DECEMBER 19, 2000
SPECIAL REPORT--AFTER THE MELTDOWN
Too Many New Economy Mags, Not Enough Ads? | The media market has a glut of tech-business publications facing a dramatic drop in ad pages. Which ones will be left standing?
| It has been a fast five years for Fast Company. The slick publication for hip tech professionals, owned by no less than media magnate Mortimer Zuckerman, has built an impressive tally of 680,000 paying subscribers. By the end of this year, Fast Company is expected to post revenues of $70 million and sell well over 2,000 advertising pages. Not too shabby for a monthly pub with an editorial staff of only 60.
Drawn to those numbers and seeking to diversify its holdings of softer consumer titles, Gruner + Jahr USA is in the final stages of talks to add Fast Company to its roster of glossies. It's a deal from which Zuckerman could pocket as much as $350 million, plus millions more should the magazine hit its growth targets.
JUST ONE HITCH. So, what's wrong with this picture? Take a look at the magazine's ad bookings for the first two months of 2001. Fast Company Director of Marketing Linda Lewi says it's up 4% over the same period last year. True enough. Just one hitch: Fast Company published only one issue during January and February of 2000 -- it didn't become a monthly until March.
For that one combined issue last winter, it pulled in 153 advertising pages, according to ad tracker ADscope. But for January and February of 2001, Fast Company expects a combined ad-page total of no more than 170 pages -- just over 85 ad pages per issue. Compare that to the 198 advertising pages each monthly issue has averaged since the switch-over in March, and the picture looks quite a bit bleaker.
Fast Company isn't alone. Suddenly, ad sales for magazines covering the dot-com revolution have plunged. Many analysts believe there's a shakeout coming, as too many salespeople try to wring ad revenue out of hemorrhaging dot-coms and staggering technology companies.
BROADENING AD BASES? Fast Company claims it never relied on dot-com ads. And other tech-news publications contend they've broadened their advertising base with placements in the upscale-consumer and mainstream-business area as well as the financial-services sector. Still, many New Economy pubs will have to fill huge holes made by the 10% to 50% of ad pages bought by dot-coms in 2000.
Worse, Old Economy gains could evaporate as all companies from car manufacturers to investment banks shrink their ad budgets for 2001 to weather the ongoing general economic slowdown. "Everyone from Cisco to General Motors is looking at their ad budgets very closely," says David Verklin, CEO of media buyer Carat North America.
To be sure, the tech-mag industry is coming off a phenomenal year. Spending on magazine ad pages soared 39.8% for the first 10 months of 2000 compared to the year before, from $1.26 billion to $1.76 billion, according to the Publishers Information Bureau. And New Economy mags led the way. The Industry Standard increased its ad-page count by 139% in the first 10 months of 2000 compared to the same period last year. Business 2.0's tally was up a whopping 275%, and Red Herring's count leaped 218%.
STEADY SLIDES. But suddenly, signs of a chill are everywhere. After churning out monster weekly issues totaling 360 advertising and editorial pages combined throughout the spring, The Industry Standard shrunk to combined page counts of slightly more than 200 pages in October. Both The Standard and its biweekly competitor, Business 2.0, canceled their respective spin-off mags, Grok and Fuse, in November due to lack of advertiser interest. Meanwhile, Upside, the venture-capital and technology monthly, has seen ad pages per issue slide steadily from a June, 2000, high of 195 to 121 pages in November.
Time Inc. launched its late entry into the fray, the monthly eCompany Now, two weeks after the Nasdaq tanked last spring. Although it has held steady near its entry level of ad pages, the monthly pub has failed to grab more than 170 ad pages in any issue, despite a hiring spree of All-Star editorial talent and a splashy publicity blitz featuring a concert in San Francisco's new PacBell Park with the rock band the Barenaked Ladies. (Business Week's own supplement, called e.biz, is expecting low-double-digit declines in ad sales.)
Meanwhile, new entrants could slice the shrinking pie into even smaller pieces. Inside, a biweekly print offshoot of Kurt Andersen's media- and entertainment-news site Inside.com, was launched earlier in December. It's expected to cater to many of the same technology advertisers as the rest of the pack -- and is sailing straight into the teeth Brill's Content's failure to catch on with a mass audience.
SPECIAL SAUCE? Inside Publisher Deanna Brown boasts that her magazine and her site have a distinct readership. But that argument is echoed by every magazine title in the tech-business sector, each of which claims to have its own special editorial sauce. Alas, media buyers aren't buying into it anymore. "They are loath to advertise in anything but the stalwart pubs because they don't know what the other publications are for," says Catherine Capati, CEO of high-tech-marketing tracker TechAdReport.
Handicapping the survivors is a tricky business. Most of the players either have a long history or a deep-pocketed backer. For example, privately held technology-publishing and -consulting conglomerate International Data Group holds a majority stake in The Industry Standard. Lisa Bentley, publisher of eCompany Now, says Time is committed to the magazine for the long haul. Wired magazine is under the aegis of Conde Nast, which traditionally allows its publications to incur red ink for decades if it sees a long-term payoff. Although they are far smaller companies, Upside and Red Herring have two things going for them: They've both been around for years and are familiar to the venture-capital set.
Slowdowns in ad pages alone probably won't be enough to kill many of these pubs. All have significant Web operations with fairly high numbers of unique visitors that have the potential to mint money should Internet advertising pick up later in 2001. The Industry Standard, for example, has started offering job-search services on its site (as does Business Week Online). And this year it mounted eight major business conferences, selling out with seats at $4,000 or more per head.
FAR CRY FROM DEATH. Even if these magazines face 40% or 50% declines in ad pages, they still might remain profitable -- on their print versions alone. After all, plenty of publications have survived with issues tallying 100 combined ad and editorial pages. The Industry Standard claims it will clock a record 7,000 ad pages sold in 2000. "We have the most ad pages of any publication on the planet," says The Standard's Thompson. So, a decline to 5,000 pages is a far cry from a death knell.
Many of these content providers are faced with building an editorial reputation even as advertising declines, says magazine analyst Joel Novak of Veronis Suhler, a media investment bank. Yet several have already announced stiff ad-rate hikes for 2001, in an effort to make up for some of the drop-off in bulk. eCompany Now raised its basic page rate to $26,000 for the coming year from $14,000 last year. The Industry Standard, Red Herring, and Fast Company, among others, have done the same.
While they may someday be sources of profit, the massive Web operations of these companies appear to be taking a major toll on them. Red Herring cut 25 people from that side of its business in October and 32 more on Dec. 18, despite online revenues on track to hit $12 million this year, according to the company's new CEO, Hilary Schneider. Other insiders expect significant cutbacks in the Web sites if they don't start producing more revenue soon. Currently, none of the companies in the segment is making money from its Web site.
That seems like a big red stoplight in front of the many venture-capital companies that made their first foray into media deals with these New Economy pubs. Accustomed to eBay-like returns, they may have expected an easier ride and higher immediate returns from initial public offerings that now look distant, if possible at all. And should these pubs slip back into the red, the VCs' reaction could be arm-twisting to reduce burn rates.
FUZZY FOCUS. More troublesome still, the rapid growth fueled by the funny money of the dot-com bubble, and the frothy mainstream economy that accompanied it, seems to have blurred the editorial focus of these magazines. Of The Industry Standard, Capati says: "This magazine started out wanting to be the Variety magazine of the high-tech industry. But now it has everything from election coverage to a Gen Xer's view on dot-com gentrification in San Francisco. Lack of editorial clarity makes any publication less attractive to advertisers."
Novak, Capati, Verklin, and just about every other analyst in this field agree on one thing: Ad pages for tech-biz pubs will decline in the aggregate next year. That means someone will get left holding their rate card. More important, the mantra of the New Economy pubs -- that their targeted audiences of rich technocrats are worth more to advertisers than the wider circulations of stalwart titles such as Fortune, Forbes, and Business Week -- will be put to the test under trying circumstances.
For now, the ad dollars appear to be flowing back to the stalwarts. In the week of Nov. 20, according to MediaWeek, every single New Economy publication saw significant fall-offs in ad pages as compared to the same issue a year ago. But Fortune, Forbes, and Business Week all clocked ad-page increases in the 20% to 30% range. True, ad pages for all magazines could well decline in 2001 in the wake of an economic downturn. But it may be a much colder winter and spring in e-pub land.
By Alex Salkever in New York
Edited by Douglas Harbrecht
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Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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