MAGAZINES: ENTREPRENEURS FIND NEW SOURCE OF INSPIRATION: IN TODAY'S DOG-EAT-MAGAZINE WORLD, INDIE START-UP SUCCESS IS A RARE BREED

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It's 1988. Ronald Reagan is in the White House. You're wearing a big hairdo and even bigger shoulder pads while listening to your new "Phantom of the Opera" tape. Dave Mays, publisher and founder of today's The Source, is a college student putting out a two-page newsletter.

Back then, Mr. Mays, now 28, had no way of knowing his $250 investment would grow to become a nationally distributed monthly with a circulation of 357,215. But a year or so into his project, he learned the history behind Rolling Stone and realized it was possible to rise from a renegade to a publishing powerhouse.

"I don't know if we would have preferred to have launched as a big huge glossy with millions of dollars," he says. "Because being an underground, grass-roots magazine has worked to our benefit."

LACK OF FUNDS

A lack of funds is a roadblock when starting a national publication, but Mr. Mays found that subject matter, not money, would be his largest hurdle.

"People generally were, and still are, skeptical and nervous about hip-hop in the same way that people in the '60s and '70s viewed rock 'n' roll as this corruptive music," he says.

The issue even came up in distribution, as retailers were unsure where to stock The Source. Rolling Stone, which ran the famed "Perception vs. reality" campaign to woo advertisers, was then especially relevant in putting together a sales pitch.

UNKNOWN NO LONGER

While the analogy between rock 'n' roll and hip-hop helped The Source gain a toehold with clients, Mr. Mays is an unknown no longer. New advertisers include DKNY, Visa USA and Gillette Co.

The magazine also is legitimizing its business story. Advertising Director Peter Ferraro says the title has started a dialogue with researcher Mediamark Research Inc. Its audited circulation story is one of the strongest of any single-title publisher.

Single-copy sales, which account for a whopping 88% of The Source's circulation, are up 60% this year, and total circulation is up 55%, according to the Audit Bureau of Circulations.

"We try to grow efficiently," says Associate Publisher H. Edward Young. "Because we look at circulation as a profit center and refuse to circulate at a loss, we had to figure out ways to understand our readers and tie that to the newsstand."

RIGHT PRICE?

The monthly's success has not gone unnoticed by the industry, and sale rumors have circulated. Source staffers have said that if the right price came along from the right investor, a deal could be struck. The Source's rapid growth attracted Rolling Stone founder Jann Wenner himself, but Mr. Mays shrugged off rumors of a possible sale.

"I met with him but there is no truth beyond that," Mr. Mays says.

The Source, he claimed, does not need a major investment partner.

"A lot of people are publishing hip-hop-oriented magazines, but there is nothing that has had impact on our business or growth," he says.

NEW NICHE

The Source, along with Miller Publishing's Vibe, can be credited with opening up a new publishing niche. Several new titles have sprung up recently, remarkable given that the category was virtually ignored until now.

In August, Guitar World parent Harris Publishing launched XXL (known as Double-X L), a title with quite a few ex-Source editorial staffers, most notably Reginald Dennis, former music editor who left amid the magazine's most public growing pains.

Mr. Dennis, James Bernard and four other staffers left The Source after an incident in 1994 where pages the editorial staff thought were ads were used to carry a favorable story on rap group The Almighty RSO, placed there by Mr. Mays.

DOUBLE-XL CHALLENGE

XXL, with ambitious plans to carry 500,000 circulation, is looking to give The Source some fierce competition. XXL Publisher Dennis Page says The Source targets a young audience of both black and white readers, while Vibe sells a more mainstream, multicultural look to a twentysomething audience.

The newly created Vibe/Spin Ventures doesn't worry Mr. Ferraro.

"We've never been direct competitors for advertising dollars with Spin; it's a different audience," he says. "And more and more, clients and agencies are starting to realize the differences in Vibe and The Source. While some of the content may overlap, it's not the same book. I see us competing less with Vibe as each day passes."

DIFFERENCES NOTICED

Vibe Publisher John Rollins also notes the differences between the titles.

"The Source is almost entirely hip-hop, but we focus on music in general, not just hip-hop," Mr. Rollins says. "There's a huge audience that has been interested in urban music and culture for a long time, and they hadn't been addressed until recently. We've always known that this is happening, but corporate America has no clue what's going on."

The category also has a host of smaller publications, like ego trip, On the Go and Stress, an independent that has increased to 50,000 circulation in the two years since its launch.

Mr. Page thinks the market can bear the influx of titles, asserting, "Hip-hop is a really hot market that can handle a lot of magazines."

But staffing all those magazines may prove difficult. Mr. Mays says that as The Source grew, going from an entrepreneurial to more corporate environment, it became "harder to find people who have the technical and educational backgrounds, and also understand the music and culture; that mix is a challenge."

Even competitors acknowledged the difficulty of the terrain for a start-up title.

"It takes a lot more money" to start a magazine in today's business climate, says Vibe's Mr. Rollins. "Expectations of bankers and people providing money are even higher. And it's hard to raise money in the first place. Hopefully, you have the capital behind you, so that you can make long-term as well as short-term investments that will help a magazine grow.

START-UP WOES

"However, many vital new start-ups are started with the founder'sbelief that there's a segment of society that needs to be addressed, and they may not have the funds behind them. Even with a good idea, money doesn't hurt."

Despite all the competition, Mr. Mays credits The Source's success to "having a great sense of this market and of what people are interested in. I've had dedication to that vision and a passion for it from the beginning. Also, we appeal to young men ages 14 to 24, which is a desirable but fairly difficult market for advertisers to reach."

New Ad appeal

John Rosenstock, director of marketing programs at NBA Properties, says the urban focus of The Source is what appealed to the NBA, which also advertises in general lifestyle titles like Details.

"Our first insertion order is in the November issue; we're advertising NBA-licensed apparel," Mr. Rosenstock says. "The key target audience is fashion-forward teens. They're interested in sports lifestyle, not just participation in the game. And while our audience is male and female, it's more of a priority to reach males."

The Source and Pepsi-Cola Co.'s Mountain Dew are hammering out the details to expand the All-City Hip-Hop Tour, which debuted this summer with six vans in 13 cities, to include more markets and vehicles for 1998.

ANOTHER BALLGAME

FashionNation, a series of in-store and on-campus fashion events, kicks off in November at Howard University. A tie-in with KFC Corp. for 100th-edition commemorative cups is planned, as is a Web site that launches in the next few months.

Mr. Mays also has his eye on another ball game: the sports category. A stand-alone, The Source Sports Basketball Preview, is on newsstands currently with a distribution of 225,000. The edition has 45 ad pages this year, compared with last year's 17, and features college teams in addition to NBA coverage. Mr. Mays envisions The Source Sports going quarterly or every-other-monthly in 1998.

"I predict that in the next year or two, we're going to have a pretty impressive sports publishing operation going," he says.

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