 2017, the site attracted 5.3M, an 85% increase. What's interesting is that this growth is outpacing the site's mobile growth. The mobile site has seen a 79% increase in unique visitors over the same period, growing from a little over 1M to 4.8M (See Essence.com monthly unique).
What makes Essence.com really interesting is the wallet size of its visitors. Household income of the typical Essence.com viewer has grown nearly 28%, going from $65K to nearly $90K between 2014 and 2017 (See Essence.com household income chart below). There's got to be an e-commerce play there for the platform.
When you go to Essence.com, you see all of these celebrities wearing these fabolous outfits. At the bottom right-hand of those photos, you see the option to pin those photos to your Pinterest board. Two years ago, Pinterest launched buyable pins where you can buy the blouse in the photo on your board.
What if you could shop looks directly from Essence.com's photos? Assuming Bigcommerce and Kelton Global are right, and 16% of shoppers would use buyable pins, and they spend $50, the average order value of sales on Pinterest, you've got a $42M business of which Essence takes a cut. Then, Essence grows that business using the analytics gathered through partnerships with Cvent, Mediaocean, and Marketo, integrating it's e-commerce business with its events business.
Risk and Public Good
The media business is a tough one. Essence's print ad revenue has decreased 38% over the past four years (See Essence print ad revenue chart below). Essence.com has grown but it's not clear the extent to which it is driving revenue for the business. Robert Smith could come in as a benign billionaire and not be able to turn the trajectory of Essence's revenue figures around. An e-commerce play could fail. Conde Nast serves as a good example of this, which recently sold Style.com after failing to build an e-commerce business.
So, if Essence underperforms, what should Smith do with Essence? This is where Smith's passion for preserving African-American culture comes into play. The magazine came about in a time when intelligent, upwardly-mobile black women were not visible across the media landscape. Essence changed that and continues to sing the praises of black women. We still need that voice today.