Folio:, a trade magazine for the publishing industry, reports that Entrepreneur magazine is being sued for $178 million by a group of 87 investors who claim the magazine promoted a business that turned out to be a giant Ponzi scheme. (Here’s the article.)
In the suit, they claim the magazine “deliberately, willfully and recklessly failed to exercise due diligence in publishing information” about Agape World, according to the Folio: article. That information was contained in a May 2008 ranking of the “Hot 100” fast-growth businesses. Agape World was ranked 73rd, but early this year its owner was arrested and charged with mail fraud to the tune of $375 million+. The company has been retroactively removed from the Hot 100 list.
This sounds to me like a bunch of crybaby investors looking for someone to blame because they didn’t do their due diligence. And I have little sympathy for them. The investors, according to the article, are also going to sue Dunn & Bradstreet, which apparently provided some of the information Entrepreneur used.
But it also peels back the blanket on one of publishing’s most worrisome and quietly kept problems. Magazine people claim that, despite the advertising/revenue crisis they currently face, they will remain viable over the long-run because their content is so important to readers.
For instance, here’s what Gordon Hughes, president of American Business Media (trade magazine association) said just a few weeks ago, in another Folio: article about the 26% declinein ad sales in 2009’s Q1: “What our industry does, and has always done, is provide information that makes business better and stronger. We will come through this period as a stronger industry, a more creative industry, and maybe even a more dedicated industry.”
He should have included the word “smaller.” Because the great good that he claims the industry performs is more exception than rule.
Take Entrepreneur‘s example. Its Hot 100 list is repurposed information from public databases. OK, somebody has to crunch the data. And I’m not saying there isn’t any original reporting; but even the magazine’s CEO says there isn’t a lot.
Here’s what Entrepreneur‘s COE Peter Shea told Folio: “Given the limited information provided about each company, it was certainly not Entrepreneur’s intention to evaluate or predict a specific company’s investment potential nor expectation that anyone would rely on such information to make investment decisions.”
What a terrible position: In order to defend his product against this lawsuit, he has to make the case that the content is really just trivia.
I don’t mean to condemn all magazines. Many do fine work, which I read and admire. But most of what passes for such is a little bit of data and a lot of promotion. For every magazine that is earning its way by producing content that readers really won’t live without, there are probably dozens that face a real comeuppance.
Advertisers are dropping out of magazines to create their own content, and magazines must finally (they’ve been talking about it for years) get readers to pay a larger share of the actual cost to produce the information they provide. As they do, many will face a truth they probably already know: Their content isn’t all that important.