Reneging Advertisers Plague Magazine Business

Dell's Move to Re-examine Back-Cover Buys Highlights Publishers' Difficulty in Gaining Leverage in Tight Economy

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NEW YORK ( -- Dell's long-term agreement to buy most or all back covers of magazines including BusinessWeek, Forbes and The Economist was uncommon from the start, as publishers pocketed premium prices in exchange for giving up a prime ad space often used to woo new advertisers. But now Dell and its new agency, Enfatico, are re-examining those expensive back-cover buys, which were supposed to last as long as three years, and considering whether to move some resources toward more multiplatform plays.
Deal or no deal? Dell may back out of pricey back-cover buys with magazines.
Deal or no deal? Dell may back out of pricey back-cover buys with magazines.

And unfortunately for media companies, second looks at supposedly done deals are getting a lot more common. Publishers and buyers blame the sour economy, more competition and the rising number of innovative deals that can seem strange to a new CMO or agency.

"Many years ago, a client might say to you, 'I'm going to spend X,' and you were going to hold them to that come hell or high water," said Vicci Lasdon Rose, publisher of Wenner Media's Us Weekly. "Today we anticipate a bit more flexibility."

Adjustments can be understandable, especially when a marketer's business is falling short during tough times. "There are certain circumstances right now that are beyond everyone's control," a media buyer said. Some agencies try to honor their contracts and make up for any change in plans. Many don't bother. "Most are jerks about it, to be honest," the buyer said.

Publishers don't argue that point. "I can't think of another business where you cut this deal and you're not held to anything," one said. "An assistant media planner can kill a $2 million deal -- and not return your phone call."

Economic woes
Defending a deal -- or adapting it -- revolves around the parties' power, market position and relationships. The premium on relationships, not incidentally, means neither advertisers nor publishers will talk specifics on the record. Dell, its agencies and the magazines on its schedule all declined to comment or did not respond to repeated requests for comment.

Magazines have seen the sputtering economy punch holes in their projected ad sales all year. Total ad pages fell 7.4% in the first half of this year, according to the Publishers Information Bureau. Magazines with big Dell business were not immune. First-half ad pages slipped 14.8% at BusinessWeek and 12.6% at Forbes; Fortune posted a slim gain of 1.3% while The Economist edged up 3.7%. For 2007, Dell spent slightly more than $548 million in measured media, with $52 million of that going into magazines, and $114 million spent in Sunday magazines, according to TNS Media Intelligence.

George Sansoucy bought and sold ads for more than 20 years in the magazine industry, but can speak more freely than most because he has left the business. He said he saw advertisers look for exits or adjustments many, many times. "Smaller-contract exits could usually easily be handled with an apology and a 'wink' that the next round of buying would make up for the current contract exit," Mr. Sansoucy said. "The bigger-contract exits required some begging and serious arm twisting.

"But, inevitably, some publishers would not budge and, you know, that often worked for them," he added. "The cuts would come from other publishing houses instead of theirs."

Publishers can't always stand firm. One buyer recalled a client that decided to run fewer ad pages than planned in several magazines, which meant the advertiser deserved a smaller volume discount than planned. The publishers decided to honor the relationship instead of their contracts. "Nobody charged us," the buyer said.

Magazines that are struggling have little leverage to resist renegotiation. Condé Nast, publisher of such titles as Vogue and Glamour, has the strongest reputation for standing firm.

The industry ought to examine its basic business practices to make sure contracts don't get weakened further, one publisher said. "That trickling is gaining momentum. If it keeps up, it looks like it will be the norm, with clients coming back and renegotiating."
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