Custom Made

Folio: The Magazine for Magazine Management, May, 2001 by Susan Thea Posnock

WITH THE RISE OF RELATIONSHIP MARKETING AND EXPANDED DIGITAL PLATFORMS, CUSTOM PUBLISHING IS NOT ONLY FLOURISHING, IT'S DODGING THE AD DOLLAR SLUMP

Five years ago, when Michelle Berman jumped to the the custom publishing unit of Hachette Filipacchi, her colleagues wondered why. She had invested 15 years in the consumer ad sales realm as the publisher of titles like Seventeen, Soap Opera Digest and New Woman, and the consensus was that, career-wise, she was moving counterclockwise. "I know a lot of my peers thought I was taking a step down," says the Hachette Filipacchi vice president and group publisher who heads the custom division. After her first few sales calls, she was inclined to agree. Just getting potential clients to understand custom publishing and take her calls was a battle.

But today, Berman says with a sense of satisfaction, clients call on her. The same ad agency that, five years ago, told her custom publishing wasn't a legitimate magazine business, just called her to sit in on a meeting with one of the agency's biggest clients. "Now they recognize the marketing strength of a custom magazine for a client and how it can complement their advertising," she says.

Custom publishing is "very much the buzz these days, particularly on the client side among corporate America," says John Caldwell, president and CEO of Forbes Custom Communications Partners. Eight of the 10 largest consumer magazine publishers now own a custom publishing division. And traditional magazine publishers (versus companies that specialize in custom publishing only) own 50 percent of what is estimated to be a $2 billion-plus industry in the United States. Ten years ago, it was only a $500 million to $750 million business, says Caldwell. And it's growing at a rate of more than 10 percent annually.

"The big traditional publishers looked up one day and said, 'This isn't just a little promotional gimmick. Our clients are committing substantial dollars to custom publishing,'" says Caldwell. Forbes, which purchased Caldwell's company, Custom Communications Partners, in December 2000, expects the group to be the fastest growing segment of its business over the next two years, and projects that it will double by 2004, he says.

Technology is the primary catalyst behind the growth spurt. Database advancements have led to better targetability, which in turn intensified personalized relationship marketing trends. And at a time when retaining and gaining customers is on the mind of every business executive in America, custom publishing suddenly gained status.

The allure for publishers is simple: The profit margins are high, the audiences are built-in and the funding is upfront. "If the custom publishing business is structured properly, it generally should be a no-risk equation for the publisher," says Chris McMurry, CEO of Phoenix-based McMurry Publishing Inc. "The same can't be said for a traditional publication, where there's tons of risk."

"It's a stand-alone profit center that doesn't have to be connected to franchise magazines or to a client's traditional advertising business," says Michael Hurley, director of Hearst custom marketing. "It's a brand new stream of revenue and business."

Reader's Digest Association, which didn't create a custom division until late last fall, did so out of market demand, says Libby Chambers, vice president of global strategy and business development. With more requests for custom coming in, she says RDA realized there was a large pool of untapped business. "We identified this as a real opportunity," she says.

Now that the large consumer publishers have entered the custom publishing arena, production and editorial quality levels have been elevated, Hurley says. "Custom publishing is no longer a back-room operation. It can be a dynamic part of a client's marketing program."

Traditionally, custom publications have been single-sponsored. But as they grow more sophisticated, publishers are increasingly able to sell third-party advertisers into custom magazines. William-Sonoma's Taste, for instance, carries ads for Absolut Vodka and Lexus. In fact, in 1999 (the last time this revenue was measured) third-party ad dollars totaled $700 million, according to MPA's Custom Publishing Survey Report.

"In years gone by, nobody would have thought it was a good idea to advertise in a custom publication," says McMurry. "But many advertisers are beginning to realize it can be a great advertising vehicle because it's so incredibly targeted."

McMurry goes one step further to suggest that in 10 to 30 years, the majority of magazines on retail shelves will be custom publications.

"The economics of publishing is getting more and more difficult: It's hard to get subscribers, advertisers want off-the-rate-card media buys, and newsstand sales are dropping," he says. "You can't count on individuals to support your industry, so you start to look for corporate sponsorship."

Growth in the downturn

Historically, when the economy gets shaky and advertisers get anxious, marketing budgets are slashed first. That obviously did not bode well for the custom business. But executives say not so this time around. At least not yet. The theory is that many corporations are sticking with relationship marketing efforts despite the economic slowdown--and, therefore, custom publishing is holding steady.