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Publishers' brisk new source of revenue: The custom magazine

Last month, Time Inc. launched three publications full of articles culled from its high-profile magazines--such as Fortune, Money, and Parenting. But don't look for Your Rewards, Today's Focus, or Business Vision on newsstands. Instead, you'll have to visit one of KeyCorp's 1,300 bank branches to pick up the titles, which are actually handsome advertisements. "Nobody is interested in reading about bank products, so we needed something more arresting," explains Stephen A. Cone, Key's executive vice-president for marketing. "I view this as half magazine and half marketing."

Time's hybrid is just the latest foray by a major publisher into the booming business of custom publishing. In the past five years, Hachette Filipacchi Magazines, New York Times, and Conde Nast Publications have rushed to join Meredith Corp. in the $1 billion business. They're serving big-name marketers, from crayon maker Binney & Smith Inc. to Home Depot Inc., that are turning to slick custom magazines to dress up their sales messages. Gone are the drab in-flight publications that once epitomized the industry. Patek Philippe magazine from Conde Nast is printed on heavy paper with lavish illustrations. The premiere issue carries stories on Chinese landscape gardens and the private watch collection of Philippe Stern, owner of Patek.

The gloss the big players bring to the business can obscure the fact that custom magazines are the publishing equivalent of infomercials. Custom publishing encompasses a wide range of relationships between sponsor and publisher. In some cases, the sponsor simply hires the expertise of a magazine publisher; the stories are commissioned from writers who aren't on the publisher's editorial staff, and there is no association with its regular publications. BUSINESS WEEK custom publishes a magazine for the PGA Tour without the involvement of its editorial staff. In other cases, publishers will offer editorial material from their newsstand magazines, although they may forbid the sponsor from tinkering with the text. "We will not edit content to suit the client," says Sheldon Czapnik, director of editorial services at Time Inc. Custom Publishing.

In still other cases, though, publishers give extensive editorial control to sponsors, allowing them to order changes in stories. Or they allow their well-known logos to appear prominently on the covers of advertiser-controlled publications. Target Stores' Target The Family, published by Gruner & Jahr, carries the inscription "Created by Parents Magazine." Other publishers whisper their names in small type on the masthead. But either way, advertisers gain by the association. "Advertisers are borrowing on the integrity of the magazine industry," says Suzanne Braun Levine, editor of the Columbia Journalism Review.

DOWNPLAYED. Even more controversial are custom magazines that seem to conceal their sponsors' involvement. Hachette Filipacchi just launched Unlimited, which features articles on fitness and sports. Only in tiny type on page 10 is the magazine's sponsor revealed: Marlboro, which also runs ads in the magazine. The sponsor attaches a letter to each magazine, but critics say most people who thumb through an issue will be unlikely to see it. "Unless you're a detective, you think this is a real editorial endeavor," complains Braun Levine.

Publishers tend to downplay the controversy, possibly because of gross profit margins that can run between 15% and 40%, easily outpacing the 12% margins that traditional magazines produce. "A lot of [publishers] can name their own price," says Michael J. Kearns, vice-president for custom publishing at McMurry Publishing Inc. in Phoenix. Conde Nast, which jumped into the business this year through a joint venture with London's Forward Publishing, charges Patek $1 million an issue for its opulent semiannual publication. Time Senior Vice-President James D. Graham predicts his new custom-publishing business will generate $100 million in annual revenues and up to $30 million in profits by 2001.

TRASHED? Custom publishing also gives publishers a chance to earn more on assets they already have--articles, subscription lists, and strong magazine brands. Meredith makes almost as much from custom-publishing ventures involving the Better Homes & Gardens name as it does from selling the magazine itself. The latest: a Better Homes personal finance magazine largely underwritten by Metropolitan Life Insurance Co.

Advertisers are already convinced. When Mercedes-Benz wanted to attract more women buyers last year, it hired Hachette to produce Mercedes Momentum. The first issue included articles on designer humidors, music, and fitness. Even better, Hachette gave Mercedes access to its Elle subscribers by shrink-wrapping Momentum with 100,000 copies of the women's fashion magazine.

Still, some marketing experts suspect that the costly custom publications are going from the mailbox straight into the trash. "Until you can prove people really want these magazines, you don't have anything," says Darien (Conn.) magazine consultant James B. Kobak.

Worse yet, custom publishing could steal sales from traditional titles, as more advertiser-controlled magazines hit the newsstands. Now on the racks: Mary Kay Cosmetics Inc.'s Woman's Day Beauty, and Crayola Kids. Coming is Blockbuster Entertainment Feature. "The more slick this stuff gets, the more the publishers undermine their own properties," says marketing consultant Jack Trout of Trout & Partners Ltd.

But the combination of fat profit margins and a targeted marketing vehicle gives custom publishing a bright future. Key's Cone is considering selling his new magazines on the newsstand and is already spicing up their looks in hopes of matching the appeal of Time's popular titles. "The more we look like People magazine, the better we'll be read," he says. And for People magazine, that could one day be the problem.

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