ARE TAILOR-MADE PUBLICATIONS THE RIGHT FIT FOR ADVERTISERS?: CUSTOM PUBLISHING EXPLODES INTO MAINSTREAM

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In December, Citibank and Sony will introduce a new credit card to consumers. Just weeks later, 9.2 million subscribers to Hachette Filipacchi's 19 magazines will receive an eight-page insert filled with Sony Corp. of America offerings. Included in the insert will be an application for the new credit card, which Citibank executives hope customers will use to buy Sony products.

Welcome to the circuitous world of custom publishing. The Sony catalog, part of a larger multimillion-dollar marketing deal struck with Hachette last week that also includes the launch of a title called Sony Rewards, is yet another testament to the explosion in custom publishing.

NO LONGER NICHE BUSINESS

Once a niche business dominated by specialty publishing houses with limited-if any-editorial credentials, custom stream discipline crowded with big-name publishers in search of new profit engines. So Time Inc., in addition to producing some of the most respected journalistic products around, such as flagship Time, is also the proud publisher of Today's Focus for KeyCorp and Men's Guide for Pharmacia & Upjohn's Rogaine.

Today, custom publishing, estimated at $500 million to $1 billion in revenue, is one of the fastest-growing segments of the magazine industry. It comprises about 5% of the nearly $10 billion a year spent on magazine advertising.

And, it's experiencing double-digit growth, outpacing the rest of the industry, said James Marsh, media analyst for Prudential Securities.

`MARGINS ARE PRETTY GOOD'

"The margins are pretty good for custom publishing, probably slightly higher than overall magazine margins," Mr. Marsh said. "The publishing companies are more fully utilizing assets they already have in place, so oftentimes these units are incrementally profitable."

The number of custom-produced titles is proliferating at a fast clip, and the competition has gotten so fierce for contracts that publishing companies are often reluctant to reveal who their clients are for fear of poaching.

Eight years ago, C-E Communications produced two titles that generated $1.2 million in revenue. Today, the group-which claims to be the largest custom publisher in the industry and is a sister shop of agency Campbell-Ewald-produces 39 titles and generates some $12 million in sales, said President Lou Schultz. Clients include DirecTV, the Farmers Group insurance company and General Motors Corp.

Andreas Wiehle, chief operating officer of Gruner & Jahr USA Publishing Co., said his company's custom business has tripled in three years. At the time, Gruner & Jahr had several custom publishing projects with a combined circulation of 3 million. In 1998, the circulation of all its custom publishing projects is 10 million.

MARKETERS INITIATE TALKS

Hachette Filipacchi's Michelle Berman, VP-custom publishing, said marketers are now initiating talks about custom projects, which represents a change from the days when publishers presented them to win a larger share of an advertiser's budget.

"When I started here, we did a lot of cold calling and people would say, `What a nice idea,' but not do anything. Now we get calls asking us to come in and do presentations," Ms. Berman said.

Custom publishing is growing in part because advertiser resistance to the idea has begun to fade as successful publications remain in the market year after year. Hachette Filipacchi was one of the first publishers to embrace custom publishing. Today, it counts marketers such as Philip Morris Cos., Century 21 Real Estate Corp. and Sony among its custom clients.

Last year, it formed a joint venture with Avon Products for a glossy beauty title called Athena.

ADVERTISER INTEREST

Advertisers no longer balk at appearing in a title that is sponsored by another company's marketing budget, especially if they have an established relationship with the publishing company through its consumer titles.

Hachette and Forbes Special Interest Publications, for instance, both produce titles for sponsors that sell space to advertisers other than the custom client. That business is often limited to non-competitive marketers.

For example, Sony and Century 21 both ran ads in the fall issue of Mercedes Momentum, a quarterly produced by Hachette. But Sony and Panasonic wouldn't appear in the same issue.

"Advertisers are more open minded than they have been in the past, although selling a new project is still quite a challenge," Ms. Berman said.

DEFINITION VARIES

Each marketing company defines what it considers a custom published product to fit its own strategy. For some, it's a magazine with regular frequency supported by one main advertiser. For others, custom publishing encompasses in-flight and hotel-distributed magazines and state travel guides.

The type of custom project a publishing company decides to specialize in largely depends on its resources. Hachette Filipacchi tends toward lifestyle magazines based around one company that include ads from non-competing advertisers.

Meredith Corp. creates integrated communications packages that include magazines, direct-mail packages and newsletters aimed at helping companies establish long-term relationship with customers. For example, Meredith produced a series of brochures groups under the title "Life Advice" for Metropolitan Life Insurance Co.; for Sola Optical, it produced a glossy magazine called EyeQ.

CO-BRANDING TACTIC

Gruner & Jahr takes yet another path, co-branding custom publishing titles with the names of its independent consumer titles. An ongoing project for Target Stores, Target the Family, is co-branded with Parents, while a Nordstrom magalog carries the YM logo.

"We brand our custom publications with one of our magazine names so in that way we guarantee the same editorial standards will be used," Mr. Wiehle said.

As a dedicated custom publisher, Mr. Schultz at C-E Communications takes a broader view of the business.

"We think of custom publishing as providing marketing solutions for companies. We are not just creating magazines; we are looking to sell solutions and that may be a magazine, a Web site or a newsletter," he said.

WILL THE WALL ERODE?

The free rein over editorial-like products given to advertisers in this new discipline has led some to wonder whether custom publishing will erode the wall separating editorial and advertising.

If an advertiser can sponsor a whole magazine targeted to its best customers with a guaranteed friendly editorial environment, some fear it won't advertise as often in titles over which the advertiser has no control.

In recent years, there have been several high-profile incidents surrounding advertisers placing demands on magazines' content, most notably the controversy surrounding Chrysler Corp.'s insistence that magazines inform the auto marketer of "inappropriate" editorial material in upcoming issues.

Jackie Leo, editorial director of Consumer Reports and president of the American Society of Magazine Editors, said publishers need to be cautious when they use their mainstream consumer logos to lend credibility to a custom product. "You are by default endorsing [the marketer's] products, and to some extent devaluing your information and your brand," she said.

BLURRING THE LINE

While it's usually clear that a title is being underwritten by one marketer, publications like Hachette's Athena blur the line, Ms. Leo said.

"It's all about reader expectation and being forthright," she said. "There's nothing wrong with saying a magazine is brought to you by Avon, as long as the consumer knows that . . . But if it's just `The beauty editor of Athena suggests this product,' then it's a problem."

Agreed Dick Stockton, VP-general manager of Forbes Special Interest Publications: "This stuff is very fragile. If you don't do it right, everyone knows it."

Because that sentiment is becoming more universal, he said, the quality of custom published projects has improved. Once custom publications are in the market, they are often competing with consumer titles for ad dollars.

But publishers involved in both custom and consumer publishing said advertisers know the difference in what they are getting.

"Most custom publishing is targeted toward an existing customer base, whereas advertising in a magazine is aimed at trying to grow the customer base. That is a significant difference," said Gruner's Mr. Wiehle.

NO CANNIBALIZATION

Publishers also insist these projects don't cannibalize ad pages from their mainstream consumer titles because in most cases marketers are using promotional or direct-mail budgets that wouldn't be available for buying ad pages.

So custom publishing is viewed as incremental business that may eventually feed pages back into the consumer titles because of the closer working relationship the company establishes with the marketer.

"What's great is that you meet at the highest levels with advertisers

. . . and present custom published products as sales tools to achieve marketing goals," said Hachette CEO David Pecker. "It's a different relationship with the client."

And clearly a lucrative one.

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