After months of negotiation, Variety finally sold to Jay Penske's PMC, for a reported $25 million. That is more than four times the iconic entertainment trade publication's anticipated 2012 profit of $6 million. On the one hand, Penske, a budding media mogul, adds a major name brand to his stable, which also includes Deadline and Movieline. On the other, Variety is a big-time turnaround challenge, with yearly revenues that have been chopped in half since 2006. Former owner Reed Elsevier had been interesting in getting rid of it for a while.
You have questions. We have answers.
Q: Who is Jay Penske?
A: He's the son of Roger Penske, an American auto-racing and auto-entpreneurship legend. The 33-year-old has been assembling a minor media empire under the Penske Media Corp. umbrella, including the aforementioned Hollywood/entertainment websites, as well as auto site OnCars (the apple doesn't fall far from the tree) and Engadget/Gizmodo gadget-website competitor BGR. He also owns an IndyCar racing team, Dragon Racing — and he and his brother had a little trouble with the law on Nantucket island over the summer. He became the top bidder late last month when billionaire businessman Ron Burkle and Avenue Capital, a hedge fund, both balked at the $25 million asking price.
Q: Where's the money coming from?
A: According the Los Angeles Times, Penske was working with Shamrock Capital Advisors, which is the private-equity arm of the Disney family's investment fund. Under CEO Stanley Gold, Shamrock formed a subplot in the bidding to buy the L.A. Dodgers. It is currently unclear why, but Penske shifted from Shamrock to Third Point, the New York hedge fund overseen by Dan Loeb that recently agitated to have Scott Thompson kicked out as CEO of Yahoo, to be replaced by Marissa Mayer from Google. Loeb doesn't have a history of sitting on his hands where Third Point's investments are concerned, so there's a question about how much of a role he'll play in turning Variety around — and in influencing the management of other PMC properties. For example, will he be able to continue Penske's apparent look-the-other-way policies when it comes to the notorious instability and provocations of Deadline founder Nikki Finke?
Q: Does Variety have a chance?
A: Not according to Sharon Waxman, CEO of The Wrap, a startup entertainment website that, along with Penske-owned Deadline and the resurgent Hollywood Reporter, has been steadily eroding Variety's 107-year influence on Hollywood news and gossip. "We looked at the Variety sale and we decided it was not a good business proposition," she said in an email. "Variety is a print brand, and now it will have the challenge of competing with Deadline, along with The Wrap and The Hollywood Reporter." That is true, but Penske has also succeeded in eliminating what competition Deadline might still have had from Variety by purchasing the publication. The obvious question is...
Q: Did Penske overpay for Variety?
A: It is tough to argue that the guy is somehow buying future growth. Profits have been sliding toward oblivion for six years. But this is where the involvement of Third Point gets even more interesting. Loeb has built the fund up into a $9.3 billion player by keeping a keen eye out for value-investing opportunities. Third Point has recently made money on AIG (The international insurance giant that collapsed and was bailed out by the U.S. government during the financial crisis) and — not kidding here — Greek sovereign debt. That last one could be the ultimate underpriced asset, so maybe there is some ample upside in Variety. And it's worth noting that Reed Elsevier originally wanted to sell the trade for $40 million. The New York Times called the Penske deal a "fire sale" and pointed out that in plummier times, Variety was deemed to be worth more than $300 million. [UPDATE: Actually, more like $2 billion, if you throw in all of Reed's publications.]
The Hollywood media that has achieved some success, as Variety's fortunes have declined, have done so by either being relentlessly competitive, à la Deadline and The Wrap; or by reinventing, as the Hollywood Reporter has under editor Janice Min. The Reporter barely resembles a trade magazine anymore. It's possible that Penske is thinking about maintaining the online rivalry Deadline had established with The Wrap while taking on the Reporter with a revamped Variety. The Reporter, by the way, had no comment on the sale.