Newspaper tiger

Written by Jeff Sanford

It seemed like a foolproof idea: publish a weekly business journal for Canada’s largest city. It’s a proven and profitable business model replicated in 61 North American cities, including New York, Chicago, Los Angeles, Vancouver and even the boomtown of Wichita, Kan. (pop.: 320,000).

But the Toronto Business Journal was unlike its peers in two important ways. First, the free weekly was part of an ambitious plan to marry local business publications across Canada with companion websites offering online business information and services. Second, the TBJ never made a profit in its surprisingly short existence.

Synergies between the print publication and its online counterpart failed to materialize as quickly as anticipated, generating heavy losses for its owner, Ottawa-based IT-services provider InBusiness Solutions Inc. As a small public company, InBusiness couldn’t bear the losses — or the accompanying drop in its stock price.

The TBJ ceased publication on April 1, 2002 — three weeks shy of its first birthday — and InBusiness abandoned its whole convergence strategy. The story offers valuable lessons to any firm considering a bold expansion in uncertain economic times — especially if the strategy has never been tested before.

The plan was the brainchild of David Luxton, a serial entrepreneur who’d built and sold a pair of companies before launching Business Media Network Inc. in 1996. BMN hosted tradeshows and published the Ottawa Business Journal, a successful weekly upon which the TBJ would be modeled. Like other local business newspapers, the Ottawa weekly satisfied a strong appetite for in-depth, local business stories ignored by the investor-focused dailies, and gave local companies a low-cost advertising alternative.

Luxton envisioned a network of self-sustaining business journals that would drive traffic to companion websites, where readers could access breaking news and free management information. The sites would make their money by providing fee-based services, such as online credit checks and domain-name registrations, in partnership with local providers.

BMN needed technical resources to pull the plan off. It found a willing partner in NewSys Solutions Inc., a fast-growing IT-services firm traded on the TSX Venture Exchange. NewSys liked Luxton’s idea enough to acquire BMN and its sister, InBusiness.com, in February 2000 for shares and share-purchase warrants worth $7.5 million. At the time, NewSys boasted annual revenue of $17 million and 26 consecutive profitable quarters, while Luxton’s companies had combined sales of $4.3 million and operating profits of $500,000. The post-acquisition entity was eventually rechristened InBusiness Solutions Inc.

“I was attracted to the financial possibilities,” says Mark Quigg, who co-founded NewSys in 1990 and became president of InBusiness Solutions (Luxton became its CEO). “You might not make much on $20 million in our core business, but you could make quite a bit on $5 or $10 million in publishing.” The new company would not only build its own media network, but sell the resulting Web-portal technology and services to existing publications and organizations, such as chambers of commerce, that might be interested in building their own revenue-generating websites. “There was long-term potential like we’ve never seen before,” says Mark Sutcliffe, president of InBusiness’s media division and and Luxton’s right-hand man. [Luxton could not be reached for an interview.]

To help fund the project, in March 2000 InBusiness raised $8.25 million through a private placement of share-purchase warrants. The transaction branded InBusiness as a digital convergence play — a stamp that would eventually hurt the company.

InBusiness notched a quick succession of wins. By the time Ottawa Business Journal‘s companion website opened in October 2000, two big-name customers — Bank of Montreal and Metroland Printing, a division of Toronto Star publisher Torstar Corp. — had contracted to use InBusiness’s portal technology. Meanwhile, its shares graduated to the TSX and hit $5. The company also acquired a pair of Montreal-based business journals, as well as Silvan Communications Inc., then publisher of Silicon Valley North, an it monthly with editions in Ottawa, Toronto, Calgary and Vancouver. A stock / cash mix funded both purchases.

Luxton’s plan seemed to be gaining momentum. But by the time the showcase TBJ launched on April 23, 2001, the Net had lost its lustre as a business tool and an investment opportunity, and the economy was starting to crack.

“We were still getting traffic at the Ottawa Business Journal and it looked like it was still going to work,” says Quigg. Indeed, a survey conducted three months after the launch indicated the TBJ, which had a total circulation of 25,000 — mostly unpaid — was reaching business decision-makers. However, advertising and online services revenue lagged well behind plan. Quigg says the convergence strategy was projected to turn a profit within 12 to 18 months. The forecast was way off.

After an expensive launch — Quigg will say only that it cost “a lot” — the TBJ and its online complement, TorontoBusinessCentre.com, didn’t gain traction. For the quarter ended Oct. 31, 2001, InBusiness suffered an operating loss of $1.8 million on revenue of $7.6 million. Including other expenses, the firm’s net loss was $2.5 million.

InBusiness addressed the problem by slashing spending in the media division, which had generated the entire loss. In Toronto, says former TBJ editor Justin Smallbridge, InBusiness cut the paper’s page count in half and laid off editorial and sales staff. Smallbridge says the paper needed more resources at such a critical time in its life: “Once you begin cutting your ad-sales people, you cut the ability to generate revenue.”

As tech spending plummeted after the dot-bomb, InBusiness’s it arm couldn’t generate enough cash to carry the media business. Raising funds through stock issues wasn’t an option, either: investors were no longer interested in financing what they perceived to be a digital convergence play. In February 2002, InBusiness announced it was abandoning its convergence plan and selling off its media assets. By the time the TBJ‘s last issue appeared that April Fool’s Day, InBusiness’s share price was 16ÀšÃ‚¢.

Was the TBJ given a fair chance? Quigg says carrying such a large startup through a downturn in advertising and IT spending would have been suicidal for a small company like InBusiness. In fact, InBusiness may have given the plan too long to prove itself. Quigg says revenue targets started to shift after the TBJ emerged so slowly from the gate: “You have to draw a line in the sand and say it’s going to make this much [money] by this time, and if it doesn’t, then that’s it — cut it loose.” He adds that postponing the launch might have been wise. “In that year there was a lot of negative sentiment in the market, but we were well underway by the time the market started to turn,” says Quigg. “But perhaps we should have stalled the whole project until the next economic cycle.”

It’s said good ideas are neither created nor destroyed — they just exist. InBusiness has sold off all of its media properties since last May. Montreal-based publisher Transcontinental Media Inc. picked up the “intellectual property” of the TBJ, dormant Le Montréal Économique and the still-active Ottawa Business Journal for $2.1 million in cash. Transcontinental has yet to revive the Toronto or Montreal papers, but don’t be surprised to see it happen — especially in Toronto. “I’ve never been able to be convinced that Toronto is the exception to the rule in terms of supporting a business journal,” says Sutcliffe. “The TBJ is still a great opportunity and someone will act on that.”

© 2003 Jeff Sanford

Originally appeared on PROFITguide.com