business

Magazines Are Going Through the Shredder

Too many titles and not enough ads means plenty of today's names won't survive til the next upturn, whenever it comes

What do The Industry Standard, Working Woman, and Classic American Home, and have in common? Not much -- except that all three magazines closed during the week of Aug. 15.

From its launch in 1998, The Standard fancied itself "The Newsmagazine of the Internet Economy." As the tech market plunged, its revenues dropped along with its dot-com brethren -- the magazine lost 75% of its ad pages in a year. Founded 29 years ago, Working Woman was once a vaunted women's magazine brand. But after struggling for several years, it has published its final galley due to plunging ad pages and a rising tide of red ink. Classic American ended a 26-year run after parent Hearst Magazines deemed it not profitable enough.

The disparity of the victims hints at a difficult truth for the magazine biz. The number of U.S. titles has nearly doubled since the late 1980s. That growth looked fine during times of rapidly increasing advertising spending. But after a huge run-up in ad revenues, the sector looks set for a shakeout, thanks to the slowing economy. "Even in the economic downturn of 1991, I never saw or heard of as many closures and firings," says Samir Husni, a magazine consultant and professor at University of Mississippi. "How many titles can you have for photographers or teenage girls?" he asks.

LEAN TIMES.

  What's more, the past five years will likely seem a halcyon period compared to the next five years. According to media merchant bank Veronis Suhler, from 1995 to 2000, advertiser spending for consumer magazines grew at a compound annual rate of 8.1%. By contrast, for 2000 to 2005, Veronis Suhler is projecting a much slower growth rate of 4.5% per year for consumer publications.

The upshot? Expect fewer magazine startups in the next few years and continuing consolidation and closure of existing titles. "With a closer look at the economics, it will be better for the stronger brands and will eliminate the weaker brands," says Steven Lacy, president of the publishing arm of Meredith Corp., which puts out Ladies Home Journal, Better Homes and Gardens, and 17 other subscription titles.

According to Publishers Information Bureau, magazine advertising pages fell 6.8% in the first quarter of 2001 compared to the same period in 2000. More disturbing for publishers is that ad pages fell 14.3% in the second quarter. Revenues slid from $10 billion to $9.7 billion for that six-month period according to PIB, the first drop in nine years. In the latest six-month audit, the Audit Bureau of Circulations reports that 76 of the top 200 consumer magazines saw circulation declines. Several high-profile magazines have badly missed their circulation targets. Couch-potato staple TV Guide undershot by nearly 500,000 copies as circulation fell 13%.

At the same time, single-copy sales at about two-thirds of the 453 magazines that report them were lower in the first half of 2001, according to a report of the ABC's latest figures compiled by Inside.com. "There are too many weak products on the newsstand," says Lacy.

NOT ADDING UP.

  Meanwhile, customer-acquisition costs continue to go up. By consultant Husni's count, most consumer magazines now spend on average $48 in mailings to get one customer who pays $12 a year, on average, for a magazine. That does not compute, considering that the average subscriber stays with a publication for less than two years. "You do the math," says Husni.

With numbers like that, closures and consolidations were sure to follow. "What's happening now is a shakeout. The weakness in advertising revenue is causing publishers to focus on their core properties," says Roland DeSilva, a managing partner at media investment bankers DeSilva & Phillips. Aside from the demise of Working Woman, The Standard, and Classic American Home, Reader's Digest Association closed its title Walking in July. And a host of publications, from venture-capital magazine Upside to hip-hop bible The Source, are rumored to be on the auction block.

The tech and business sector are suffering more than most. Before suspending publication, The Standard had watched its ad pages plunge 75% from the previous year as the company fired half its staff and struggled to pay for tens of millions of dollars in expensive leases secured for unused office space negotiated at the height of the boom. The Red Herring, Upside, BusinessWeek, and Fortune all have laid off staff in the wake of double-digit declines in ad pages. Fortune offshoot eCompanyNow swallowed Business 2.0 and let go most of its staff but kept the name in an effort to boost circulation numbers. Tech-mag houses CMP and Ziff-Davis Media have both closed titles and laid off staff after significant ad-page declines.

OUT LOOKING.

  The same week that The Standard suspended publication, Ziff-Davis Media ousted its high-profile CEO, James Dunning. A turnaround specialist brought in by private-equity firm Willis Stein to put ZD Media back on solid footing, Dunning instead saw the company's earnings drop dramatically -- with little he could do about it. In the three-month period ending June 30, ZD Media booked earnings of $3.5 million, well off the total of $32.4 million for the same period a year ago as ad pages dropped 47%. Journalists and ad-sales people, too, are feeling the pinch. "A lot of talented people are looking for jobs right now," says Michael Friedenberg, the publisher of CMP's flagship, InformationWeek.

All the bad news has scared off investors and resulted in a slowdown in magazine startups. Husni tallied 99 new magazine launches in August, 2000. In the same month this year, only 22 got off the ground. "When times are tough, there aren't as many investment dollars around, and people are going to be much stricter about the kinds of investments they make," says Nina Link, the president of trade group Magazine Publishers of America.

The good news? Link notes that magazines have fared better than newspapers, which clocked a steeper 8.4% decline in advertising revenues during the second quarter of 2001. And many magazines have managed to pull out impressive circulation gains despite the down market. The Red Herring bumped up circulation by 44.5%, rising from 244,000 in the first half of 2000 to 352,000 in the first half of 2001, according to ABC. ESPN magazine logged an impressive 35% circulation gain during that same period, rising from 1 million to 1.35 million subscribers.

Meredith's Lacy thinks that could be part of a quickening flight to quality in the magazine world. When it comes to ad sales, he says: "After a soft year, we have seen some positive results on recent [issues] of Better Homes and Ladies Home Journal."

HOPEFUL SIGNS.

  According to DeSilva, magazines may have started to improve customer-acquisition efficiencies by using the Internet to find new subscribers, a much cheaper means than direct mail. And while smaller startups have slowed, major publishers continue to attempt new magazines. CMP is about to launch Optimize, targeted at high-level IT execs. Hachette Fillipachi has signaled that it's going ahead with a major new teen girls publication this year.

DeSilva sees the glossies' woes as a standard cyclical downturn and not a harbinger of long-term problems. He predicts that ad spending will start to trend up in the third quarter of 2001. Laurel Touby, CEO of media jobs and community site MediaBistro.com, has glimpsed signs of a turnaround as magazine job listings at her site bottomed out in July and have started to come back. "People are saying to me: 'I am taking some time off, I am consulting, I am doing some freelance.' They're worried but aren't panicked," says Touby.

But even Touby admits that the weaknesses could not have come at a more inopportune time. "Advertisers are bored with newspapers and magazines. They're interested in other ways to reach people, guerilla marketing and more innovative approaches," she claims. Ad-rate increases, which usually happen like clockwork, are expected to encounter fierce resistance when publishers roll them out at the end of 2001.

That means revenues in 2002 could look flat as well, and more closures could occur. Add to that the recent 10% postal increases for magazine shipping, and the bottom looks weaker still. At least for now, the glossies have lost some of their sheen.

By Alex Salkever in New York

Edited by Douglas Harbrecht

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