HEARST AIMS TO HOLD PM TOBACCO;PUBLISHER FIGHTS AGAINST ANOTHER EXIT LIKE KRAFT

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With ad closing dates for February issues fast approaching, Hearst Magazines is in frenzied negotiations to capture at least some Philip Morris Cos. business for 1996.

The stakes are high in what is seen as a crucial test of Hearst Corp.'s resolve. The publisher cut rate bases 10% while upping ad rates 5% and hiking both newsstand and subscription prices at 13 of its 15 magazines effective Nov. 1, yielding cost-per-thousand increases of 15% or more.

Advertising Age estimates that for 1995, PM accounted for some $50 million in ad revenue and 500 ad pages across all Hearst magazines. That would make PM Hearst's top advertiser in ad pages and third behind Procter & Gamble Co. and Nestle in real revenue. Combined, Hearst titles are estimated to produce $850 million in revenues in 1995.

At stake right now is the $20 million in PM tobacco advertising that ran in Hearst titles this year. This week, the tobacco wing, Philip Morris USA, is expected to reveal its ad schedule for next year. Already lost is virtually all the estimated $30 million in Kraft Foods ads that ran in Hearst books, insiders concede.

Said one Hearst executive: "Kraft is dead. It's too late. There may be some limited Kraft schedules in books like Victoria or Cosmopolitan, but basically it's nothing."

"I think [Kraft] will spread [its business] out to the other books in the women's service field," said Woman's Day VP-Publisher John Fennell. "I know we're seeing increased size of schedules on the Kraft food side."

"Hearst is having a very hard time," one agency media executive said. "I'm not saying that it's dismal, but a lot of people are using this as a crutch to beat them up. They were right to do what they did from a business standpoint and trying to make magazines healthier, but their timing and the way they handled public relations was a nightmare.... There's also a sense of that, just as Hearst was intractable when it laid the plan out, [advertisers] can be too."

"There is no Kraft General Foods business in Good Housekeeping in January, but I remain optimistic," said Publisher Alan Waxenberg. "I think there is no problem that can't be resolved."

But as a result, the tobacco negotiations have taken on a new urgency and Hearst executives including President Claeys Bahrenburg are involved.

"We've had meetings [with Philip Morris executives]," Mr. Bahrenburg said last week. "We think they're productive."

The way competitors and Hearst insiders now view the situation, Hearst is expected to hang on to some but not all the tobacco business it had last year. How much? That's the big question.

Competitors are already making inroads. "We're real optimistic on our own business with Kraft for 1996," said Jerry Kaplan, VP-group publisher at Meredith, responsible for group sales at Better Homes & Gardens and Ladies' Home Journal. "We think they [Hearst] will probably come through tobacco all right."

The big Sunday magazines are also in the hunt. "It's like sharks circling in the water," said Brett Popper, president of USA Weekend. "Anytime you see...money is up for grabs, you can be sure about 30 publishers will come running."

Automatically out of the picture are Good Housekeeping and Country Living, which don't accept cigarette advertising.

Right now, it appears to be a battle of positioning and there may be some break in ranks between the tobacco unit's main agency of record Leo Burnett Co., Chicago, and the food wing's main media agency, Young & Rubicam, New York. Both agencies declined comment.

The wording of the PM corporate edict was such that individual brands that still wanted to use the Hearst books had to write justifications to put them into the ad schedule for the following year. January books are already at the printers-with no Kraft business. The tobacco side ad contracts ran through January, so crunch time is now.

Last week, a Kraft spokesman said there was no significant change in its position, but the door was left open a crack. "We will review all proposals from our ad agencies on a case by case basis. You might see some brands in Hearst," she said, adding, "We continue to be in dialogue with them."

But while the food side has been loath to make exceptions, the tobacco side has been more willing to listen. That's because Philip Morris USA is keenly interested in the targeted audience reached by the young women's books Cosmopolitan and Marie Claire and to a lesser extent men's books such as Sports Afield, Popular Mechanics and Esquire. The two women's books are rarities in the current standoff because they are still under consideration for full ad schedules for next year.

For other Hearst books, run-of-book campaigns appear now to be out of the question. The campaign has shifted to a battle to keep Philip Morris USA brands in the titles in such lucrative postion as the inside cover and the so-called third and fourth covers on the back of the magazines.

As Conde Nast Exec VP Jack Kliger was attending the American Magazine Conference in Boca Raton, Fla., last week, he was also feverishly directing his ad sales troops back in New York, trying to clear up covers in various books.

For PM, this is a battle to maintain a unified corporate stance against the CPM increases while trying to reach the audiences it wants. And PM isn't alone. There are also rumblings from other Hearst advertisers.

Indeed, it appears a quiet deal reached late last month with P&G may have further fueled Kraft's anger. P&G acknowledged as much with a statement to all its agencies that said, "We've enjoyed a long and mutually beneficial relationship with Hearst... We were pleased to have arrived at a mutually agreeable solution."

The agency media executive who said Hearst's changes lacked timing said agencies for both Nestle and Johnson & Johnson are having a field day with Hearst.

Just about any agency of record "for print where you have clients that can go either way to fashion, beauty or service titles is probably torturing them," he said.

In the cosmetics industry, Peter England, president-CEO of Elizabeth Arden Co., said, "I am disturbed and upset by the rate increases and circulation cuts." He plans on meeting with Unilever media director Joe Campion to discuss Hearst.

Hearst's plan is designed to shed marginal readers and convince core readers to pay more for the product. It also wants advertisers to pay 5% more to reach that core.

"They are losing the peripheral value reader," said Mike White, exec VP-director of media for DDB Needham Worldwide, Chicago. "They are weeding out circulation and .*.*. focusing more on the core readership who have truly bonded with the magazine."

Still, he cautioned, Hearst has to be competitive: "It is hard to be competitive when you raise rates and lower your audience."

Also contributing to this story: Ira Teinowitz, Michael Wilke and Pat Sloan.

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