Source Interlink Cos (NASDAQ:SORC) has a big piece of several dying markets already-- CD and DVD distribution, magazine fulfillment, processing of rebate claims. Apparently, they like the direction so much they've coughed up $1.2 billion to purchase the Enthusiast Media division of Primedia (NYSE:PRM).Included in the package are seventy magazines including big names Motor Trend, Motorcyclist, Bike and Soap Opera Digest, and a multitude of micro-niche pubs such as Dressage Today, ATV Rider and Honda Tuning. The deal also includes ninety web sites, sixty-five plus events and a couple of television shows.
The magazines didn't fit with Primedia's new emphasis on internet-based content. Last year, the company sold its hook-and-bullet mags for $170 million. It had also toyed with spinning off Enthusiast Media, but in February the board changed its mind and launched a search for a buyer.
Net revenues from Enthusiast Media have remained consistent at half a million and change for the past three years. Looking ahead at the shift of advertising dollars away from paper, the company obviously didn't see this business as an essential part of its overall strategy.
Given the struggles across the industry in making money from paper content, and the poor performance in the sector for Primedia, I'm skeptical that this is a step in the right direction for Source Interlink. There are strong brands within the titles it bought, but the value will need to be realized by transitioning to other media. And quickly. Others are already staking out their turf.
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