Taking Stock Spot the Differences

It's been over 12 years since the Nimrodi clan took over Ma'ariv Holdings and its daily newspaper. There were good times, like in 1993, and bad times, like in 1996. There were days when advertising flourished and other times when it didn't.

But the group never published a financial statement like the one it released Sunday.

The Nimrodis can't keep blaming everything on music company Hed Arzi. The Ma'ariv group - which primarily consists of the Ma'ariv daily, classifieds, local weeklies, and magazines - ended the first quarter with a net loss of NIS 23 million.

You don't need to be a media expert to grasp the point of Ma'ariv's report. Its loss was caused by an unprecedented 18 percent first-quarter revenue plunge. Consequently, despite the drop in the cost of paper - the company's second-biggest outlay after wages - its operating loss tripled to NIS 16 million.

Ma'ariv's heavy first-quarter loss, after the NIS 70 million it lost last year, begs comparison to other media businesses in Israel, especially Yossi Maiman's hideously expensive toy, Channel 10.

Points of thought

In case you're wondering whether there's any connection between Maiman's wretched adventure at Channel 10 and the tremendous losses the Nimrodis posted at Ma'ariv, here are a few tidbits for thought. There are parallels, and there are differences.

l Channel 10 is a cash-burning machine, one of the largest that Israel's business sector has even seen. Unlike the Yes satellite broadcaster or the cable companies, which burned up mainly the banks' money in recent years, Channel 10 is making merry with Maiman's private fortune directly and through guarantees he gave to Bank Leumi.

With all due respect to the NIS 100 million Ma'ariv lost since the start of 2002, it pales in comparison with Maiman's losses, which are four times that sum. More importantly, in Ma'ariv's case, only a third of the loss is from cash flow, meaning actual money spent each month. In Channel 10's case, every shekel lost is a shekel that evaporated.

l Channel 10 and Ma'ariv are both hurting from a similar crisis in the media market - advertising. But Ma'ariv has proved it can make money from advertising when times are better. Channel 10 has not proved that, and may never do so.

Even if Israel's advertising sector were frothing today, which it isn't, it would take Channel 10 years to attain profitability. In fact, to this very day, it is far from clear that there is room for two commercial channels - Channel 10 and Channel 2 - to turn a profit.

l Channel 10's heavy losses almost certainly spell its doom. It will close, or be bought, or be changed beyond recognition somehow. That is not the case for Ma'ariv, whose stability is not in doubt.

Ma'ariv is one of the most liquid companies around. In Q3 2002, it had NIS 175 million worth of surplus current assets over liabilities. Its surplus cash flow over short-term financial liabilities totaled NIS 65 million.

l How did Ma'ariv build up such huge surpluses? This is where the main difference between Ofer Nimrodi and Maiman lies. Nimrodi managed to push shares in his company to Vladimir Gusinsky, at top price, while Maiman failed in a similar endeavor.

Back in 1998, just to remind you, Nimrodi sold Gusinsky a 25 percent stake in Ma'ariv for $80 million, or, according to a company value of $320 million. Ma'ariv's value on the Tel Aviv Stock Exchange is now $70 million, and that's after the recent spate of gains on the market.

What did Gusinsky get for his money? Respect. Influence. Hope that one day Ma'ariv's shares will rocket by 300 percent and make him some money.

What did Nimrodi get? Gusinsky's representative, Zvi Heifetz, has to be involved in running Ma'ariv in some way, and at an ever-growing salary. But it's been worth every penny, because the deal gave Nimrodi tremendous liquidity. It will take many very, very bad years to use it all up.

Then there's Maiman, who has been trying to persuade Gusinsky for six months to invest in Channel 10. But the Russian-Israeli businessman evidently feels he has enough holdings in loss-making Israeli media companies.

The rival your worst enemy wishes on you

l Yossi Maiman and Channel 10 management have learned painful lessons in marketing, branding, and consumer habits in the last year. Also, they learned how hard it is to destroy a monopoly like that of Channel 2.

Nimrodi also had some difficult facts to accept. Since Ma'ariv's initial surge following the family's takeover of the group 10 years ago, its market share hasn't gone anywhere. There has been no change in the balance of power between Ma'ariv and its rival, Yedioth Ahronoth. Nimrodi knows well that if not for the capital it raised in the stock market and from Gusinsky, Ma'ariv would be in sorry condition indeed.

l The common denominator between the two men is that both chose just about the worst possible business rival they possibly could - Arnon Mozes, who controls Yedioth Ahronoth.

Yes: If there's a media company Mozes hates even more than Ma'ariv, it's Channel 10. Its rise threatened to change the world of television advertising beyond recognition, sparking a gradual drop in advertising prices and a desertion of advertising from the printed press to the screen.

Mozes, who saw three of his top people jump ship for Channel 10 in the last year, had been deeply concerned about the effect the second commercial channel would have on the advertising market. He had been wracking his brain about courses of action, including possibly selling his shares in Channel 2 franchisee Reshet to Maiman.

But at some point, Mozes realized that Maiman lacked the wherewithal to shoulder Channel 10 to the point of profitability. All he had to do was sit back and wait for Maiman to break, and for Channel 10 to collapse. Then he'd be back to his one-front war, which he already knew how to handle - Ofer Nimrodi and Ma'ariv.