Electronics magazines in shock - competitive rate cutting and declining electronics industry

Wheeling and dealing, corporate takeovers, cutthroat competition, threats to the U.S. economy- the latest plot line on "Dallas"? No, it's the complicated profile of electronic engineering (EE) magazines today, fighting to regain stability in a marketplace threatened on several fronts.

Trade books serving electronic engineers, their managers and corporate executives have seen ad pages drop 14 percent overall since 1985, according to a study released by the Business Development Group (BDG), a consulting firm that studies the business press. The decline, in turn, has triggered a price war that threatens the entire EE publishing community.

Many electronics advertisers, publishers and consultants say it's a situation where difficult circumstances brought out the worst in the industry: While ad pages declined, page rates followed as publishers tried to cling to what they had.

And prices kept going down. Reports are rampant that deals are being struck in every possible venue, and it's not helping. There are magazines on the block. At least one, Computer Decisions, folded this year, and there doesn't seem to be an end in sight.

The causes for the decline are as many and varied as the titles themselves. Publishing executives are quick to point out reasons the industry (although not their particular books) is caving in; while some of these reasons are valid, others merely pass the buck. At the root is a declining American electronics industry destabilized by mergers and acquisitions and increasingly losing market share to overseas, especially Pacific Rim, countries. Added to that is an overcrowded field of business titles serving electronic equipment manufacturers and buyers.

Making matters worse have been the reactions of some 75 publications faced with a shrinking ad base. EE magazine publishers have been competing so hard over the last several years -"and giving away so much," according to Arthur Rosenfield, BDG president-that no one has done well. "This is a classic case of publishers shooting themselves in the foot," he says.

Feeding frenzy

"At the time the field was started, there was understandably enormous growth, but there were always new publications coming in later on, as well," explains David Orlow, president of Periodical Studies Service, a consulting firm. "If you took a 10-year-old SRDS [Standard Rate & Data Services business directory], a five-year-old one, and a current one, you'd see a terrific growth in the number of titles."

Not only have the number of competitors increased, but players in the field rank among the publishing world's heavyweights. just about every big business publishing house, including Cahners, Penton, CMP, Lake and a host of others, has put an entry in the field, and what originally began as a healthy battle for market share soon became a brawl.

"There's less food and more sharks, so you're seeing a feeding frenzy," observes Orlow.

One reason there's less food advertisers, that is-is the number of major mergers and acquisitions among electronics firms. The result has been a consolidation of advertising services and budgets, leaving trade books with a smaller pool of potential advertisers.

What's more, with the electronics business (serving aeronautics, defense and consumer concerns, among others) in a general decline in the United States, ad budgets overall have shrunk, leaving fewer ad dollars available from fewer companies.

"You used to have 10 companies vying for market share; now you have three," explains Cynthia Rector, media buyer for the John Fluke electronics company. "When two companies merge, they'll come up with one advertising campaign. It's too expensive for a high-tech company to keep reinventing the wheel."

While the ad market is shrinking, the magazine publishers are locked into an expensive battle to provide advertisers the highest quality readers possible. Virtually even, major title in the field has qualified 100 percent of its circulation, according to Business Publications Audit of Circulation (BPA). And since at least 1985, they have requalified readers every year, although BPA allows up to three years for requalification.

It doesn't help that advertisers are also looking for more flashy places to do business. With more purchasing decisions being made by managers above the level of the engineer in the trenches, many electronics suppliers are forgoing the trade book route to flirt with more finely vertical EE publications, general interest business magazines and even consumer titles. So, Electronic Design's loss may be Business Week's gain.

"There's been a trend toward advertising outside the trade press, in business media, because people see stronger management participation in purchasing," says Dan Barnhart, director of marketing services for Advanced MicroDevices (AMD). His own company, he adds, is "looking more and more toward management, but not toward Business Week or Fortune. We've been relying on the trade press."

When the advertisers' flight to other magazines began to raise concerns among EE publishers, they responded with a price war aimed at holding on to them. Although ad rates kept rising, many magazines reportedly cut special discount deals tied to volume orders. The use of perks, such as cruises, became more common as incentives for media buys. Some publishers simply forgot about the rate card entirely. Competition, which had always been strong, became fierce.

"Discounting comes in a lot of different ways," reports BDG's Rosenfield. "One is strategic pricing: deep discounts for very high volume advertisers. Then there are field negotiations, where the field manager goes out and cuts special rates. Last, there's 'value-added' merchandising, where a magazine ends up getting a lower yield per page by adding what they call value. It happens when the advertising community has a lot of alternatives."

"Companies are fighting for market share, and have chosen in their zeal to cut rates," observes Chuck Signor, regional sales manager for Electronic Business. "Some do it because they want to be Number One. They can say they're Number One and advertisers tend to look favorably at that, and they don't look at the fact that they might have given away freebies. Some do it just to survive."

Barnhart is diplomatic in the way he characterizes the competition. "The trade press community is very aggressive right now," he says. "I haven't seen anything peculiar. A lot of it is just about the way some publications maximize the interpretation of the rate card as favorably as they can. Some deals are volume related, and won't be available to every advertiser by nature. They're getting as creative as they can, but nobody's offered me a new car in my 20 years in this business."

Shakeout or not?

There are those, however, who contend that there's really no problem at all, reacting with sincere-sounding amazement at the very suggestion that some EE titles are cutting deals to stay afloat.

"We have seen significant increases in pages over time between 1985 and 1988," contends Martin Fleming, vice president of planning for Cahners. "We can base that on the strength of the U.S. economy, especially in the electronics field, combined with a substantial in crease in world trade."

But at a time when the U.S. dollar is going up against the yen and losing in a big way, and in which Japanese trade in electronics is outperforming U.S. trade levels, many electronics publishers feel differently. And while Fleming reports a recent history of "rather substantial increases in advertising page rates, especially in 1987," most observers would argue that such numbers don't take into account the fast and loose ad sales practices of the last couple of years, with rate cards set in anything but stone.

Indeed, the Business Development Group study (see FOLIO, "Hitting the ad page wall," May 1989, page 112) , is based on published rate card prices and shows stable ad revenues for the group. Although EE titles in general are shown to have lost some 7,765 pages from 1985 to 1988, the statistics appear to show a modest increase in revenue of 3.75 percent for the period-more dollars from fewer pages.

The impact of the dramatic page loss can't be hilly estimated when space sellers go off their rate cards, counters BDG's Rosenfield.

"It's a shakeout," he contends. "Publishers are cutting rates so deeply that they have devalued their own medium. Sooner or later, that catches up with you."

Hayden/VNU, for one, can feel the shakedown. Both Electronics and Electronic Design have been up for sale for months, although group publisher Paul Mazzacano says that has nothing to do with their sales performance.

"VNU is selling all of its U.S. properties," he explains. "It doesn't have anything to do with how we're selling. Electronic Design is starting to show some improvement. I don't know if there's an inherent problem in the industry. In the last 10 years [the possibility that books will fold] has been spoken of often, but we probably have more magazines in the business than before."

Fairchild's Electronic News has undergone changes as well. Derek Berghuis, associate publisher of Electronic News, admits that his magazine made a mistake in running features and articles geared specifically to engineers. Now, he says, they're looking to management as their readership. But then, so are most of the other books.

"We were concentrating a little more on the engineering, but if you go back five years, that wasn't what we were doing," says Berghuis. "Our subscribers came to us in droves asking why we were doing that. So we dropped a lot of engineers off our circulation list, and [narrowed] our circulation focus on management."

That was part of a February 1988 belt-tightening program that saw some Electronic News editorial employees shifted from the New York office into field locations. It was, says Berghuis, a reaction to the state of the EE market today.

"It's been sliding in the last several months," he notes. "The industry right now is rebounding, and we see a very modest upturn in total ad pages for the whole market," he says, adding, "We're still not forecasting a banner year.

A diverse field

No one expects a banner year. But indications are that there is some cause for optimism in the electronics trade hook market. Advertisers like Barnhart say ad pages have "not gone down significantly, if they've gone down at all," and publishers say that things aren't great, but they're better.

Some books, such as Cahner's EDN and CMP's EE Times, have actually thrived through the hard times. According to Cahners' Fleming, there is a segmentation among the magazines in the field that's significant; you can't just talk abou"electronics magazines."

First, he says, there are magazines that serve the personal computer field, like PC; they are the magazines that raised their rates sharply in recent years. "The reaction of the market," adds Fleming, "has been to spend more total dollars on fewer pages. More magazines are making less money because it's the page units that are important in that equation."

Then there are magazines in the professional MIS-DP computer field, such as Datamation, Computer World and Information Week. One book, Computer Decisions, folded early this year, shortly after FM Business publications bought it from Baetech. In this field, ad pages have been declining steadily, mostly to the advantage of the more vertical PC titles.

"There has been a perception by advertisers that they needed to be in the PC publications," says Fleming. "Now, we're seeing a retum. All marketing and promotion was at one time done by the department-level buyer, but as the product has matured, MIS-DP staffs have more of a say in the purchase of microcomputers, and as rates go up in the PC magazines, they look back to the other books."

Last are the straight electronics trade books that go to engineers. According to Fleming, the competition has been fiercest in this category. What's going to make the difference, he says, is a magazine's ability to distinguish its editorial and design from other magazines; a major complaint in the field is tha"all the books look alike."

"All except at CMP," amends Rosenfield. "Gerry Leeds understands what the nature of the editorial product must be to ensure that reader commitment. So after the shakeout, Cahners and CMP will probably survive. Magazines that end up surviving a shakeout usually end up stronger as long as they can distinguish themselves in editorial and design."

Not all so lucky

It wouldn't surprise anyone in the field if some of the smaller books, and possibly even a few majors, drop out before the dust clears. In fact, a number of people are predicting exactly that.

"I've heard of a few books up for sale," says Fluke's Rector. "It's anybody's guess right now if they're going to fold. You'll see three or four major publishing companies that will buy out the competition. They'll try to segment the market out to a few major players, and stop competing with books inside their own companies, like some Cahners books. Cahners is walking a very fine line right now."

And there are those who see it falling the other way. "Either the business will rebound, or two or three publications will drop off," says Orlow of Periodical Studies Service. "I expect the latter is more probable. Some of the majors will drop out eventually, maybe Fairchild, or maybe Hearst will give up on Electronics Products."

As a matter of fact, Berghuis of Fairchild's Electronic News says he's heard rumors that his magazine is next to go on the block. Of course, he's heard that from outside Capital Cities/ABC, which owns Fairchild.

"There's been speculation all over the place that we're about to be sold, but Cap Cities has never sold a magazine," Berghuis says.

The problem apparently goes much deeper than the immediate destinies of a handful of electronic engineering trade books, according to players in the market, and solutions will go far beyond simply agreeing to stay on the rate card and watching a few smaller books bite the dust. Part of the solution will inevitably involve the health of the electronics industry itself, and that leads back to the general state of the country's economy.

"We see a lot of caution about whether the recession's going to hit, and if so, when," says Chuck Signor. "They're definitely holding back out there."

Rosenfield sees the real danger in the electronics industry going the way of the automotive business, with the whole country feeling the effect. When that happens, he says, it won't matter whether one magazine or another cuts its rates.

"If we lose position in electronics as we have in the automotive industry, we're going to be a very weak country," he predicts. "The only thing left will be the building industry, because you can't export condominiums. But there has to be a commitment, if this business is to do well, on the part of magazine owners to focus on value for the reader in distinguishing their products. It doesn't matter how many pages you can sell at a discount."

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