Pat McGovern thought he had a deal to buy PC, an independent technology trade magazine. So did PC's co-founder and publisher, David Bunnell, when he left his San Francisco office one Friday night in 1982. But the following Monday, Manhattan-based Ziff-Davis executives revealed that they had signed a deal with Bunnell's partner, financier Tony Gold, to buy what is now known as PC Magazine. Displeased with the sudden switch, Bunnell -- and most of the editorial and sales staff that had made PC a hot title -- walked out. Ziff had bought a hollow book; and McGovern, not one to fret over something he couldn't fix, seized on a fresh opportunity.
With the same entrepreneurial chutzpah that has characterized his leadership of IDG, a $2.35 billion technology publishing, research and conference company, McGovern gave Bunnell the financial backing to hire his former staff and launch PC World. (The name distinguished the magazine as an IDG title, like InfoWorld, ComputerWorld and, later, Macworld.)
Ziff-Davis promptly filed for an injunction to prevent PC World from publishing and sued most of the former PC staff -- an action Bunnell likens to "sending troops into Vietnam." And so began a nasty publishing war that defined computer magazine publishing for more than a decade.
Throughout the 1980s and early 1990s, IDG publications battled titles from Ziff-Davis (including PC Magazine, PC Week and PC/Computing) and CMP (which publishes Windows, Computer Reseller News, VAR Business and others) for the lion's share of the computer industry's advertising dollars. (The war was still raging when I joined Ziff's PC/Computing in 1992 and subsequently, when I freelanced for IDG.) All three publishers milked the advertising revenues to expand into new print titles, comprehensive technology-news Web sites and popular trade shows. But as McGovern continued to build his empire -- flooding the computing industry with 290 publications in 75 countries, including many local editions of PC World, creating the "... for Dummies" series of technology and business help titles, popular trade shows like Macworld and more recently gambling on a more business-oriented approach with the year-old, highly successful Industry Standard -- his competitors fell apart.
Firstly, Ziff-Davis fell woe to family issues. In 1995, the three Ziff sons decided that they would rather invest on Wall Street than run the family company that their father, Bill Ziff, had given them. They had already sold off the company's trade-show division (which now includes the Comdex, Java One and Seybold Seminars); then in 1995, they sold Ziff-Davis -- including the magazines and Web sites -- to investor Forstman Little & Co. for $1.4 billion. Forstman flipped it in February 1996 to Japanese tycoon Masayoshi Son's Softbank Corp. for $2.1 billion, which in turn floated the company in an initial public offering in April 1998. But going public has not been the cure-all that Son had hoped for the debt-strangled company. The stock has bounced as high as $29 and as low as $3.62, but is currently hovering near its original opening price of $15.50. And in July, Ziff Davis announced it had retained Morgan Stanley Dean Witter "to explore strategic alternatives to maximize shareholder value" -- a move that news reports indicated may include selling off the print titles.
Son might have avoided the Ziff IPO if he had paid closer attention to the experiences of the Leeds family that owned rival tech publisher CMP. After cashing in a portion of their holdings through an IPO in July 1997, the Leeds watched CMP's stock implode as print-ad revenue dried up. The once-fat Windows folded shop as a magazine (it's now a Web zine). Uncomfortable with the public scrutiny of company finances, the Leeds sold their 68-percent stake in CMP to the British company United News and Media PLC on April 29. UNM stock is off 20 percent since then.
Ziff and CMP are suffering from the transition to online advertising, says Forrester Research analyst Charlene Li. Although both organizations have substantial Web properties, most of their revenue comes from their print titles. Li says that print magazines will lose 11.1 percent of their ad revenue to online media over the next five years. "IDG is a little more business-oriented, a little more targeted," she notes, "but it's still in danger."
But in the midst of all this technology sturm und drang, IDG chairman McGovern successfully sold off a single division (IDG Books Worldwide, creator of the "... for Dummies" series) via an IPO, launched some healthy new print titles like the Industry Standard and hatched a score of online magazines. As one former CMP editor notes: "IDG is the last huge American technology publishing company." Can McGovern keep IDG on top?
In person, McGovern shows no sense of impending doom. At 62, he has a relaxed manner -- almost grandfatherly. He speaks with a soft Mr. Rogers voice, but the talk is constantly business; he rarely talks about himself, his family or his life outside work. Instead, he readily recalls decades-old stories, such as how he learned to stop being a control freak after returning from a business trip in the late 1960s to a formidable mountain of paper, all requiring his action or signature. From that moment forward, he has delegated chores -- and similar mountains of paper -- to lieutenants, while he focuses on seeking new business ventures.
In many ways, McGovern is a throwback to the Victorian businessman. One former employee describes the graying executive as "a Dickensian paternalist." He is renowned for personally handing out year-end bonuses to IDG's 9,000 employees. He stops and, having been briefed by a manager, praises the staffer for an article he's written or an account she's landed. McGovern's formal East Coast bearing leaves some California employees feeling awkward at this moment -- especially as the situation is hardly spontaneous. The employees have been called in advance and told to remain at their desks until McGovern arrives. The stilted ceremony, says magazine consultant Barry Owen about the time he witnessed it, "took on the dimension of ritual."
That personal touch combined with his hands-off attitude toward his business units has created a small-business atmosphere that is attractive to a lot of people. IDG CEO Kelly Conlin notes that IDG's growth and its ability to retain talent has McGovern conducting four times as many anniversary dinners for employees who have been with IDG a full decade as he did even a few years ago.
By all accounts, McGovern's friendly demeanor is sincere. Yet, his regular visits to the divisions of the empire are certainly not confined to back-slapping sessions. McGovern is up-front with his managers, with whom he meets at least quarterly: Miss your plan in three consecutive quarters and you're likely to be fired. He's like a born-again Scrooge who learned how to be human without losing an eye for the numbers after his evening with the Ghost of Christmas Future.
Squeezing a nickel has been McGovern's focus from the outset. He created the International Data Corp., a technology data, analysis and consulting firm that was the first component of what would become IDG, in 1964 by talking a business associate into funding a research project. (At the time, McGovern was an associate editor at Computers and Automation magazine -- one of the earliest technology publications.) When he tried to open a company checking account with the advance payment, the bank refused because IDC had no assets apart from the check. McGovern and his wife at that time hocked their car to create some assets -- and McGovern says that cash is the only outside money he has ever sunk into the business. "We were indoctrinated in running our businesses on cash flow," says IDG Books CEO John Kilcullen.
By contrast, Bill Ziff spent freely while he was at the helm of Ziff-Davis. Owen, who worked at Ziff's PC Magazine from 1986 to 1993, says that he never had a budget. He recalls a former president of Ziff's computer magazine division telling him: "If you think that what your publication needs is gold plating on the cover, then it's your duty to come in and demand it."
McGovern didn't splurge on his publications, and neither did he gild his corporate headquarters. IDG operates as a series of independent fiefdoms with minimum corporate overhead. Because the company doesn't spend a lot on corporate bureaucracy, it has more money to continue funding new divisions.
And entrepreneurs like Bunnell keep coming to him. Kilcullen, for example, approached McGovern after Random House and Addison Wesley had rejected his idea for a new computer book publisher; McGovern says he recognized right away that IDG Books could help him "increase revenue per reader." He gave Kilcullen $1.5 million and the freedom to build the business that eventually sold more than 60 million "...for Dummies" titles. The origins of the Industry Standard are similarly entrepreneurial, and publisher John Batelle even talked IDG into funding separate offices for the magazine, to give it a very different identity from the trade publications created in a big IDG building in downtown San Francisco.
The McGovern style has been to sow his seed capital over numerous business units (IDG currently has about 100 such independent groups) and weed out the unsuccessful ones. But Bill Ziff took the opposite approach. "He believed in himself, his ability to analyze a market and then put together a plan," says Bill Lohse, the publisher of PC Magazine from 1985 to 1990 and head of Ziff Davis' trade-show division from 1992 to 1994. "We did a few things and did them with a lot of effort."
With so few projects, Ziff corporate executives gave much more attention to individual projects than McGovern and his minions would have at IDG. "[Ziff president] Eric Hippeau was physically present through the first few weeks of the launch," says Dennis Eskow, who headed the editorial department of Ziff's Corporate Computing magazine during its 1992 debut. (The magazine folded in 1993.) Eskow saw the executive involvement at Ziff as helpful rather than hand-holding. He also recalls from his days at CMP that the Leeds would occasionally stop by and help edit a story -- although Tony Uphoff, vice president and group publisher of CMP's business technology group and a former Ziffer, rates CMP as less bureaucratic overall than Ziff.
By contrast, ever since his painful return from that 1960s trip, McGovern has pushed decision-making down to his subordinates. In 1994, McGovern told Kilcullen that the board thought that it was a good time for the profitable book division to go public. Kilcullen disagreed; he argued that IDG Books was still immature and that it needed a more consistent financial record, as well as the management team and systems to help achieve it.
McGovern supported his lieutenant. He let Kilcullen keep growing the business unit within IDG until Kilcullen told McGovern in 1997 that IDG Books was ready for the investment bankers. Last July, it successfully spun out of the company, raising $49 million.
That sale has become a model for McGovern. He says he now plans on selling off the IDC research arm, The Industry Standard along with its Web site and conferences, and his collection of Web-only companies and Web publications. He's chosen these three groups because of the high multiples he expects for them: six to seven times revenue for IDC and, in his words, "a few hundred times revenue" for the Internet-related companies. Such a move would leave IDG holding the print titles and a few online assets associated with the magazines, like PC World Online, as well as the trade-show business.
If he was ahead of the pack in thinking about an IPO for a division of his company in 1994, he's in the middle of it in 1999. When CBS successfully spun out MarketWatch.com in February, Manhattan's media barons took notice. Among others, the New York Times is reported to be considering an IPO for its Electronic Media Company.
Although McGovern's forthcoming offerings will be entering a more crowded IPO field for publishing spinoffs than he faced last year (not to mention a humbled Internet sector), Goldman Sachs & Co. publishing analyst Michael Beebe feels that IDG is on solid footing. McGovern will have a lot more credibility in the market because of IDG Books' successful IPO, says Beebe, whose firm shepherded McGoverns first IPO to market and will help him on future offerings.
But what does floating these three divisions mean for the rest of the company, beyond additional money for McGovern to invest in new ventures? "I think it's telling to watch McGovern's approach to a divisional IPO," says competitor Uphoff. "That may say more about the lack of profitability in his print divisions than anything else."
Asked what impresses him most about working with McGovern, Conlin cites a consistency of vision. Specifically, he mentions that since he joined the company, it has reduced its dependency on print advertising from 80 percent of revenues to less than 50 percent of revenues. Given Forrester Research's projections of an impending print-media crunch from online ad competition, this was a prescient move. But the sale of the research wing and two strong Internet components could very well increase that dependence -- even if temporarily.
McGovern concedes that PC World's ad revenue has dropped 5 percent (the San Francisco Chronicle recently reported that the number of PC World's ad pages is down 11 percent). He insists, however, that the current slump -- which, along with the distractions of their various sales, have hurt Ziff and CMP -- is cyclical. He maintains that technology ad revenue has alternately flown to computer publications and general interest media in three-to-four-year periods throughout the past 20 years.
Unlike his former competitors at Ziff and CMP, McGovern will not be floating the heart of his business. By spinning off the divisions before taking them public, McGovern will elude the fate of running a public company and avoid Wall Street's harping about his existing business while he builds a new one. McGovern has a history of creating flexible organizations that pounce on market opportunities. He claims to have no interest in retiring; he wants to go on investing in new companies. Perhaps the revenue from the IPOs will fund ventures that can replace IDG's prime non-print revenue streams. It's definitely a time-will-tell story.
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