Consuming passions; publishers of consumer magazines like their 10% margins, but would love to see 50%. Well here's how

Folio: The Magazine for Magazine Management, July 1, 1991 by Reed Phillips, Chris Fodor

Postal rates and the cost of maintaining circulation are rising; ad revenues are falling. To stay competitive, consumer magazine publishers need to rethink strategies for growth and expansion. Publishers are now realizing they cannot rely completely on their two traditional revenue streams: advertising and circulation.

Although trade publishers have long been forced to uncover creative solutions to generating new revenue, their consumer magazine counterparts have traditionally treated profits from product extensions as gravy. But as profitability from the core business--magazines--falls, that attitude is ripe for change.

For those who succeed, an expanded franchise can both strengthen the magazine's identity and extend its life by building a sort of annuity for its mature years. Furthermore, such product extensions increase reader and advertiser loyalty, as they give them more ways to buy what they already like.

A wealth of possibilities

What Playboy did with its franchise during the sixties and seventies is perhaps the best example of both the possibilities and pitfalls open to consumer magazines. Starting in the sixties, Playboy inaugurated clubs and casinos worldwide, launched foreign editions, and licensed products like men's and women's jewelry, apparel and fragrances. As a result, says Bobbi Gutman, senior vice president, circulation and planning at Playboy, the bunny logo is now the second most recognized trade symbol in the world (after Coca-Cola's red-and-white wave).

After incurring substantial losses in the 1980s, though, Playboy's clubs and casinos closed or were sold off. And, in an effort to change with the times, the company has moved into more sophisticated, upscale products. Gutman says Playboy's Special Editions Ltd. division has hit real pay dirt marketing images from the magazine's extensive art collection. "I have even higher hopes for our 900-number efforts," she adds. "I expect new services such as the audiotex hotline or Wakemate wake-up calls to generate revenues of $1 million next year."

But perhaps the most interesting lesson from the Playboy story is in the numbers. While profit margins at healthy magazines usually hover between 10 percent and 15 percent, Playboy's Product Licensing division boasts a whopping profit margin of 54 percent. On revenues of $6.3 million, it reported an operating profit of $3.4 million.

Does it pay to stay close to home?

Once you decide to invest in product extensions, be prepared to grope through a daunting variety of products and services. Janet Muir, the former vice president of Esquire's Special Projects Division and currently a managing director at The Jordan Group, Inc., offers this guideline built off Marshall McLuhan's most famous principle: "The medium must match the message. Select the appropriate product form for the information being communicated (e.g., videocassettes for exercise), and select the appropriate information for the market."

But keep in mind, too, as Clare Thain, managing partner of Ronald James Direct and former publisher of Entrepreneur, puts it, that, "Leaving familiar waters for uncharted ones means reckoning with greater risk--though sometimes also with greater rewards."

The most common form of magazine-related print product is therefore the special issue, which offers the opportunity to draw additional revenues from existing editorial material. Playboy has mastered this art with 13 annual Specials sold at premium prices on newsstands.

Other familiar print product extensions are Sports Illustrated calendars, The New Yorker diaries, Penthouse international editions, Reader's Digest condensed books, American Health wall posters, Entrepreneur's business start-up guides, Better Homes and Gardens cookbooks, and Rodale and Time-Life books and book clubs, among others.

Out of print

Non-print information products are a step away from your core business. A publisher may extend his magazine's franchise into audiotapes, videocassettes, seminars or computer software. This means there is far less opportunity to draw on existing editorial or publishing resources; the publisher is now trading on the established image of the magazine. Accordingly, the risks are greater.

But they need not be insurmountable, as has been demonstrated by Inc.'s successful sally into the seminar business. The information field is relatively uncluttered by competition, as noted by John Klingel, a vice president at Time Publishing Ventures. "The majority of consumer publishers have yet to explore such extensions," he says.

Even further afield

The publisher seeking to enter the non-media business has traveled furthest from his core business. He now trades on his magazine readerships as a potential clientele for other products he wishes to sell. In their simplest form, such products capitalize on readers' loyalty by offering them articles like T-shirts, caps or mugs sporting the magazine's logo.

But that's just the beginning. Among the examples of more sophisticated efforts are Gruner + Jahr's sales of child-development toys by direct mail; National Geographic's sale of games; Modern Maturity's promotion of pharmaceutical products, vitamins and life insurance; and teen magazines like Teen, Sassy, and Tiger Beat merchandising suitably styled and priced items.