PUBLISHING AGENCIES: HOW TO MAKE MAGAZINES PAY - As margins become tighter and media fragments, contract publishers are being forced to find new revenue streams. Ken Gofton on how the major publishers are adapting to this challenging market

JOHN BROWN

JOHN BROWN

What distinguishes John Brown from its rivals is that it is primarily a magazine publisher of newsstand and customer titles, the contract publishing subsidiary's chief executive, Andrew Hirsch insists.

It's a strategy that has benefited the company; ranked by Mintel as second to Redwood, it saw turnover double to pounds 20.2 million between 1998 and 2000.

The industry remains primarily fee-based, but almost all contracts are different, Hirsch says, who from February will be based in New York for a year, building the company's US business.

For example, the company originally launched the glossy Food Illustrated as a newsstand magazine. Up against food manufacturers producing supermarket magazines and the BBC Good Food title, it struggled for ads and circulation until a deal was struck with Waitrose to rename it Waitrose Food Illustrated.

'This allowed us to invest in the product and produce a better magazine,' Hirsch says. 'We've a sales team on the title, but all the revenue goes to Waitrose to defray their costs, including our fee.'

The magazine's audited (ABC) circulation has shot up from 20,000 to 240,000.

Three quarters of these are picked up free, in store, by John Lewis/Waitrose cardholders. The remainder are mostly subscription or newsstand sales.

Ad revenue is now claimed to be approaching pounds 3 million.

'It remains a cost to Waitrose's marketing department,' Hirsch notes. In contrast, he describes a recently announced contract with WH Smith whereby John Brown will publish 24 lifestyle magazines this year under the heading Total Guides. The first four, on getting married, keeping fit, buying a new home and starting a new career, are due out this month (February) with a cover price of pounds 2.99.

'It's a rolling contract, with some of the 24 requiring regular updating, and others, with less appeal, being replaced,' Hirsch explains. 'WH Smith pays our costs and we share some of the revenue, so there is an incentive to do well.'



PUBLICIS BLUEPRINT

For years (or so the story goes), Publicis' chairman, Rick Bendel, criticised his client Asda's customer magazine. In his eyes, it didn't reflect the store's brand values sufficiently. Eventually he was asked if he thought he could do a better job himself.

And that's how Publicis Blueprint came to be born, 20 months ago. It's headed by the chief executive, John Wisbey, the former chief executive of Forward, and the managing director, Jason Frost, a former publishing director at Redwood.

The transformation in the fortunes of the Asda magazine has been dramatic, and not just because of a revamped editorial strategy.

There's been a subtle change in distribution. The magazine used to be given to shoppers as they entered the store, implying that it was for immediate use. Now it's picked up at the checkout, which encourages the customer to read it at leisure and return later.

In addition, Blueprint has built a strong relationship between its sales team, Asda's traders and suppliers' national account managers to develop a range of advertised promotions that benefit all. 'One national account manager described this as the best thing since gondola ends,' Frost says.

Bizarrely, according to Frost, the old magazine had a print run of four million, but a readership of only three million. Now the print run has been more than halved, but readership has gone up by a third. And on the advertising side, 'we had a target last year of pounds 3.5 million, and hit pounds 4.5 million'.

'The way we charge for our magazines is completely flexible,' he adds, 'but it's usually a combination of fee plus commission on ad sales or other commercial revenue. Very often it is staged commission related to targets.So when we were pounds 1 million over budget for Asda last year, we got a nice earner, and that motivates everyone.'

The 'other commercial revenue' may well include online deals. Blueprint claims that 40 per cent to 50 per cent of its turnover is from new media.

Frost says this includes not just providing web site content and online media sales, but negotiating deals and click-through sales. 'Clients are very willing to reward us for creating these opportunities for them.'



COMMUNICATIONS TEAM

Three years ago, Mark Flanders sensed that problems were looming for the buoyant customer magazine sector. Chairman of the Communications Team, formerly The Publishing Team, he could see that the expanding market was attracting a healthy batch of new competitors.

Moreover, there was a trend, which has continued, to put contracts out to pitch at shorter and shorter intervals. Even when the business stays with the same agency, it is often on stricter terms.

And given the uncomfortable fact that paper, print and postage often account for 90 per cent of the cost of producing a magazine, any squeeze is likely to be directed at editorial quality or management fees. 'Most of the contract publishers are finding lower margins in their accounts,' Flanders says.

His response was to set up a new subsidiary offering a much wider range of marketing services to business-to-business clients. That was the first use of the Communications Team name, which has since been adopted for the whole enterprise, reflecting Flanders' claim that turnover now splits evenly between traditional magazine publishing, new media and services such as training and conference management.

And he's not alone in distancing his company from the 'P' word. Other well established players, such as Redwood, Premier and Mediamark, have taken steps to follow suit.

Like his competitors, he's concerned that clients are switching publishers more frequently than in the past, often in the hope of making savings.

But he believes there is a better way of cutting costs. The Communications Team operates a software system that requires everyone, including clients, to inform the server of the work that they are doing before they can log on and proceed with their task.

The system produces a complete breakdown of all income, expenditure and time committed to every issue of every magazine. 'We gradually realised that this was the key to reducing costs because it is the way to reduce underlining inefficiencies between us and the client,' Flanders declares.

Barclays and the Chartered Institute of Marketing are just two clients to have made substantial cuts through using the system. But Flanders acknowledges that not every client will want to adopt it.'It is very detailed and time consuming if they are going to go into it thoroughly,' he confesses. 'Also, if the inefficiencies are on the client's side, it will highlight that fact, too.'



CITRUS

William Reed, the company that publishes The Grocer, bought the contract publishing house BLA at the beginning of 1997, and renamed it Citrus.

It's a sign of the way the sector is examining its future that, just a year later, it recruited the management consultant Simon Chappell to be its managing director.

'The reason most companies produce a customer magazine is to build loyalty and develop relationships,' Chappell says. 'To do that, you need a supplier who employs more than publishers and journalists. We have to understand databases, we have to understand segmentation. We have to be excellent publishers, but also excellent marketers.'

His analysis of the marketplace is similar to that of his main rivals.

The growth of the sector has attracted many new competitors, while clients are squeezing margins, not least by bringing their professional purchasing departments into the negotiations. And the traditional market may be plateauing: most of the companies likely to want customer magazines probably have them by now.

The opportunities for growth, he says, boil down to winning more contracts, expanding overseas, such as Redwood and John Brown, or extending core competencies into other media.

Citrus has gone from a standing start to generating pounds 2million of its pounds 9.8million turnover from new media. Through a strategic alliance with EC1 Media, it also provides constant material for satellite, digital and interactive TV.

Sixteen of the company's 18 clients are using its new-media services.

For example, it has built a website (www.pethealthcare.co.uk) and provided the content for Royal & Sun Alliance. It also runs a 500,000-strong Huggies Mother and Baby Club, in print and online, for Kimberly-Clark.

'From research we found that first-time mums especially want to use the internet, not least to talk to other young mums,' Chappell says.

'The majority of our revenue still comes from the traditional side of our business,' he adds. 'Magazines will continue to be extremely important. They are also a key tool for driving web traffic. The two media integrate extremely well.'



MEDIAMARK

British Midland is a name about to be consigned to the history books. The one-time regional airline has successfully developed European services, and is ready to become a global player as its opens up its first transatlantic routes.

Flying merrily along in the tail-wind is its customer magazine publisher for the last ten years, Mediamark. It's a long-standing relationship that illustrates the trend towards segmentation of clients' customer bases.

But it also serves to demonstrate where the advertising fits or doesn't fit, in the equation, and the opportunities now arising to provide additional agency services.

Mediamark produces the airline's in-flight magazine, Voyager, and employs a full-time sales team on the contract. It produces a separate title for frequent travellers, communicating offers and benefits, which also carries advertisements. A third magazine, with no advertising, is distributed to a variety of individuals, such as personal assistants and travel managers, who make corporate bookings.

Now the company has been awarded the airline's new transatlantic entertainment guide. And if that wasn't enough to keep everyone happy at 35,000 feet, it sells all of the client's ambient media too such as tent cards on meal trays.

'The publications are very different, with specific objectives,' Mediamark's chairman, Peter Moore, says. 'But the synergy, the look, the feel, have to be the same. The communication has to be integrated throughout. After all, a frequent flyer will also see the in-flight magazine when he makes a trip, and will possibly see the one for travel arrangers on his PA's desk.'

Mediamark is yet another customer magazine house to have dropped the word 'publishing' from its name.

'Two years ago we thoroughly analysed what we were doing and decided we were much more than a contract publisher,' Moore says.

'We don't just put words on paper and hope for the best. We have an entire division selling content for websites, not necessarily for existing magazine clients. We're much more of an agency than we ever were.'



HAYMARKET

Haymarket Customer Publishing has built itself into a top ten contract publisher, with a turnover of pounds 8 million, in three years. Opportunities for advertising revenue vary widely from title to title, and some are purely editorial.

'We operate on a fee basis, and where there is a closely targeted ad base we will sell the advertising and rebate some of the revenue,' the managing director, Patrick Fuller, says . 'The Youth Hostel Association magazine, Triangle, is a case in point.

It is attractive to outdoor equipment suppliers, and we hand back some of that revenue on an absolutely transparent basis.

'We love challenges like that, where there is a clearly defined market. What we won't do is produce a publication to promote a client's brand at our risk because, apart from anything else, that leads to cutting quality to limit exposure. We're very selective about which of our clients we'll sell ads for.'

With very few exceptions, he adds, no customer magazine can be self-funding.

There are several variations on the basic theme, however. Haymarket produces Liverpool FC's match programmes - the first in Europe, it's claimed, to adopt an A4, glossy magazine format.

They're sold at the ground on match days, at newsstands, and by subscription.

Nifty footwork is required when there can be as many as four home games in ten days at Christmas. This, though, is a fee-only project. Ad sales are dealt with by the club - a wise precaution, given the sensitivities of sponsors.

Army, a new title aimed at 12- to 16-year-old would-be soldiers, may carry advertising in time, but for now is produced to COI Communications guidelines on a basis of cost plus management fee.

The idea behind the publication is that many youngsters have no appreciation of what a job in the army involves. The magazine is one of a range of benefits going to those who sign up for what the Army calls its Camouflage scheme.

The three issues a year provide what is intended to be a 'warts and all' picture of life in khaki. 'It's new, but the anecdotal evidence is that it has been successful,' says Fuller.



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