Magazines as information providers - Panel Discussion

Folio: this year conducted a dialogue on consumer-magazine publishing, and participants joined to discuss issues such as Promoting growth and profitability during increasingly competitive times. Panel members included Susan Allyn, director of marketing information and finance, Time Inc; Dan Capell, editor of "Capell's Circulation Report" and chairman of Vos, Gruppo & Capell, an investment-banking firm, Elizabeth Crow, president and editorial director, Gruner + Jahr; John Klingel, director of magazine development, Time Inc, Ventures; Jeff Lapin, vice president, general manager, Magazine Division, F & W Publications, Inc.; Diane Potter, vice president/circulation, Times Mirror Magazines; Paul Roman, president, The Taunton Press; Anne Russell, editor of Folio:; and Hershel Sarbin, CEO of Cowles Business Media and publisher of Folio:.

SARBIN: How are we changing the way we do business in order to get our margins back, ensure growth and better return on investment, and develop important new revenue streams? I would like each of you to share your vision for your magazine company's future.

CROW: We will grow and be more definitively targeted toward special-interest groups. But more than that, we are challenging every assumption we have about the way our magazines look, the way they're sold, the way our contracts are negotiated.

The most important thing we sell advertisers and consumers is our knowledge of the reader; and we respond to those readers' needs in a very concrete way. We're not just selling tons of people to advertisers; we have an automatic distillation or segmentation in different groups, so we get the advertisers' very best prospects.

We would like to see revenue growth and margins increase, but we're willing to invest in making our products better. Also, I hope to be able to retard the competition's growth in circulation and in advertising, and that's a new way of strategic thinking for us. POTTER: In the last few years, we were very reactive; there were a lot of cost-cutting and short-term attempts to get through that time period. My hope is that in the next five years, we will become much more proactive.

I see investment in editorial, a constant effort to revitalize and present a product to the consumer that is of great value. We will be much more into multidimensional marketing: I don't think we're going to sell just pages; I don't think we're going to sell just magazines. We'll begin to identify services or information that we can provide to the consumer that may be different--in different forms and different media than simply the printed page.

On the ad side, the same thing is happening. It's now much more of a marketing activity--there's a holistic view of someone who is trying to sell a product in terms of how it serves readers. It's back to basics, in that it all starts with a quality, valued editorial product--and that will help us improve our margins. If the magazine is valued, presumably, we will be able to get the reader to pay more for it.

LAPIN: Our company is in a much different position than some here in that we are a special-interest magazine publisher. We are very much circulation-driven, and purposefully have chosen to be so. We're less vulnerable to recessions. Over the next five years, we expect to develop or acquire more properties related to our current markets and to explore new ancillary opportunities.

ROMAN: We're also circulation-driven. Our growth will probably come through new book or magazine ventures. We also will learn how to make smaller magazines--under 150,000 circulation--profitable because that will open up a lot of new areas.

With every new venture, I would like our company not only to learn a new field, but also to enhance its skills by learning how to do something that it has never done before.

SARBIN: What I sense is a different kind of framework for some of you who face an enormous amount of competition. I was particularly struck by Elizabeth's use of a phrase, "I want to retard my competition." That strategy is really a critical thing in many of the larger consumer magazines' markets: To keep ahead, and keep the competition off-stride.

CROW: Your market can't expand infinitely.

SARBIN: That's correct. I'm not always so sure that smaller niche publications face the same battle. Many niche publications are circulation-driven, which has meant a better, but not easy, environment. Publishers of magazines that are essentially advertising-driven have to find new approaches.

RUSSELL: Do you think it's realistic to expect the ad-revenue shortfall to be made up by circulation?

CAPELL: What I see is a continuing disaster on the newsstand for most magazines. It means you've got to raise circulation prices significantly--and that probably means rate-base cuts. I don't think you can significantly raise prices and grow. Something like 35 percent of ABC's members have already cut their rate bases in the last five years. Now you'll likely see more of it, coupled with significant price hikes.

ALLYN: The problem with raising prices is that we created a valley for ourselves a long time ago with rate-base wars. In order to achieve higher rate bases, we drove prices down--which built a perception in the American public's mind that magazines should be cheap. I don't think that future price increases are going to be very sharp or very fast in coming.

What's going to happen over the next five years is that, increasingly, magazine circulation will drive a lot of the business decisions. For the five-year period after that, we will see price increases as the American public adjusts to the fact that the magazines we create are worth more than we're charging now. That won't be easy. The circulation-driven world has serious problems right now. Ad-driven magazine publishers who are seeing their advertising margins eroding are saying, "We've got to shift toward circulation." I've got news for them. Circulation economics just deteriorated, too. It's just not as obvious, because publishers are used to looking at the ad side of the business.

ROMAN: When you're circulation-driven, revenues are far lower than when you're ad-driven. I wonder whether companies that want to get away from the advertising are really prepared to see far smaller revenues with the tremendous infrastructure they have to support.

KLINGEL: When you hear about people shifting to circulation-driven, it's just that they're trying to move a little bit, not become totally circulation-driven. Whereas they tended to give away circulation and use sources that were extremely unprofitable in the past, they're now going to try to shift more toward a better circulation margin.

ALLYN: ... and attention to circulation margins suddenly got refocused as a result of declining ad dollars.

POTTER: It's not either/or. Advertising and circulation work in tandem.

SARBIN: The publishing world and its economics have changed radically to the point that franchise-building may be helped by adopting Bill Ziff's idea of media neutrality. That is, you should think of yourselves as information providers, not just print publishers. You can deliver information in print, online, CD-ROM, whatever. Coupling that with a strong image and very high quality affords an opportunity to examine many different revenue streams, not just advertising. We must explore them and make sure we don't find ourselves thinking in a traditional mode about the way in which we publish.

Overall, we are still talking, fundamentally, about exploiting the franchise--not necessarily the company name, but often that of a specific magazine title: Capitalizing on the relationship that the magazine has established with the audience, combined with the advantages of new technology and databases. There is a high price to be paid for not being open-minded and organizing to act quickly.

CROW: It's a two-edged sword. On the advertising side, there is a tremendous amount of education that has to take place. Increasingly, advertisers and agencies would love to treat magazines as undifferentiated--as databases where they can select what they want. When negotiating or demanding favorable rates, they reason that it is not at all to their advantage to view a magazine as having a unique bond with its readers or a coherent voice or something special about its character and personality. So, although media neutrality is wonderful from the point of view of management looking at the different options for each magazine, the way it's presented to the outside world can be a bit tricky.

POTTER: What we need to recognize is that we are in the business of providing information, and that's the core of what we do. How we provide it--whether in a magazine, a video or whatever medium we might be able to invent--is the question that is going to become more important over the next five to 10 years.

LAPIN: But whether you're a large or a small publisher, when you hear the buzzwords "database" and "interactive media," there's a tendency for people to want to jump on that bandwagon and invest a lot of time and energy and money in something that probably isn't going to go anywhere. Also, even if it does go somewhere, it may not have been the right bandwagon for you.

CROW: We have to be very open-minded about what is possible. There is enormous potential in the sensible utilization of a database. In new technology, the race is going to be to the swift--to the pioneers who discover and create software that brings some vitality and immediacy and usability to all these magazines that are currently going online. Eventually, somebody is going to invest a lot of money and is going to make a killing--and at the same time serve the American people brilliantly by producing online information in an attractive, user-friendly form that makes sense for that media.

KLINGEL: We're in a transition right now. What you're hearing are buzzwords like "selective-binding" and "databases" and a lot of other wishful thinking on issues for which we are trying to find solutions. All the old-timers laugh about the "database thing" because it's list selectivity. We've only been working with it for the last 100 years. Suddenly it's got a whole new name and there's new expertise out there, but not much has changed.

SARBIN: Database is a very meaningful concept to a growing number of advertisers. When they talk about reshaping their marketing strategies, I see them increasing database and promotional marketing at the expense of advertising.

My own perception is that the money for database marketing is coming out of measured media budgets. There is a real-location of effort, rather than an increase in the total marketing dollars available to magazines.

CAPELL: What we're saying here is that the magazine publishing business is 30 years ahead of the rest of the people, so I think that's why the database doesn't mean anything to us. We had our subscriber files. We gathered data on our subscriber files. These other businesses did a lousy job of keeping track of their own customers.

ALLYN: You see General Motors trying to build a list of potential car buyers. You see the travel people finally saying, "All those reader-service inquiries, do you have lists of those facts?" That's database to the advertiser. But it's not a database to a publisher. It's a list of people who inquire. But it's all they have. It's one dimensional. What we think of as database, in the purest sense of the word, is a relational database: Is this a two-time premium buyer who also subscribes to Ski and buys Gruner + Jahr books? That's a database. But advertisers are still in their infancy in this.

What we haven't done as effectively is take our subscriber files and work with advertising databases. Advertisers want to go in and buy only those people who have a high potential to respond. There are some problems there.

KLINGEL: True, since response doesn't always measure ad effectiveness. If advertisers get mixed up about their goals, that's not necessarily good for us.

POTTER: And if they put all their eggs in the direct-response basket in terms of their expectations, that is probably not a good marketing decision for anybody trying to sell anything.

LAPIN: I love having direct-response ads in my magazine, but you have to be aware of potential problems. To give you an example: One of our magazines' largest single advertisers placed direct-response ads with us, but got no response. We discovered that if someone had originally responded to the advertiser's ad in another magazine, that ad's key identified the customer permanently. Any future business from that person went back to the original key and our competitor received the credit.

That's a good example of the danger of saying orders or inquiries will be captured from ads.

SARBIN: And it's a good example of the importance of forging a relationship with the advertiser, so you can contribute as an expert to the tracking process.

ALLYN: Some people are going to make headway by using their customer base as a value-added for selling ad pages--particularly if they have a lot of data.

SARBIN: I agree, but I also want to challenge any conclusion that magazine companies have for a long time been managing their customer files, and using their customer files to the greatest advantage. I think it is not the case.

ALLYN: Mining the existing customer base is critical. Consumer magazines have not yet taken advantage of it because they're just beginning to look at readers as customers.

CROW: Most of us have circulation history, and not much more than that, because every time you append a few more questions to a bounce-back card or whatever, you're going to retard response. You can obviously mix and match with Metromail to get more information, but I don't think most of us have a great deal of detail about our customers other than their circulation history.

ALLYN: There really hasn't been a need in the past. And even within the circulation history, we've done a poor job of that because we've been unwilling to pay extra dollars to collect information from our own readers.

POTTER: That's because volume, not information, was the primary motivator.

RUSSELL: It sounds like you are ambivalent about selective-binding's advantages to the publisher. What do you see as the primary danger?

CROW: Not all three database uses--new products or ad sales and circulation retention and profitability--are tight for each company. In some companies, using a detailed database to enhance ad sales can create all sorts of mischief. When you combine that with the ability to do selective-binding, you may discover you've fragmented your audience, but haven't received a premium for these fragments to offset what you're losing. The same company, though, that might have a big problem with ad sales, might in fact be able to use its database very fruitfully to produce new products for segments of its market--as long as they control the data.

A lot of us are going to use database information for circulation retention and profitability: Who will respond to a double postcard? Who requires a big $1.40 direct-mail package? What is the quality of each of these groups of customers and how can you best attract and then retain them?

A magazine exists and appeals to all of its readers for a reason. There are characteristics that an audience shares that should be sold much more aggressively to advertisers so they don't knock themselves out and get very disappointing results by incorrect or inappropriate targeting of their advertising.

You have to also be very careful about the reaction of readers. You can probably sensibly segment your market in some situations. In other cases it's crazy, self-defeating, and does not serve the reader, so your circulation will suffer.

POTTER: I can visualize the situation where an advertiser wants selective-binding and either wants only the people who are his clients or only the people who aren't his clients, and that's not smart marketing in the long run. If a magazine environment is responsive because it involves its readers and its buyers and therefore is a positive sales environment, we should be saying to this advertiser. "Hey, you know, you're not thinking about this properly in terms of your own marketing and sales needs. Let me help you think it through." Then there's no loss. In fact, there should be a gain because, provided the advertising is right, both customers and potential customers should be responsive in the magazine environment.

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