'U.S. NEWS' TRIES NEW APPROACHES TO 'FOCUS' FUTURE: ADS FROM DEUTSCH, REDESIGN FOLLOW RATE BASE CUT VS. 'TIME,' 'NEWSWEEK'

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The question has dogged the magazine for years: When would U.S. News and World Report fold, finally realizing that it can't compete against its more popular rivals, Newsweek and Time?

Earlier this month, when U.S. News announced it would lower it rate base -- the amount of circulation guaranteed to advertisers -- from 2.15 million to 2 million, the rumor mill cranked up again. And industry observers wondered whether it was an admission of defeat or a smart retrenching to devote resources to creating a more profitable future.

Surprisingly, most seemed to view the cut as a necessary business decision that will ultimately work in the weekly's favor -- provided it continues to deliver on its strengths, which are generally acknowledged to be a unique "News you can use" positioning and its tendency to attract a more business-oriented audience than Newsweek or Time.

"To me, it's just smart business," said Steve Klein, managing partner-media director at Kirshenbaum Bond & Partners, New York. "A lot of magazines end up getting ahead of themselves and then find it's unprofitable to maintain that last 10% of their circulation. The difference to advertisers is not that great, so they lower the rate base and make more money."

'GOOD RUN'

"We're having very good run right now," said Executive Committee Chairman and Editor in Chief Mortimer Zuckerman, pointing to ad page increases this year. "But this is a mature industry, and no one said it's going to be easy. We don't have to remain locked into same approach as the past. We can try some new things."

Among them: hiring Deutsch, New York, for an ad campaign to boost readership that will start early next year. The magazine is also undergoing a redesign to be unveiled in upcoming months.

Mr. Zuckerman, who has reasserted control over the title's direction since the recent sale of The Atlantic Monthly, also plans to extend the franchise of signature editorial pieces such as the rankings of colleges, graduate schools and hospitals, as well as the valued "News you can use" positioning.

Circulation will also remain at 1 million on its most upscale demographic edition, "U.S. News Blue Chip," he said.

Mr. Zuckerman also fiercely dismissed rumors that he is interested in selling any of his titles, including Fast Company or U.S. News & World Report.

The reason he sold The Atlantic Monthly was that you "can only do so many things at once," he said. "The time has come to focus on other properties."

A potentially controversial aspect of the rate base cut is the announcement that ad rates will not be lowered to coincide with a lower guaranteed circulation.

"Advertisers have told us they don't want to pay more for advertising to support less quality circulation. They are happy to pay the same rate if we are improving the quality of our circulation, which we are," Mr. Zuckerman said. "We are going to take the money out of maintaining this marginal circulation and put it into the editorial and readership promotions."

SIMILAR MOVE BY HEARST

In 1995, Hearst Magazines announced a similar plan across all of its titles, lowering rate bases without decreasing advertising rates accordingly. At the time, that plan was poorly received by advertisers, and generally seen as a failure.

Since then, however, media directors aren't as quick to denounce a rate base cut as they once were. Increasingly, according to Lee Doyle, managing director-media at Ammirati Puris Lintas, New York, advertisers and agencies understand that the core readership of the publication is more important than the total number, because marginal readers probably don't have as much value.

"Ten to 20 years ago, it was bigger is better. Now we understand magazines better," he said.

"Effectively, what U.S. News is doing in this case is saying that they are increasing ad rates by the 6.9% difference," said Kirshenbaum's Mr. Klein. "They most likely won't get the dollar increase because that will be negotiated away, but they stop losing money on that last 10% of circulation."

Mark Edmiston, managing director with AdMedia Partners and a former publisher of rival Newsweek, estimates U.S. News can save up to $5 million annually with the rate base cut. That would be a savvy move if the weekly can also manage to hold on to its ad revenue -- tricky for the third book in a three-book field.

"The industry has had a really good run for last four or five years, but what happens with a downturn is advertisers keep reach and give up frequency, which means they tend not to use smaller circulation books," Mr. Edmiston said.

AD PAGES UP 3.9%

For the first nine months of 1999, U.S. News & World Report has trailed well behind in ad pages. Although ad pages are up 3.9% to 1,410, that count is still 300 ad pages behind Newsweek's 1,719 and 500 below Time's 1,979.

Those who argue that U.S. News will survive long-term say it will do so by becoming more niche and less mainstream than its competitors.

U.S. News has more appeal with a business-oriented audience who may not care for the pop culture and entertainment coverage Time and Newsweek are emphasizing lately, said Ammirati's Mr. Doyle. It also has a slightly more educated, more affluent reader base he said.

Executives at rival titles were quick to dismiss any implications that the rate base cut reflected on problems within the newsweekly category.

"It strengthens the category when the competition is smart and strong," Newsweek Publisher Carolyn Wall said. "We continue to regard the rate base cut as a fallout of internal turmoil as opposed to being related to any category issues," she added, noting that ad pages and circulation at both other newsweeklies has grown this year.

An executive at Time, who did not want to be quoted, agreed the move was not indicative of category trends.

"As long as there's enough consumer interest to support three newsweeklies, it's good to have competition in the category," Mr. Doyle said. "It goes back to the old lawyer joke: If there's a new lawyer in town, he goes broke. If there's two

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