Consumer Magazines: Ad dollars boom, but circ is shaky

The country's continuing economic prosperity will propel strong growth in advertising spending in consumer magazines, the experts say. But be warned, they add, that the circulation part of the equation-and the increasingly complex nature of profit-margin and brand management-will create new challenges for the industry. Total ad revenue for magazines will grow at a compounded rate of 7.9 percent during the next five years (1997-2001), to $21.6 billion, predicts Veronis, Suhler & Associates. Spending grew at a rate of 6.7 percent in the prior five years. For the most part, a boom in ad spending by the major ad categories will account for the accelerated growth. For 1998, total ad spending is expected to increase 8.2 percent, to $10.5 billion, over the projected 1997 total, which would be 7.7 percent more than the 1996 figure. "The advertising market will respond to the economy, which we believe will continue to expand," according to Veronis' most recent forecast. "In addition to a healthy economic underpinning, the consumer magazine industry reflects the transformation of the economy." Most major magazine companies are expected to raise their ad rates a moderate 5 percent or so. Longtime top spenders in automotive, an ad category especially sensitive to the economy's ups and downs, will moderately increase their spending, while breakout categories such as drugs & remedies and computers & office equipment, which have grown significantly in recent years, will continue to show dramatic, double-digit growth. Other likely high-growth categories include publishing & media, business & consumer services, and travel, hotels & resorts. Other consistently strong categories for which the experts predict moderate growth are food and toiletries & cosmetics. Another top-10 category, direct mail, which dipped 5.4 percent in spending last year, is expected to chart moderate growth again this year and next year. Some publishers are concerned that new FDA regulations softening the restrictions on TV drug ads have cleared a path for a large exodus of pharmaceutical ads from print to broadcast. The cash-cow drug & remedy category increased its ad spending in magazines a breathtaking 36.7 percent last year, continuing a long-term, double-digit growth pattern; declining ad sales in that category would be trouble. "Despite the flurry of interest in TV [by the drug companies]," says Magazine Publishers of America vice president of marketing Chris Miller, "my sense is they're very clear that this is a category in which people need [more information than can be relayed in a TV spot]." Miller adds that D&R is not the only battle on the horizon next year between magazines and TV. Citing declining network viewership, severe audience fragmentation in television and increased penetration of VCRs, which alters the way TV is "used," she says the time is right for magazines to ambush the medium that has long been its chief rival. "The differences between magazines and television are more pronounced than ever," Miller says, "and magazines' advantages are more clear." Magazines are more efficient in reaching advertisers' target audiences, she adds. On the circulation side, the picture isn't quite as bright. Circulation income is expected to grow only slightly over the next five years. In 1998, circ income will increase 2.9 percent, to $7.6 billion, against the estimated 1997 figure. The increased revenue is a function of aggressive increases in newsstand prices and moderate increases in subscription prices, not increased sales. A long-term downward trend in newsstand buying will dip dramatically (-3.2 percent) this year, and will continue its decline indefinitely, according to Veronis estimates. Subscription income will remain essentially flat. "One of the obvious reasons for the continued pressure on single-copy sales is clutter," says Paul Hale, a managing director at Veronis. "Every year there are more magazines than ever before." Hale also surmises that magazines may have reached a "point of resistance" with their price hikes. Roberta Garfinkle, senior vice president at McCann-Erickson agrees: "Ever-shrinking magazine circulation is certainly an important issue. I think you'll see ad-page declines in many magazines as a result. The pie isn't growing-the reader pie or the ad pie. The actual magazine delivery number is a lot closer to rate base than it used to be for most books. You're not seeing any huge bonuses." The consolidation of magazine wholesalers is an uncertain factor in the circulation puzzle. In the past two years, the number of wholesalers has shrunk from about 275 to 60. The chaos of the process itself was blamed for some of the fall-off in single-copy sales across the board. In the aftermath, observers say special-interest magazines-whose general health continues to be a few points better than general-interest books, but which tend not to leap from the newsstand-may be bumped from distribution lists. General-interest books would theoretically benefit from less clutter. The new, consolidated newsstand will likely favor big companies over independent titles, and will frown especially on independent launches. Special-interest books would have to "redouble their efforts to get into specialty outlets," says Hale. He adds that a new sub-industry, "secondary wholesaling," may develop to handle distribution of special-interest titles on a local basis. The overall slip in actual units sold isn't necessarily a bad thing; production costs, though moderate compared to the sky-high levels they reached in 1995 and 1996, remain burdensome and are expected to edge up later this year and next. Hale predicts more companies will follow Hearst Magazines' controversial lead, encouraging circ to drop while raising prices for consumers and advertisers. "But they'll probably do it quietly," says Hearst Magazines president Cathie Black. "The quality of the circulation is the most important thing," says Black. "It doesn't pay to chase readers." The dominance of advertising in the current profit picture and the challenges in building quality circ, she adds, call for no-nonsense margin management. "You never know when advertisers will start retracting," cautions Black. "You have to make sure your revenue doesn't get eaten up with expenses-with promotion or salaries or anything else that keeps it from hitting the bottom line." As long as the economy flourishes, mergers-and-acquisitions activity will stay at full throttle. The market is favorable to sellers, and investment capital is easy to come by, analysts say. Another industrywide phenomenon-the push for profitable brand extension-is also in high gear. "The biggest development is the focus on ancillary products," says Hale. "We're rapidly turning publishers into multimedia managers." But Hale adds a cautionary note: "Everyone is wondering how much longer this Goldilocks economy will continue." '98 SPENDING FORECAST: VERONIS +8.2% ZENITH +5.5% '97 SPENDING a/o 5/31: $4.8 bil* '96 SPENDING: $11.2 bil* *Source: Competitive Media Reporting

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Consumer Magazines: Ad dollars boom, but circ is shaky

Jeff Gremillion

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