Sunday, September 30, 2007
Although healthier than newspapers, consumer magazines have problems
BY Emily Field
Who wants to buy some magazines?
THIS week bankers have a perfect excuse to pore over pictures of scantily clad models, fast cars and film stars: Emap, a British media firm that straddles consumer magazines, radio and trade exhibitions, is up for sale, and bids are due by early October. Emap has 50 magazine titles, which produced revenues of £408m ($773m) in the year to March 2007, and its sale will attract international attention. Foreign publishers are expected to bid, as are private-equity firms. The outcome will be a timely judgment on the prospects for consumer-magazine publishers in the developed world.
In America and Europe magazine publishers have a common lament: total circulation is either flat or declining slightly as people devote more time to the internet, and an ever greater share of advertising spending is going online. Magazine units are mostly a drag on growth for their parents. Time Inc, the world's biggest magazine company, has to fend off rumours that its parent, Time Warner, will sell it. People in the industry expect that Time Warner will soon sell IPC Media, its British magazine subsidiary. In Germany publishers reckon that Bertelsmann, a media conglomerate, may sell Gruner + Jahr, its magazine unit, when its new chief executive takes over in January 2008.
"It's a long, slow sunset for ink-on-paper magazines," says Felix Dennis, a publishing entrepreneur, "but sunsets can produce vast sums of money." He recently sold his firm's American arm, which publishes Maxim, a racy men's magazine, to Quadrangle Capital Partners, a private-equity business, for a reported $240m.
The business model for consumer magazines is under pressure from several directions at once, both online and off. Magazines have become more expensive to launch, and the cost of attracting and keeping new subscribers has risen. In America newsstand sales have been worryingly weak, partly because supermarkets dominate distribution and shelf-space is in short supply.
The internet's popularity has hit men's titles the hardest. FHM, Emap's flagship "lads" magazine, for instance, lost a quarter of its circulation in the year to June, its lingerie-clad lovelies finding it hard to compete with online porn. Not long ago consumer magazines were Emap's prize asset, but slowing growth from the division contributed to the company's decision to put itself up for sale. Men's magazines are in trouble in most developed-world markets. In France, America and Italy, the three biggest magazine markets for Lagardère Active, part of Lagardère, a French conglomerate, men have quickly switched from magazines to online services, says Carlo d'Asaro Biondo, the division's head of international operations. "We have solved the problem in the automotive sector with new web services," he says, "but no magazine publisher has cracked the problem as a whole yet."
There are good reasons why magazine owners should not feel despondent, however. For readers, many of the pleasing characteristics of magazines-their portability and glossiness, for instance-cannot be matched online. And magazines are not losing younger readers in droves in the way that newspapers are. According to a study carried out last year by the digital arm of Ogilvy Group, a communications company, appetite for magazines is largely unchanged between older "baby boomers" and young "millennials".
On the advertising side, magazines are faring much better than newspapers, which are losing big chunks of revenue as classified advertising shifts online. Advertisers like the fact that in many genres, such as fashion, readers accept and value magazine ads and even consider them part of the product.
Unfortunately, magazine publishers have been slow to get onto the internet. "Eighteen months ago the internet was something they worried about after 4pm on Friday," says Peter Kreisky, a consultant to the media industry, "but now it's at the heart of their business model." Meredith, a magazine publisher from the mid-west of America with old-fashioned brands such as Better Homes and Gardens, recently held an internet "boot-camp" for its executives to teach them internet basics.
To their credit, big magazine firms are doing far more than replicating their print products online. Whereas newspapers have concentrated on transferring print journalism to the internet, magazines offer people useful, fun services online-Lagardère's Car and Driver website, for instance, offers virtual test drives, and Better Homes and Gardens online has a 3D planning tool to help people redesign their homes.
Magazine firms disagree on whether to take existing brands online or try to do something new for the internet. Condé Nast believes it can cast a wider net by creating themed websites that use some magazine content but also go beyond to appeal to a bigger market. "You've got to have scale on the internet, and magazine brands can be limiting online," says Sarah Chubb, president of CondéNet, the firm's internet division, which runs a number of portals such as STYLE.com. Some magazine editors have objected. Anna Wintour, the editor-in-chief of Vogue, is said to have noted the popularity of STYLE.com and asked why it couldn't be called Vogue.com. (American Vogue will in fact get its own website soon.)
Time Inc, in contrast, has stuck to its big magazine brands with People.com and with SI.com, its website for Sports Illustrated. The price, competitors say, is that Time Inc cannot do the sort of sarcastic, bitchy celebrity gossip that people like on the internet for fear of tarnishing the brand of People, and therefore cedes first place for entertainment to TMZ.com (also owned by Time Warner), which excels at it. But People.com is able to charge advertisers a premium, points out John Squires, executive vice-president of Time Inc, because of the quality of its brand. And surfers are highly engaged with People online: in June each visitor to the site looked at an average of 85 pages, compared with 13 for TMZ.com. In financial terms, says Mr Squires, People.com would now rank among the firm's most profitable monthly magazines.
The internet still brings magazine companies a fraction of what they earn in print. Publishers have found that websites are good at winning and keeping subscribers, but few pay their own way. If Emap closed down all its magazine sites tomorrow, says a publishing executive, the company would make more money. Even though magazine firms have built attractive sites, says Andreas von Buchwaldt of OC&C Strategy Consultants in Hamburg, huge independent communities on the internet have often already formed, and it is hard for magazine brands to achieve leading positions. In six countries in Europe including France and Germany, for instance, an internet-only brand, auFeminin.com, dominates the women's category.
Before the credit crunch, observers expected some or all of Emap to go to private equity. Now publishing firms are perhaps better placed to win. It is possible that no one will pay a good price for consumer magazines at the moment. That would add to the industry's gloom. But it might also encourage media conglomerates to stick at magazines and have a proper go at revamping them for the digital age.