Brave new Brazil

Folio: The Magazine for Magazine Management, March 1, 1998 by Caitlin Kelly

It's one of the world's largest countries, covering nearly half of South America and bordering every nation on the continent except Chile and Ecuador. With an estimated 164 million people and two of the world's largest cities (Sao Paolo with 17.1 million and Rio de Janeiro with 11.3 million), Brazil's size staggers the imagination.

But add to that a recently chaotic economic history, with inflation reaching 400 percent at one point; a heterogeneous population that mixes African and Indian, Portuguese and Italian and German; and Portuguese as the official language, and Brazil is not the first lace most American publishers would think of heading to launch or license a magazine.

For a long time, such activity would have been too difficult for smaller magazines without the great name recognition of Playboy, Reader's Digest or even Advertising Age, especially since the publishing industry there has long been dominated by two companies, both private and family-controlled: Editora Abril and Editora Globo.

But several important developments are leading American publishers to re-evaluate this complicated market. The country's economy is stabilizing, with the inflation rate now down to a more normal 4 percent per year, thanks in part to the 1994 introduction of a new currency, the real. In fact, Sao Paolo ranks fifth on a list of the top-10 non-U.S. cities, ranked by advertising volume, according Advertising Age's "1997 Agency Report."

"There are a lot of feelings of optimism about this market," says Euripedes Alcantara, a New York City-based correspondent for Revista Veja, published by Editora Abril. "It's a peculiar moment in the Brazilian magazine industry because there are now some interesting players besides Editora Abril, which has been the dominant company for many, many years. There is a lot of talk, some of it very believable, that American investment companies and banks are looking for partners in Brazil in this area."

Antonio Machado de Barros, a Sao Paolo-based magazine industry analyst and former director at Editora Abril, agrees. "We have great news," says Machado de Barros, who was recently in New York City to prepare a report on the subject for Salomon-Smith Barney. For those who make the move into this very particular market unique in Latin America, the return can be great. "The level of profitability is very high in Brazil," says Machado de Barros; it's not unusual to reap 25 to 35 percent profits, even while paying 10 to 20 percent more for editorial salaries, he says, because the average cost per page of advertising is "substantially higher" than in America, due to less competition. And cover prices are slightly higher.

On the other hand, he cautions, "our costs are higher in printing, distribution and particularly in salaries."

Another important development in the Brazilian legislature is also spurring interest. For years, the only segment of the Brazilian publishing market open to direct foreign investment was technical publications -- for example, magazines that are devoted to medicine, engineering or computers. American titles such as PC Magazine, PC World and Byte Brasil took advantage of the allowance.

Consumer magazines could do business only if a Brazilian entity agreed to license or franchise the American product. But a law currently under discussion would allow up to 30 percent foreign ownership, says Machado de Barros. Some politicians are even pushing for a 49 percent ceiling. The law, he says, faces little opposition and is likely to be passed by the end of this year. "When that happens," says Machado, "the last sector that is still dosed to foreign investment will be open. For that reason," he agrees, "in the last few months we have noticed increasing interest in the Brazilian market on the part of American publishers. There is a very strong change coming."

What to expect

Publishers considering doing business in Brazil should be prepared to work in an unusual marketplace with quite particular characteristics:

* Of the two dominant players in the market, Editora Abril, in 1996, claimed 35.1 percent of all magazine ad spending, according to the FIPP "World Magazine Trends" report, with a total circulation of 114 million. (Nine of the 10 major magazines in Brazil are owned by Editora Abril.) The second player, Editora Azu) (which is owned by Editora Abril), has just 8.7 percent of magazine advertising spending and a total circulation of 28 million.

* All magazines are published in Portuguese, a language read only by one other major world market, and that market has a totally different culture. Unlike many publications written in Spanish, Brazilian magazines aren't easily exported. "You have to think of Brazil as a closed market," says Alcantara. "Even for our neighbors in South America; we do not connect with them because the language, culture and background are totally different."

Portuguese magazines aren't even exported to Brazil, says Machado de Barros: "There is a huge difference in culture and language and the manner in which you write in Portuguese. It wouldn't work."