Ad Agencies Gobble up indies in Custom Biz: The good news: Custom publishing is booming, even now. The bad news: Big-name advertisers know it, and they want a piece of the action

Folio: The Magazine for Magazine Management, Dec 1, 2001 by Caroline Jenkins

As the economy heads south, and bigger chunks of their clients' budgets are earmarked for "relationship marketing," some ad agencies are experiencing an epiphany. Instead of watching those dollars go out the door to a list of independent custom publishing or traditional media companies, they're deciding to hold onto the cash by getting into the business for themselves.

"We were the first global direct agency to come to the conclusion that branded publishing was a core discipline," claims Kirk Cheyfitz, worldwide managing director, The Publishing Agency--a custom publishing unit that was formed in 1999 by McCann-Erickson WorldGroup and Campbell-Ewald. These days, he says, "You have to be in the relationship marketing industry in some way."

It would seem Cheyfitz's colleagues agree. In the past few years, a growing number of high-profile advertising agencies have quietly snatched up companies or scrambled to form their own divisions in order to grab for a share of what the Magazine Publishers of America's Custom Publishing Council (CPC) estimates to be a $1.5 billion to $2 billion market. In 2001 alone, at least three major agencies announced custom publishing deals:

* MRM Partners Worldwide (owned by McCann-Erickson WorldGroup) bought two custom publishers, Just Customer Communication (formerly named TPD) of London and Fluent Communications of Seattle.

* Magnet Communications (a division of Havas' Diversified Agencies Group) partnered with Christopher Johnson and Associates to form Magnet Communications' Design and Identity Group.

* WPP Group plc and Forbes Inc. announced their joint venture forming the Custom Media Group.

But independent custom publishers and traditional publishers who are in the custom publishing business, thought wary of such new competitors, seem unfazed by the mounting advertiser invasion-at least for the time being. In this burgeoning market, they say, a little competition is to be expected.

Market numbers do in fact paint a picture of a young profitable industry. A CPC study from last year says that more than 71 percent of today's custom publishers entered the market after 1995. It also predicts that expansion, which has been 10 percent annually for the past couple of years, will reach a similar rate this year-even, say experts, in a post-September 11 downturn of unprecedented proportions. And a recent report from "Publications Management" (a newsletter about the industry produced by McMurry, a Phoenix-based custom publisher) finds that custom publishing represents about 13.2 percent of the corporate media budget this year, up from 11.1 percent in 2000. That's more than the average budget allocations for marketing, communications or advertising this year, "Suggesting that [custom] publications are of greater importance than ever before," the study funds.

When you look at printing a custom publication with a two-million circulation, it may cost you 40,50 or 60 cents per unit, depending on the cost of paper," explains Kathy Gogick, vice president of new business development for BBDO-owned Redwood Custom Communications. Compare that to the millions of dollars an advertiser spends on a more broadly targeted television spot, she says, and "it's not a difficult sell."

NO FEAR OF COMPETITION

Traditional publishers with custom publishing divisions maintain that they can put out a better magzine than any advertiser, and are unafraid of the threat of increased competition. "When clients think about any custom communications in print form, they'll go to publishers," says Michael Hurley, director of Hearst Custom Marketing. "I think [the entrance of] advertisers simply supports our contention that custom publishing is a growing business. They just make the job more challenging."

Andrew Robertson, president and CEO of BBDO North America, which imported its U.K. custom publishing company Redwood to the United States in 1998, counters that it's the agencies that have the upper hand. "As opposed to a magazine publisher, Redwood's got some very impressive sustained experience and quantified results showing how they can make it work. It's simple," he says. "Redwood knows what they're doing, as opposed to a magazine publisher. They know you have to manage and optimize the magazine both as a damn good read for the customer and as a damn good tool for a marketer."

And you can expect to see the agency competition keep on coming, says Diana Pohly, co-chair of the CPC and president of Pohly & Partners Inc., an independent custom publisher based in Boston. "In the next two years, we'll see larger numbers of agencies purchasing custom publishers, more investment by traditionals in their custom publishing divisions, more purchasing of independents by traditionals and maybe some more consolidation within the industry as independents come together to compete with those companies that are growing their divisions quickly," she says.

Pohly adds that smaller custom publishers can succeed if they make a few important decisions about which specific battles to fight. Recently, for example, Pohly says that her company decided to pull out of the health and financial services markets because she found them to be "too price-driven" and saturated with competition. Instead, the company is focusing on other areas in which it is already strong and where it can more fully develop the Pohly & Partners brand-for example, the travel category.