Has Dotdash Meredith Found Hidden Value In Underappreciated Brands?

Brands can be notoriously hard to value. So when brands play a major role in merger transactions, they represent something of a wildcard. On paper, the AOL/Time Warner merger looked like a canny play to combine a legacy media giant’s venerable brands with a fast-expanding internet upstart. Now it serves as a cautionary tale—though maybe not cautionary enough, given that AT&T
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took a second swing at resuscitating WarnerMedia and failed just as badly. Recently, AT&T sold those assets to Discovery—and time will tell if the third time is the charm for unlocking the brand’s untapped value.

There’s a reason an acquiring company’s stock price often falls when it announces a merger: Most corporate marriages fail to turn up enough synergies to justify the acquisition price. Still, good capital allocators can use M&A activity very effectively at times—especially when they can acquire a beaten-down asset at a reasonable price and unlock its upside potential, the way you might buy and fix up a once-beautiful house.

Better Homes and Gardens may be just that kind of fixer upper for Dotdash Meredith.

Old lifestyle brands are still bigger than you’d think

Better Homes and Gardens was once a staple of every doctor and dentist office in the country. Though it may seem like a relic from an older era when glossy print magazines dominated media markets, the brand still enjoys massive reach. The print magazine had 2021 circulation of 7.6 million, and the brand reaches 51 million people across all its platforms. Still, it has faced major business challenges: Although the magazine remains popular with subscribers, declining print advertising revenues have been threatening magazines’ traditional economics for years.

BHG is part of the Meredith family of media brands. In 2021, an unlikely suitor bought Meredith’s magazines: digital publisher Dotdash, which owns sites including The Balance, The Spruce and Investopedia, and is itself owned by Barry Diller’s IAC. Dotdash has developed an effective playbook for building digital lifestyle brands, and Meredith’s brand reach could give the company a turbo-boost that makes the $2.7 billion purchase price look downright cheap.

An effective playbook for digital lifestyle brands

Dotdash Meredith CEO Neil Vogel and his team built the company’s sites through a long process of trial and error, and in the process discovered a unique digital advertising niche. On a recent “World According to Boyar” podcast, Vogel described how his team figured out how it could offer advertising that was more respectful and effective than other online content providers, based on information gleaned from interactions with users.

Dotdash properties are designed to engage readers in their content, rather than treating them primarily as a conduit for advertising. This approach means the company knows its audiences better than many competitors do, enabling Dotdash to help advertisers target ads more carefully. Since better-focused ads are more expensive, Dotdash can sell fewer of them while making the ads they do sell more relevant to readers. All of this adds up to a better experience for both readers and advertisers.

The company’s tightly controlled content ecosystem also helps it manage the context in which ads appear. For advertisers, knowing what kind of content will appear with their ad has become a major concern in today’s highly polarized political environment. For Dotdash Meredith, it helps that its evergreen lifestyle content tends to be non-controversial.

“There’s no feed. There’s no fake news. There’s no politics. There’s none of that stuff that you don’t want your ad next to,” Vogel told me.

Vogel believes those elements make Dotdash more attractive to many advertisers than social media sites or subscription-based ad services. His sites are simply closer to the customer than Google
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is, he notes.

Unlocking the potential of Meredith’s brands

As successful as Dotdash has been, in Vogel’s mind it has always lacked one critical asset: “We didn’t have the brands,” he said. The Spruce grew into one of the biggest home brands on the internet, with an audience of more than 32 million users a month. Still, in terms of name recognition, it’s basically an unknown compared to Better Homes and Gardens.

The visibility of well-established brands like BHG could supercharge the Dotdash playbook by updating the approach that made these brands so lucrative in their heyday: selling ads against a very large, well-defined subscriber base.

If Vogel is right, Dotdash Meredith will be an increasingly appealing alternative to large-scale subscription-based ad services run by the likes of Facebook and Google. In that case, Meredith’s legacy brands may help the company achieve the scale it needs to spin out of IAC and become an independent company—which would make the $2.7 billion Dotdash paid for them look like a bargain in the long run.

The author and clients of Boyar Asset Management own shares of IAC. This is not investment advice.