F+W Media, the multimedia company that publishes books, magazines, and digital content for hobbyists ranging from writers to quilters, filed for Chapter 11 bankruptcy March 10. In the filing in U.S. Bankruptcy Court for the District of Delaware, the company’s current CEO, Greg Osberg, said the best way to generate enough funds to try to pay its creditors is to sell all of its assets.
To facilitate the sale process, F+W is selling the company in two parts—its communities group that had $67.7 million in revenue in 2018 and consists of 10-enthusiast categories, and its books division that had 2018 revenue of about $22 million and a backlist of 2,100 titles. Formed in September 2018 as part of a restructuring plan, F+W Books publishes new nonfiction titles in several categories, including art instruction, crafts, writing, genealogy, antiques and collectibles, woodworking, and the outdoors. According to the bankruptcy filing, F+W Books publishes 120 titles annually and generated 80% of its sales from the U.S. and 20% from the U.K.
After deciding early in 2019 that its cash would run out by the end of the first quarter of this year, F+W began shopping both its communities and books divisions and hired Greenhill & Co. in January to look for companies who were interested in buying the book group as an ongoing concern. According to the filing, as of February 20, 2019, Greenhill had contacted 13 parties and will continue its marketing process with the goal of finalizing a sale by the end of May.
The filing lists a litany of reasons for the company’s descent into bankruptcy, including the decision in 2008 to focus its efforts on selling content and other products in its communities directly from various company-owned websites. F+W made that shift to combat the sales decline of print materials, particularly of magazines. The switch to the e-commerce model, however, led to a host of problems that is neatly summarized in the court filings:
“In connection with this new approach, the Company took on various additional obligations across its distribution channel, including purchasing the merchandise it would sell online, storing merchandise in leased warehouses, marketing merchandise on websites, fulfilling orders, and responding to customer service inquiries. Unfortunately, these additional obligations came at a tremendous cost to the Company, both in terms of monetary loss and the deterioration of customer relationships.
"As a consequence of this shift in strategic approach, the Company was required to enter into various technology contracts which increased capital expenditures by 385% in 2017 alone. And, because the Company had ventured into fields in which it lacked expertise, it soon realized that the technology used on the Company’s websites was unnecessary or flawed, resulting in customer service issues that significantly damaged the Company’s reputation and relationship with its customers. By example, in 2018 in the crafts business alone, the Company spent approximately $6 million on its efforts to sell craft -commerce and generated only $3 million in revenue.”
The company’s magazine business was also in deep trouble with the number of subscribers falling from 33.4 million in 2015 to 21.5 million in 2018 and advertising revenue dropping to $13.7 million last year from $20.7 million in 2015.
The steady decline in revenue forced F+W to restructure its debt in 2017, but after successfully lowering its debt obligations, the court papers say the decision by the management at the time to focus on e-commerce and de-emphasize print and digital publishing accelerated the decline F+W’s publishing business, “and the resources spent on technology hurt the company’s viability because the technology was flawed and customers often had issues with the websites.”
In an attempt to turnaround the company, the board fired the top three executives, led by CEO Tom Beusse, in January 2018 and hired Osberg has interim CEO who developed a new organizational plan that included the formation of a new book group, the sale of certain assets, the laying off of about 40% of its staff, and de-emphasizing its e-commerce operations, which Osberg wrote, “was the worst performing business channel.”
Osberg renegotiated most aspects of its e-commerce operations as well and developed a new digital business model. Although the new model improved F+W’s digital performance it was not enough to offset the continued decline in its magazine business and as total company revenue continued to fall throughout 2018, the board reached the decision it had no choice but to file for Chapter 11.
