How and Why the BBC Messed Up its Acquisition of Lonely Planet

Seven months after BBC Worldwide sold Lonely Planet to NC2 Media for around $80 million (£51.5 million), the BBC Trust has published its scathing review of the broadcaster’s six-year history with the travel publisher. The BBC purchased 75% of Lonely Planet from company founder Tony Wheeler in 2007, and the remaining 25% in 2011.

After the sale, the BBC came under heavy criticism for losing nearly £80 million on the deal, and this report details how BBC and Lonely Planet management messed up in all aspects, from the start, to execution and even the subsequent sale. And the report details the lessons BBC can learn for the future: “Mistakes were made and we will learn from them,” it says, in typical British passive-aggressive bureaucratese.

Mistakes detailed by the stage of the deal:

Acquisition

• The forecasts on which the valuation was based were too aggressive, especially as regards the unproven online businesses
• An EBITDA margin of 30% was highly optimistic
• BBCW seemed to get carried away with deal momentum and there should have been an effective mechanism in place to ensure that it did not end up over-paying
• Not enough downside analysis was done of the potential impact of a faster decline in books and of not achieving the very optimistic online forecasts
• The put was badly structured: the vendors received the original acquisition price when they exercised the put, despite the significant under-performance of the business
• Negative public reaction to the deal should have been better anticipated and appropriate measures put in place to deal with it

Ownership

• Integration of Lonely Planet was too slow. Actions which were taken two years or more after the acquisition, such as migrating the website to London and reducing costs and matching the cost base to where the revenues were being made, should have happened immediately
• The task of migrating Lonely Planet’s business on to other platforms, especially online and TV, was substantially under-estimated
• BBCW and the BBC were not sufficiently joined up, for example getting Lonely Planet successfully online was dependent on connecting to bbc.com and monetising the content through advertising but bbc.com was delayed and then decided to build its own travel vertical
• There was not enough scrutiny by the BBCW Board and the EB of the financial performance of Lonely Planet
• Throughout its ownership of Lonely Planet there was a bias to positive in the reporting on performance, despite evident signs that all was not well.
• There was a lack of accountability for the management and integration of Lonely Planet immediately following the acquisition and for some considerable time after that, until the situation was properly addressed in late 2011 and 2012 and led ultimately to the sale of the company in 2013

Digital Migration

• The initial digital strategy for Lonely Planet focused on moving content online to build scale and traffic and then monetise it with advertising. It also relied on the BBC to re-launch bbc.com with Global News and US websites, which were delayed. These delays had a negative impact on Lonely Planet’s ability to generate meaningful advertising revenue, which was a key assumption of the digital acquisition plan
• The acquisition of Lonely Planet required BBCW and the BBC to work in a way that was counter-intuitive to normal practice. In other words, the BBC normally produces the content and BBCW markets and sells it internationally, whereas the Lonely Planet deal meant that BBCW had to make/create something and get the BBC to use it, which it was reluctant to do, preferring to create its own content (e.g. its own travel channel).
• Lonely Planet/BBCW was too slow in reacting to fast-changing markets. It seemed to lack a team experienced in online travel and e-commerce which would have enabled more effective decision-making and quicker reaction to the revenue opportunity, with the result that Lonely Planet might have adopted the TripAdvisor model or successfully ridden the subsequent social accommodation wave.

Under its “Summary of Lessons Learnt,” the Trust writes:

Throughout its ownership of Lonely Planet there was a bias to positive in the
reporting on performance, despite evident signs that all was not well.

The BBC Trust is careful to point out that the business climate was much different in 2007, and that it was not the only media company making regrettable decisions:

It is worth noting that BBCW’s acquisition of Lonely Planet was done at a time when a number of media companies were keen to attract new audiences and were buying digital assets, such as ITV’s purchase of Friends Reunited and News Corp’s of MySpace. Reports from the press at the time suggest that ITV sold four years later at a loss of £150m, and that News Corp lost over $500m when it sold MySpace six years after acquiring it.