PI 400 -- Publications - Ad or Subtract

BY MARK SMITH

It has been the best of times and the worst of times for the publication industry, with all do apologies to Charles Dickens ("Tale of Two Cities").

One hesitates to look at any development coming out of the 9/11 attacks as a positive, but the publication media's value to readers and technical prowess were clearly demonstrated in the days that followed. For example, both Time and Newsweek were able to rush special editions to newsstands by the following Thursday, with people lining up to buy commemorative issues.

Such feats would have been unthinkable even a few short years ago, without the efficiencies of a digital workflow and modern presses.

Less than a month later, though, the industry found itself scrambling to respond to fears stemming from cases of Anthrax infection. Suddenly, the everyday manufacturing practices of using anti-offset spray powders, drying agents and powders carrying perfume samples had magazine recipients dialing 911.

Long lead times—for advertising contracts, new title launches and some production schedules—mean the publication industry may not feel the full financial impact of recent events until after the first of the new year. Unfortunately, the news was already pretty bad before the terrorist attacks.

According to Publishers Information Bureau (PIB) numbers for September, year-to-date consumer magazine advertising revenues had been running 2.5 percent lower and ad pages were down 9.2 percent compared to 2000. The PIB numbers for October, the first results that could reflect any impact of the attacks, showed ad revenues for this one month alone were down 9.6 percent compared to last year.

(PIB is a service of the Magazine Publishers of America industry association in New York.)

When it comes to new title launches and other trends, the publication industry is still reflecting planning that occurred before September 11, says Samir Husni, Ph.D., professor and Hederman Lecturer with the Department of Journalism at the University of Mississippi in University, MS. Also going by the moniker "Mr. Magazine," Husni is a recognized authority on magazine trends and author of "Samir Husni's Guide to New Consumer Magazines."

"The number of new magazines launched in August actually showed a drop, but October was a robust month," Husni reveals. "There were more new magazines launched in October 2001 than I've seen in a long time. These titles have been in the pipeline in for some time. I expect things to start tapering off in January 2002."

Neither a poor economy, nor even a terrorist attack, will stop a good magazine, Husni says, but troubled times will help kill a bad magazine. Even so, he believes the high profile of the industry's woes this year has been more about big names, rather than big numbers. "Publishers have sent a signal that there are no more sacred cows in our business. They are saying, 'If a magazine is not making money, and has no hope of doing so soon, we are going to kill it.' That's why we saw the demise of Mademoiselle after 66 years," the professor explains.

"The end of several big titles came at the same time, so people started writing blanket obituaries for the industry," Husni continues. "To paraphrase Mark Twain, though, 'The news of the death of the magazine industry has been greatly exaggerated.'

"What people need to understand is that there are more magazines being published today than at any time in history. In 2000, wholesalers distributed more than 5,600 titles. That compares to 2,000 in 1980. One of the main reasons why we are probably going to see a slowdown in the number of launches is simply because there is no more room in the market," Husni observes.

The publication industry as a whole is entering an age of cannibalization, the professor reports. Since the boom began, the number of people buying magazines has not changed or, if anything, it has declined, he adds. "As a result, for any new magazine to succeed it must feed on an existing magazine—at least until something new is invented or comes along, like the Internet."

Husni expects the total number of new magazines launched in 2001 to come in at about 600 to 650 titles. That compares to 874 new titles in 2000. He is projecting the number to sink even lower for 2002, marking a return to the levels of the early 1990s when new launches averaged around 500 titles per year.

With the economy as it is, Husni believes the cornerstone of publishers' business plans for the future will have to be more of a focus on magazine audiences, not advertisers. "Their motto should be that 'the reader is king/queen,' but they also have to start making readers pay the full price for the content," he says.

"If you offer readers what they are looking for, they are willing to pay for it," Husni firmly believes. As proof, he points to the example of Felix Dennis, publisher of Maxim Magazine. "Dennis set out to publish a magazine aimed at readers first, readers second, readers third…and then advertising. Maxim has managed to outperform GQ, Esquire and the two titles combined. Its circulation is 2.6 million even though it is selling for $4 on the newsstand, which is a dollar more than Esquire."

Speaking at this year's American Magazine Conference in late October, Cathleen Black, president of Hearst Magazines in New York City, concurred with many of professor Husni's insights. Black has been serving as chairman of the Magazine Publishers of America, organizers of the event.

Print publishers have to be smarter and think bigger, while working smaller, Black advises. "I'm not talking about simply cutting costs across the board, which will pump up your bottom line, but may cost you dearly in the long run. What I am talking about is getting magazine operations to run more efficiently—with less unnecessary expense—while still maintaining the quality of the product," she explains.

"We're going to have to learn far more about what our customers want and then respond in kind. We have to look at every publication—and every type of media outlet—not just in terms of the demographics we serve, but in the value we deliver," Black continues. "The magazine industry is in a unique cycle, but we are resilient and fighting back on every level."

Publication printers, for their part, seem to be taking a similar tack in responding to the evolving market conditions and new business challenges. With the stated goal of streamlining their facilities, many have announced or completed rounds of layoffs, reengineered or closed facilities, and replaced older equipment with more efficient systems.

While the economic conditions and current events are presenting challenges in the short term, this time also represents a unique opportunity, asserts Daniel Knotts, magazine industry leader of R.R. Donnelley Print Solutions in Chicago. "There is a great opportunity for both publishers and publication printers, along with all members of the supply chain, to rethink the business model and work together to make the publication industry stronger as we come out of the recession," he says.

Knotts believes publishers and their suppliers should seize this opportunity to work more closely together to make improvements in four areas:

* Revenue creation;

* Cycle time reduction;

* Reducing costs; and

* Supply chain management and efficiency.

Barring unforeseen developments, Knotts expects the current business environment to be a relatively short-term condition. He points out that from a long-term perspective, the record advertising revenues the industry enjoyed from the second half of 1999 through most of 2000 were themselves an anomaly. "If you pull that boom-time period out of the regression, along with the current downturn, since the early 1990s the growth rate of print advertising spending has averaged somewhere between 5.5 to 6 percent," the magazine printing exec notes. "We don't see any reason why the growth rate shouldn't return to that normalcy."

With that expectation in mind, "Donnelley remains committed to its overall strategy of providing superior services and creating new solutions for our customers," Knotts says. This effort will include working with clients on the front end of the process to continue expanding the revenue stream beyond print, with capabilities in Internet publishing, content management, digital ad creation and more, he explains.

Nicholas Simon, president of Publishers Press in Shepherdsville, KY, has slightly more modest expectations for the coming year. He's hoping to see a rebound of 5 percent over 2001 results. Simon believes the current downturn in the publication printing segment can be attributed to economic conditions predominately, but he also sees structural changes redirecting some advertising revenues to other media.

When it comes to the long-term competitiveness of print publishers, "the only help we can give them is to produce more effective and economical printed media," Simon says.

In reporting his company's recent quarterly financial results, Bruce Thomas, president and CEO of Cadmus Communications in Richmond, VA, noted there has been some geographic component to the impact of recent events. Publishers in the New York City and Washington, DC, areas have postponed projects, he says.

"Given the uncertain outlook for the economy, we have intensified our efforts to improve both our short- and long-term profitability through a combination of cost reductions and strategic investment initiatives.

"These initiatives include programs to reduce overhead expenses, improve overall operational efficiency, complete the consolidation of certain manufacturing operations and implement strategic purchasing programs," Thomas says. "At the same time, we will continue to invest in content management capabilities and digital technology to meet the changing demands of our customer base and grow our market share."

Of course, what goes without saying in all these projections and outlooks is the assumption that there are no other major economic disruptions due to terrorist attacks or the war on terrorism. Barring a crisis, the experts seem to agree that the industry's cover story will be much brighter come this time next year.