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The magazine industry is continuing to enjoy a boom year, but executives are keeping a cautious eye on 1998, expressing concerns about certain ad categories, rising costs and the circulation outlook.

This year "has been quite good as a whole in the advertising arena, which is what we're hearing from every corner," said Robert Garrett, president, AdMedia Partners, an investment banker. It's "utterly related to the economy. . . . But circulation is more of a concern. Getting direct mail responses [to subscription drives] is getting more and more difficult, and newsstand sales are declining."


Ad pages for 1997 are up 5.2% to 162,158, through September, and ad revenue overall is up 13% to $8.8 billion, according to Publishers Information Bureau figures.

"There's nothing on the horizon impeding 1998 from being another great year for magazines," said Porter Bibb, managing partner of investment banker Ladenburg, Thalmann & Co. "I think magazine publishers should be more bullish than they've been in a decade."

Still, he added, "We're all preparing for the next recession. You never know when it will come, but I'm very sanguine about 1998 for the magazine industry."

Others are raising flags of caution.

"It's been an incredible year for us, but I think next year will be tougher," said George Hirsch, VP-publisher of Runner's World. "I don't see the same amount of spending out of Asian autos, and we may lose some as [direct-to-consumer] drug advertising moves to television."


Mark Edmiston, co-chairman of investment banker Jordan, Edmiston Group agreed: "If the pharmaceutical business does swing toward television, that could leave a hole that magazines will have to fill."

With recent relaxation of Food & Drug Administration guidelines, TV advertising of Rx drugs is increasing. Right now, the drugs/remedies category is the magazine industry's No. 1 growth business. Through September, the category was up 28.8% in ad pages, to 8,034, and up 29%-to $617 million-in ad dollars, per PIB.

Of all the major publishers, Time Inc. retains its lead in ad pages and ad revenue for January through September, with 18,296 ad ad pages and $1.8 billion in ad revenue. Conde Nast Publications is No. 2 in ad pages and revenue, at 16,642 and $743 million. Hachette Filipacchi Magazines is third with 13,563 ad pages, but fourth in revenue at $612 million, behind Hearst Magazines' $704 million. Hearst has 10,042 ad pages.

Hachette Filipacchi President-CEO David Pecker attributes Hachette's good year to a strong advertising market as well as cross-marketing programs.

"Our strategy for the past couple years has been trying to get a lot of cross-marketing programs going. We've been doing a lot of cross-promotion between our home group and the consumer electronics group, as well as between George and Premiere for AT&T," he said, adding that Road & Track and Audio had 50th anniversary issues that added to the ad page count.


The outlook for 1998 also is being clouded by concerns about circulation. Single-copy sales have dipped, with the balance of power shifted to major retail chains such as Wal-Mart Stores and Barnes & Noble. Retailers have not only restricted what wholesalers they will work with, but are refusing to carry issues of magazines they deem offensive to their customers.

The most public squabble was over whether supermarket chains would stock tabloids carrying pictures of the car crash that killed Princess Diana. But even mainstream titles like Hearst's Cosmopolitan and Harper's Bazaar have run into trouble for sexually explicit cover lines or models showing too much cleavage.

"That will be the next big battle," said Good Housekeeping Editor in Chief Ellen Levine.


On the subscription front, more magazine publishers are using direct mail to capture new subscribers, but are receiving less for their efforts, according to a study by Gruppo, Levey & Capell. The survey of 100 circulation directors found the cost of direct mail solicitation is at an all-time high, averaging $415 per thousand, yet 80% of respondents reported losing money on new-business direct mail.

"Compounding the situation is tougher newsstand sales, with 40% reporting worse newsstand sales on most recent issues compared to 1996," said Dan Capell, managing director of Gruppo. "One can't help but conclude there will be a major shakeout in the industry in the next year or two. Advertising sales have been generally positive for 1997, and circulation directors will come under pressure to raise the rate base in order to increase advertising revenues."

Adding to the industry's caution is a proposed postal rate increase expected in the first half of 1998, and paper prices that will most likely increase. "Paper is always cyclical because it is such a high capital investment. And it is also always a feast or famine kind of business. Right now we're about a year and a

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