HEARST'S HIGH-STAKES GAMBLE;IF MAGAZINES' AUDIENCE LEVEL STAYS HIGH, PUBLISHER WINS

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Hearst Corp.'s strategy for countering cost increases has triggered a level of discussion in media circles not seen since McCall's abandoning of the rate card in 1987.

Even with some major supporters lining up, the Hearst moves have sparked a debate that touches on everything from audience research to quality of core readers.

This debate is being conducted not just behind closed doors at publishing companies and ad agencies, but also in public, through self-promotional advertising.

"One way or the other, magazines have got to get more revenue from the circulation side of our business," says Hearst Magazines President D. Claeys Bahrenburg.

Hearst placed corporate image ads, from Landey & Partners/Grounds, Morris, New York, in several major newspapers after announcing its strategy.

As part of its sweeping changes, Hearst said in July it would simultaneously boost newsstand and subscription prices from 7% to 33%, ask advertisers to pay 5% more per ad page and cut rate bases.

Good Housekeeping's rate base dropped 10% to 4.5 million and Redbook fell 12.5% to 2.8 million.

These decisions would eliminate producing at least 2 million magazine copies monthly, effective with the November issues.

The savings in paper, postage, printing and ink was estimated at $20 million annually.

Most media observers feel that for the Hearst gamble to pay off, advertisers had to accept on faith that each magazine's audience level would stay high-and pay 5% more to reach that total audience, as the cost per thousand readers rose at least 15%.

"Traditionally, magazines have sold us on total audience but guaranteed only the rate base. How willing are they to guarantee the total audience?" asks Michael White, exec VP-media director at DDB Needham Worldwide, Chicago, whose client list includes beauty-products marketer Helene Curtis Industries.

Marketers have responded with varied reactions.

Hearst appears to have lost Kraft Foods advertising in Good Housekeeping and Redbook, the publishing company's two major titles, although Victoria, Country Living and Cosmopolitan may escape with some Kraft pages next year. On the other hand, other major advertisers such as General Motors Corp. and Toyota Motor Corp. have signed on for next year.

Media planners at Unilever and Clorox Co. say they're skeptical about some aspects of the Hearst strategy but are continuing to talk about plans for next year.

"The gut feeling is that there is something to core readers," says Joe Campion, director of media services at Unus Media, the in-house media unit of Unilever's Lever Bros. But he says he still finds it tough to adjust to the double-digit CPM increases.

Mr. Bahrenburg says Hearst had adopted a strict "no negotiation" policy regarding the ad-page price hike but that hasn't silenced widespread speculation regarding "rate protection"-next year's ad pages at this year's ad prices-for some key accounts.

"Nobody was rate protected," Mr. Bahrenburg insists.

Initially, he conceded he expected some ad defections but he's now predicting the falloff to be much lower than initially expected-"No more than 3% to 5%," he says.

Reaction from fellow publishing companies has also varied.

After Hearst placed its ads following its strategy announcement, Hachette Filipacchi Magazines President David Pecker knocked the plan in an open letter to readers and advertisers via ads in the Chicago Tribune, Los Angeles Times and The New York Times.

Mr. Pecker says he plans to maintain the rate bases on his magazines, institute modest newsstand or subscription price increases and generally try to beat the cost crunch by gaining market share.

Ad hikes probably will average around 6%, he says, although Woman's Day is moving up higher than that.

Other critics, including longtime rival Conde Nast Publications, which instituted an across-the-board 9.5% ad price hike about the same time as the Hearst move, have not entered the public fray.

But Conde Nast has been critical, telling agency media research departments that Hearst's move came from circulation weakness on many of its magazines.

Counters Mr. Bahrenburg, "The hard reality is that they've chosen to reinterpret what we actually said. When we spoke about shedding marginal readers we were talking about readers in the future who we did not expect to pay the higher prices for the magazines. They were saying the marginal readers were already there."

Hearst also has found some supportive publishers. Magazines from Playboy and Field & Stream to McCall's, Good Housekeeping and New Woman have all lowered their rate bases as well.

Don Logan, president of Time Inc., called the Hearst decision a "bold move on their part. It irritated me that so many of their competitors jumped in and started taking pot shots at them."

Despite some advertiser defections, Mr. Bahrenburg says he would make these moves again.

"It still comes down to this being a long-term strategy that involves quality brand-name magazines," he says. "In my view, we'll see in the year 2000 which magazines are healthy."

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