Nov. 5 (Bloomberg) -- Magazine publishing, an industry that outpaced U.S. economic growth by 30 percent last year, is now in freefall.

Time Inc., publisher of People and Sports Illustrated, will cut 6 percent of its 10,200 employees and incur costs of as much as $125 million to restructure, parent Time Warner Inc. said today. Last month, Hearst Corp.'s CosmoGirl folded and the independent Radar shut down. Conde Nast Publications Inc. ordered companywide job cuts and scaled back Men's Vogue and Portfolio.

The ad slump that hit newspaper publishers last year has spread. Magazine revenue declined 8.8 percent in the third quarter, after rising 6.1 percent in all of 2007, according to the Magazine Publishers of America. Publishers are in a double- bind because they offer discounted subscriptions to attract readers and boost their ad base.

``It's time for magazines to look at the model they've worked on, because it's completely broken,'' said Samir Husni, chairman of the journalism department at the University of Mississippi in Oxford. ``Unless it's fixed, we'll see more magazines fail.''

Magazines' problems stem from the slowdown of the economy and the travails of Wall Street, Time Inc. Chief Executive Officer Ann Moore said at an Audit Bureau of Circulations conference Oct. 30. U.S. gross domestic product contracted 0.3 percent in the third quarter, its biggest decline since 2001.

``By October, it was looking like 1931,'' said Moore, whose group publishes 24 titles. ``We've never had so many advertising clients in trouble at the same time.''

Ad Reliance

The economy is only part of the problem, said Husni, who edits the Mr. Magazine Web site. Most U.S. magazines subsidize subscriptions to lure advertisers, who provide up to 80 percent of revenue at some titles, he said.

European magazines charge subscribers more and have smaller staffs, Husni said. The Economist, based in London, costs $116.79 a year, while subscribers pay an average $42 for New York-based BusinessWeek, according to the two magazines. The Economist has about 100 editorial staffers, to BusinessWeek's 200, said Paul Rossi, publisher of the Economist's U.S. edition.

``We're about 50-50 in terms of revenue'' from subscriptions and ads, Rossi said. ``And we've been able to raise our advertising rate base because we've been growing.''

Trained Subscribers

Many magazines can't easily recoup ad dollars from circulation because they've trained consumers to expect low prices, said Linda Brennan, BusinessWeek's vice president for worldwide circulation.

``Do I think magazines could change their price to $120 from $20 overnight? No,'' said Brennan, whose publication has raised its average price $2 in the past year. Time Inc.'s Fortune has cut its annual price to $20 in recent years, she said. ``They'll never get it back to $40, let alone $120.''

People is one magazine that can charge a premium, Time Inc. spokeswoman Dawn Bridges said. The company's largest magazine charges $101 a year for subscriptions and rarely gives discounts.

``We'd like every magazine to show the growth characteristics of People,'' Bridges said.

In the U.S. newspaper industry, print ad sales fell 9.4 percent in 2007, according to the Newspaper Association of America. This year, declines accelerated to 16 percent in the second quarter after a 14 percent drop the first. Internet ads aren't helping to recoup the lost revenue, having dropped in the second quarter.

Five Companies

About 80 percent of ad-industry magazine sales go to five companies, Husni said. Time Inc. is the largest, followed by Conde Nast, publisher of the New Yorker and Vanity Fair. Esquire publisher Hearst, Elle owner Hachette Filipacchi and Ladies Home Journal publisher Meredith Corp. occupy the next tier.

Ad sales have dropped most at publications serving cyclical industries such as cars, fine dining and home repair. Automobile Magazine, Hearst's Country Home and Conde Nast's Bon Appetit all saw third-quarter ad pages drop 29 percent, the Magazine Publishers of America said Oct. 14. Third-quarter ad pages fell as much as 29 percent across Conde Nast's 26 titles, the New York-based MPA said.

``In an economy where marketers want to show short-term results, there's a wariness,'' about magazines, said ad buyer Jeff Fischer, senior vice president at Universal McCann in New York, part of Interpublic Group of Cos. Monthly magazine ads can take more than two months to generate sales, he said.

`Hit Hard'

``There's no disputing magazines have been hit hard, but marketers are still spending a tremendous amount of money,'' Fischer said. ``Marketers don't doubt the value of an engaged audience.''

The question is whether that alone will restore profit, Husni said. More than 175 new magazines that publish at least four times annually have opened this year, and the average cover price of startups is twice that of older titles, he said.

The pilot issue of Hearst's Food Network magazine went on sale last month with a $1.50-per-copy subscription price and 50 ad pages. Portfolio's first issue last year had 185 ad pages and a 24-issue subscription cost $19.97.

The move away from advertising is part of the industry's life cycle, according to Husni. ``Give me something I want, and I'll pay for it.''

To contact the reporter on this story: Tim Mullaney in New York at Tmullaney1@bloomberg.net

Last Updated: November 5, 2008 14:56 EST