Time Inc. Tops List of Digital Earners

Ad Age Analysis Shows Whole Mag Business Has a Lot of Web Work to Do

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NEW YORK (AdAge.com) -- Time Inc. leads the big magazine publishers in building a digital business, but the industry as a whole still has a lot of work to do if it's prepping for a post-print universe, according to new analysis and estimates by Advertising Age.

Last year Time Inc.'s digital ad revenue totaled an estimated $245 million, a full 10% of the company's total ad revenue. Although no competitor came close in dollar terms, some have built digital ad revenue to comparable portions of their totals. Martha Stewart magazines, for example, got about 12% of their ad revenue from digital, or some $14 million. Others are concentrating on digital businesses that have nothing to do with selling ads.

Digital Revenue
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Digital revenue in 2008 for leading magazine publishing companies
But some have less to show. Conde Nast collects just 3% of its ad revenue from digital sources, a shockingly low figure for a company that established a web division all the way back in 1995.

Over thirteen years later, digital matters more than ever. Magazine ad pages fell further last year than even in the dark days of 2001, new statistics revealed last week. Country Home, Electronic Gaming Monthly and Plenty magazines all quit print just this month, threatening to accelerate a pullout that stopped the presses at 18 other titles in 2008. And whatever relief arrives whenever the economy recovers from the recession, nothing suggests that magazine ad page sales will reclaim their previous heights.

Magazine companies are facing a "tectonic shift," said Mark W. Johnson, chairman of the consulting firm Innosight and author of a forthcoming book, "Seizing the White Space," about transforming business models. "If they're trying to survive, if they're trying to stay viable, if they're willing to reinvent their business model or go into new white space, they ought to rephrase what they're good for," he said.

A pedestal for ad pages
A big part of the problem -- and the current pressure for change -- stems from the prevailing emphasis on building ad page sales and increasing ad page rates. Conde Nast practically fetishized ad pages for many years, but almost everyone played the game. Pushing circulation as high as possible, though, undermined subscription prices and ran up costs for marketing, paper and distribution.

As circulation profits were sapped for the sake of ad pages, they became even more essential to magazines' success.

That's part of the reason Country Home had to close despite paid circulation holding steady at 1.3 million: Ad pages had cratered 25% in 2008. And this happened at Meredith Publishing, where circulation practices are among the strongest in the industry. Ad sales provide half the revenue to Meredith, while circulation contributes just a quarter.

Circulating print copies, at the same time, is only getting more expensive. Just last week, Anderson News, which handles about a quarter of all magazine distribution, unveiled a new charge of 7 cents per issue it puts into stores. For some publishers, that's a new multimillion-dollar headache.

Ironically enough, dirt-cheap subscription prices have also made it harder to make a buck online, said George Janson, managing partner-director of print at Mediaedge:cia. "Most publishers are struggling with the means of monetizing their online content," he said. "Consumers have come to expect free content on the web. And magazines have not helped their cause by pricing subscriptions for less than a bottle of soda."

Cutting paid circulation
Even before the recession helped sink ad page sales, worsening conditions and costs had finally prompted publishers to reconsider. Titles from Playboy to Reader's Digest took axes to their paid circulations, trying to target their least-profitable subscribers.

Questioning circulation practices is proving to be only part of a broader, important examination. Publishers need to spend more time identifying what readers want. Is it words and pictures on paper in a pretty, compelling package every month? That's great if so, but it's not the best growth business any more.

Or do readers also want access to information that they can use? How can publishers present their information conveniently for readers, and at the same time give advertisers what they really want, a connection with a consumer? Figure that out, and you've got a new business model.

Magazines, of course, aren't the only ones navigating this transformation. Nor are they the only ones whose success here is difficult to gauge. Most publicly held media companies embed digital revenue inside the results of their offline media, making it hard to compare companies' digital progress. Newspaper companies, for example, typically report digital revenue simply as part of their newspaper revenue.

Some media companies offer more disclosure. News Corp., parent of Fox, MySpace and other properties, last June said digital revenue represented about 8% of total worldwide revenue, implying digital revenue of about $2.64 billion for the year ended June 2008. The company said "Fox Interactive Media and other" generated 40% of those eight percentage points; business services such as Dow Jones' Factiva, 26%; newspapers, 19%; and mobile, 15%.

The New York Times Co. generated 3.9% or $85.5 million of its revenue for the first nine months of 2008 from About Group, a unit that consists of About.com, ConsumerSearch.com, Caloriecount.about.com and UCompareHealthCare.com. The rest of its revenue came from its News Media Group, which includes the print and digital operations of its newspapers.

CBS Corp., meanwhile, generated 4.2% or $140.7 million of its third-quarter 2008 revenue from CBS Interactive, a newly formed unit that includes CNet, the internet media business CBS bought in June 2008.

Beating the spread
So in comparison, magazine companies that can claim anything over 8% in digital revenues could argue they're ahead of the curve.

Some titles are handily beating even that mark. Offering services can create a lot of opportunity online. Witness New York magazine, whose information on local restaurants, events and businesses generates 15% to 20% of its website's page views. In a bid to do more like that, New York Media bought the restaurant listing service MenuPages.com last July.

Today New York gets about 20% of its ad revenue from digital; it hopes to push that percentage to 50% within five years, according to Michael Silberman, general manager-digital. "The assumption," he quickly noted, "is that the growth will come from digital, not a decline in print."

Not every magazine has the same set of assets to exploit. The Economist, a very different book than New York, collected about 16% of its ad revenue from digital last year, according to Paul Rossi, its North American publisher.

In combination with Time Inc. digital powerhouses such as People and Sports Illustrated, the facts seem to confirm that weekly titles focusing on current events have perhaps the easiest inroads online -- despite a simultaneous vulnerability to digital competition.

Online, beyond ad sales
Maxim, in a different sort of example, has been able to make digital about 12% of its ad revenue, said Glenn Rosenbloom, co-CEO of Alpha Media, which owns the title. That's less about frequency or timely news and more about its young, male audience. Many publishers don't share that tech-savvy asset. That's why some titles really need to avoid getting hung up on scale and ad sales.

"Ad revenue is an important factor, but there may be commerce opportunities for certain brands," Mr. Rosenbloom said. "I don't think the magazine industry in general has embraced that notion as well as it should."

Time Inc.'s People.com is thriving, but it isn't planning on living off ad revenue alone. Right now one web section offers games that incorporate marketers' brands or simply run commercials before play begins. But this spring, the site will start selling downloadable games at relatively low costs.

"We want to see if we can create an additional revenue stream," said Fran Hauser, digital president of Time Inc.'s Style and Entertainment Group. A $1 iPhone app for People.com also will be released this quarter. And the sites for InStyle and People Style Watch have already been taking an undisclosed cut of any e-commerce that's sparked there.

Martha Stewart's eponymous company pulled back from e-commerce and online catalogs in 2005 to focus on ad sales. Rodale Inc., on the other hand, gets 40% of its digital revenue from e-commerce. Its Women's Health magazine is selling low-priced video downloads and memberships in online fitness programs.

Hachette Filipacchi Media U.S. took another approach, buying a digital ad network called Jumpstart Automotive and combining its sales with Hachette's car titles. Now the company says its digital revenue represents 10% of the company's total revenue.

Print will always have a place, and certainly a base among certain consumers. However, there are growing numbers of people who want magazines' expertise but don't care that much about the paper package. If magazines don't want to keep living and dying on ad page sales, they need to keep examining what they do, why technology disrupts their models so easily, and what businesses they might build to answer.

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Contributing: Bradley Johnson

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