The Downside of Brand Extensions

Alan M. Douglas is President of Douglas Publications, Richmond, Virginia, and board member and chair of the Publishing Services Committee for the American Business Press.

Relationships with advertisers and readers can change, and more money may go into spin-offs than the magazine.

These are exciting times in our industry. Business is good and the future looks bright. We aren't in the publishing industry anymore, of course--we are in the information business and living in the Information Age. Our magazines are the springboards for new ventures in electronic media, brand extensions, ancillary income, trade shows, conferences and international partnerships.

In short, magazine publishing companies are making money in ways never dreamed of a decade ago. So what does this mean to the small publisher? And what are the ramifications for the professionals working in our industry?

Editors, graphic designers, marketing people and all the others who work to produce magazines need to be skilled professionals in their particular areas. But it is just as important that they be knowledgeable about the business side of our industry. The new frontier of brand extensions and ancillary income is a great example of why you need an industry perspective to truly appreciate--or to hate--what is happening in publishing.

Hearst Magazines' John Mack Carter once posed the following question during a speech: What is the largest brand name of hand tools sold in the United States? Most people incorrectly guessed Black & Decker, Stanley or some other familiar manufacturer. I would give you a clue, but the answer is Popular Mechanics.

Wander down to your local Wal-Mart and you will see that its private label hand-tool line carries the logo of Popular Mechanics. Go past the aspirin and Beanie Babies and look at the cans of paint stacked high, each bearing the name and logo of House Beautiful. Wal-Mart proudly points out that it offers "an array of items from potting soil to garden hoses" in their Better Homes and Gardens line. The magazines associated with these products all benefit in numerous ways: They extend their brands, reach millions of potential subscribers and generate additional revenue.

Business magazines aren't far behind. Licensing, joint ventures and new ventures are popular and profitable. Air Transport World gives out airline awards. Readers of Pallet Enterprise (for those who manufacture, repair, sell or use pallets) can order gold or silver pallet jewelry. And after the staff at Phillips Publishing's newsletter received numerous reader requests for information about where they could buy vitamins, Phillips started selling vitamins.

We all know the axioms that describe a great magazine: Magazines are based upon their content value. Editorial integrity is paramount. The graphics must grab our readers. Circulation must be on target. These are the key elements--but that is no longer enough. The mergers-and-acquisitions mavens will tell you that the value of a publication is substantially increased when it generates ancillary revenue. Advertising revenue goes down with the economy more proportionately than trade show revenue and some ancillary-product revenue. Large publishers are making investments today in areas such as databases and brand extensions to increase the value of their companies and protect themselves when the economy goes south. One of the major benchmarks publishing executives now use to measure themselves is the percentage of revenue and profit from advertising. A large dependency on advertising is viewed as a red flag.

If you are, or work for, a small publisher, the financial value of your publication is less without ancillary income. But entering into these new fields changes relationships with advertisers, sources and readers. Do not be surprised at how budgets shift. Investment will be directed toward ancillary projects rather than your magazine. The marginal economic return may favor spending less on the magazine and more on developing brand extensions. It means that in some cases the children will be favored over the parent--magazines will be lower on the food chain than trade shows, database marketing or directory projects.

There are also ethical implications to extending your brand. Once the "brand" loses its integrity and value, the bean counters will kill it.

Magazines used to be more than "brands" and assets. These days, the magazine geese are laying a lot of gold en eggs.

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