What killed The Industry Standard?

The Industry Standard's parent company is expected to file for bankruptcy Aug. 24, continuing to flummox followers more than a week after the new-economy magazine announced plans to lay off its staff and to cease publication.

A filing would follow discussions earlier in the week led by John Battelle, founder of The Industry Standard and chairman of its San Francisco-based Standard Media International parent company, to keep the weekly alive. "They're considering offers from wherever they can get them," a banking source said, "to see if they can cover their creditors and put the company back on solid financial footing."

Although that quest appeared futile as of Thursday, much of the mystery about The Industry Standard's demise remained, in part because none of the principals are talking. But others with knowledge of the situation say the magazine did not have to die. "I know for a fact there was an offer sheet on the table from J.P. Morgan," an editor at the magazine said after being laid off, officially, at a Monday-morning meeting.

The editor then laid blame for the bankruptcy decision on International Data Group, the Boston-based information-technology publisher that owns 80% of the Industry Standard's parent company. "Ego had a lot to do with it," he said, especially between IDG and Battelle.

A high-profile 35-year-old, Battelle never did mesh with the frugal, by-the-numbers culture that defines IDG. So it may be appropriate his publication's demise was the result more of a cold-blooded accounting than one-too-many ego bruisings.

The weekly that for most of its three years billed itself "The Newsmagazine of the Internet Economy" came to a quick end, the editor explained, once IDG determined it stood to recoup as much or more of its investment from a bankruptcy filing than from a capital infusion. That determination is believed to have brought efforts by New York investment bank Allen & Co. — retained in July to explore options for the title — to a halt.

"IDG actually revealed to us that it had calculated our worth as being 'x' in a sale versus 'y' in a bankruptcy," the editor said. "They went with 'y.'"

Never mind that an infusion from any of six parties said to be interested in refinancing Standard Media would have sustained the flagship title, it would also have diluted IDG's stake. And IDG apparently felt its super-majority share in Standard Media wasn't commanding sufficient respect, as it was.

So did others, who now claim to be surprised not only by how quickly IDG poured millions into the Internet-media infrastructure being designed by Battelle and his crew but also by how slowly IDG reacted when the Internet economy turned. "IDG has a very distinct corporate culture," a banker said, "and it's not a lavish one."

About Pat McGovern, IDG's low-profile chairman, another banker who has worked with him said: "He just isn't used to working with partners. He doesn't like having to explain himself."

Not that the 63-three-year-old McGovern has had to practice either. Since going into business on his own in 1967, the prototypical "geek" behind PC World, Computerworld, InfoWorld and numerous other computer books has built a trade empire of more than 300 titles in 85 countries. And though his management style has been described as hands-off, his privately held company — with annual revenues in excess of $3 billion — has never been beholden to anyone other than himself.

McGovern also works hard to keep his staff beholden to him. "He spends his life on an airplane, traveling to disparate points of the country and being a real presence to all of his employees," said the banker who has worked with him.

Standard Media, in contrast, couldn't wait to partner with bankers and financiers, a sort that many old-line publishers have come to consider the worst meddlers. On raising $30 million in first-round private equity financing in early 2000, the company announced a partnership roster that included Flatiron Partners, Chase Capital Partners, Morgan Stanley Dean Witter Private Equity, J. & W. Seligman and Chase H&Q.

When not bringing in venture capitalists and private equity players, Standard Media's Battelle was co-opting potential competitors like publisher Pearson plc and signing up vanity vehicles like luxe-life mogul Bernard Arnault's Europ@Web. These were the same "big guys," said the Industry Standard editor, that IDG's "small-time, trade mentality" consciously sought to avoid.

Worse, none of them felt obliged to take a backseat to the founding investor depicted in a Boston Globe profile a year ago as "the company's 'chief encouragement officer' and universally referred to as plain old 'Pat.'" This lack of deference was "okay with McGovern," a banker said, "as long as they were making money."

However, once The Industry Standard's revenues fell off a cliff and the need for refinancing became clear, McGovern drew the line. "That's when he wanted to call all the shots," the banker said. "That's when he decided giving [Standard Media] another $10 million to spend on its own would be foolish."

Although McGovern began exercising his influence more, he still felt snubbed even after getting Battelle to give his Standard Media CEO title to Richard Marino last March. Marino, who had run IDG's PC World for nine years, was recruited from CNET, where he had spent less than two years as president and COO.

"They went through the charade of having an executive search," said a former Standard Media employee. "But it was pretty well known that Marino, who comes across as an affable guy from New Jersey, was IDG's plant."

This became all the more apparent when Marino was only weeks into his job and someone who knew the new CEO's motivation for leaving CNET asked some Standard Media staff: "Well, has he made the decision yet?"

In addition to the CEO's title, Marino got one of Standard Media's seven board seats. That placed an effective majority in the hands of IDG, once the new CEO's was added to the three IDG officially commanded.

Hence McGovern's ability to overrule directors more interested in extending the life of the Industry Standard than in limiting the losses of IDG. "This way, there was no cram-down," the editor said of the bankruptcy decision imposed on dissenting directors. "This way, [IDG] could take a huge tax loss and then line up as major creditor."

IDG couldn't be reached for comment by presstime on the role tax losses and preferred-creditor status may have played in its bankruptcy decision. And while all the factors behind its precipitous act may never be known, the act itself has already established itself as the defining showdown between new-media proselytizers and old-media publishers. Copyright Richard Morgan