PUBLISHING

Time, Inc., the publishing subsidiary of Time Warner, has about 135 magazine titles, including Time, People, Sports Illustrated, Money, Fortune, and Entertainment Weekly. In addition, Warner Books and Little, Brown and Company offer a full range of book publishing, including 50 titles on The New York Times bestseller list in 2003. Time, Inc. generated revenues of $5.5 billion and net income of $664 million in 2003.

Magazine Publishing

While Time, Inc., publishes a large number of different magazines, four titles (People, Time, Sports Illustrated, and Fortune) account for about 80 percent of Time Inc.’s advertising revenues. Collectively, Time, Inc.’s magazine sales account for almost 25 percent of the industry’s revenues, making it the leader in U.S. market share. Several publishers with a broad line of magazines compete with Time, Inc. Advance Publications operates Conde Nast Publications (17 magazines including Vogue, Wired, and The New Yorker), Fairchild Publications (Details), and Golf Digest Companies. Hearst Magazines publishes 19 titles, including Good Housekeeping, Cosmopolitan, Esquire, and Popular Mechanics. The economic downturn in the early 2000s adversely impacted industry advertising revenues and, to a lesser extent, reduced the circulation of most magazines in the United States. In addition, major publishers have been plagued by a number of recent trends. Consumers increasingly have many more choices for obtaining news and information, including a large amount of free content on the Internet and on television. This increased competition contributed to a 6.5 percent decline in newsstand sales of magazines in 2003. Currently, about 4,000 different magazine titles are sold on newsstands in the United States, including over 900 new titles launched in 2003 alone. In light of the large number of titles, it is a significant challenge to obtain shelf space for a new or niche magazine. Class action lawsuits, as well as legal actions by attorneys general in several states over deceptive and illegal marketing practices, have hampered the industry’s ability to gain subscribers through the “publisher’s sweepstakes” that traditionally generated 25 to 50 percent of new magazine subscriptions. In addition, “do-not-call” legislation constrains the ability of telemarketers to sell subscriptions on the behalf of publishers. Thus far, the publishing industry has not identified a way to supplant these mechanisms for generating new subscribers. Some within the magazine industry are concerned that cable channels such as Home & Garden Television (HGTV) may ultimately become the primary information source for consumers who otherwise would have subscribed to several home and gardening magazines. Likewise, multiple cable channels devoted to sports, news, and entertainment may have a lasting impact on the circulation rates of Sports Illustrated, Time, and Entertainment Weekly. Retail space for magazines has declined over the past few years. Supermarkets now use space once reserved for magazines to create self-checkout lanes and to experiment with different items near checkout lanes (e.g., rotisserie chicken). While most magazines rely on subscriptions rather than newsstands for the bulk of their sales, margins for newsstand sales are significantly higher due to the impulse nature of consumer purchase decisions. In addition to a declining readership, the publishing industry has been hurt by allegations that its circulation numbers are inaccurate. In the fall of 2003, a legal dispute between a small publisher, Gruner Jahr, and the editor of one of its magazines, Rosie O’Donnell, led to allegations that publishers regularly inflate their circulation numbers. The Audit Bureau of Circulations is currently addressing these concerns, and advertisers are increasingly demanding more information from publishers regarding the circulation and selling rates for each issue of a publication. Despite all this bad news, there is some cause for optimism. Advertising executives have expressed concerns about the productivity of television advertising, due to the projected growth in use of digital video recorders (DVRs). Many fear that television viewers will fast forward through commercials, making television a less reliable source for advertising. While this could have a negative impact on programming networks and cable companies, it may give magazine publishers an advantage.

Magazines Online

Many magazine publishers upload content to the Internet. With a few notable exceptions, the content is generally free to anyone who chooses to access it through the magazine’s Web site. Consumer Reports has been successful in building a pay Web site; however, its content provides data that is unavailable elsewhere. Other magazines attempting to restrict access to paying users have had limited success. In May 2003, Time, Inc., announced that it would begin restricting access to the Web sites of 13 titles, including People and Entertainment Weekly, to paying subscribers and AOL members. While traffic at the PeopleWeb site declined 30 to 40 percent, the number of online magazine subscribers increased several fold. AOLpromotes access to the magazine through its content, and in return pays Time Inc. $40 million. In return, AOL is permitted to sell advertising around the magazine’s content, and users viewing the magazine’s site are offered a trial AOL subscription. Time Warner hopes to expand this type of cross-promotion throughout the company.

Book Publishing

Time Warner publishes books under the brands of Warner Books and Little, Brown and Company. Revenues for the book publishing group were about $400 million in 2002. By contrast, sales at Random House (a subsidiary of Bertelsmann, AG) were over $2.2 billion. Similarly, Harper Collins (a subsidiary of News Corp.) posted revenues of $1.1 billion over the same time period. In 2003, total revenue for the top 20 book publishers in the United States was over $5.5 billion, up 5 percent over the previous year. The distribution channels for book publishers include online and traditional bookstores (48 percent), jobbers and wholesalers (42 percent), special sales (6 percent), and direct-to-consumer sales (4 percent). By most estimates, about 10 percent of books are sold over the Internet. However, sales of books directly from publishers’Web sites represent only 0.1 percent of overall sales. Time Warner Books does not sell any books directly to consumers from its Web site, instead directing customers to an online retailer. Sales of e-books—electronic books that are downloaded to a computer—increased 27 percent in 2003 to $7.3 million.