Business of Media

Time Warner has been one of the three largest magazine publishers in the United States. This was surprising, since I had usually associated the media conglomerate with network/cable television and film. Studying the magazine sector within a media conglomeration has shown how the breadth of the company either offers astounding revenue or immense struggling across the board, which is currently the case.

The “Business” portion of the 10-K revealed how Time Warner organizes itself: AOL (interactive consumer and advertising services), cable (the actual systems), filmed entertainment (film, TV, home video), networks (principally cable) and publishing (principally magazines).

AOL
AOL is trying to shift its focus from gaining subscriptions to “attracting and engaging” consumers on the Internet. AOL hopes third parties can incorporate AOL content and services on their websites and is utilizing the People Networks business unit to hone in on social networking to attract advertisers. Time Warner’s advertising services on AOL and third parties are managed by Platform-A. Platform-A uses in-house and third party technology for various online advertising, though it plans to use its own technology in early 2009. AOL and Google have also partnered and benefited from the exchange of ads and ad space. AOL’s main competition includes other Internet companies, social networking sites, traditional media and other third party advertising.

AOL’s decline in subscriptions have not been offset by advertising, but still feels that it should keep high rates despite low demand from advertisers. The only advertising that grew was through its partnership with Google. AOL does not have its own search service and is losing out on selling search advertising. AOL must stay appealing to lost subscribers by coming up with new content (though expensive to develop or borrow from Time Warner) and must find distribution other than traditional media. All of this is ironic, considering that AOL was at the forefront of the Internet revolution. Perhaps the costly time it takes to develop new content and methods will be worth it if the company can try to be more innovative while trying to survive. Only if this is successful can the maintenance of high ad rates be successful.

CABLE
Time Warner Cable (TWC), undergoing a separation with Time Warner (discussed later) is the second-largest cable operator in the U.S. and concentrates its services in five geographic areas. Its services include video, high-speed data, voice services and advertising. Most customers purchase services in discounted bundled packages, which differ on how many channels and options are available. The company is expanding video on-demand (VOD) through innovative enhancements like “Start Over” (allows subscribers with a set-top box to restart programs in progress but without being able to fast forward through commercials). Time Warner hopes to expand its HD offerings, digital phone packages (especially to commercial businesses), and local advertising efforts. TWC also plans to expand network capacity through switched digital video (SVD), technology which will transmit only the digital and HD channels being watched at a given moment to save bandwidth space.

The most risks for TWC stem from its ongoing separation from Time Warner. Time Warner cannot make an exchange or offers of the TWC share and both parties can’t enter into any business combinations without the approval of independent directors who must comprise at least 50% of TWC’s board of directors. The separation will eventually result in more flexibility for both parties, but Time Warner will be less diversified and will be more susceptible to risks associated with international business. TWC has incurred debt of around $7.0 billion from the separation and must deal with the typical competition of other stations and outlets, need for more bandwidth, regulations and keeping its subscribers. Perhaps Time Warner should capitalize on the fact that it has dropped one of its companies during this economy, since it can lend more focus and enhancement of its companies in other sectors. Still, it is a huge distraction to what resources and time could have been invested in simultaneously improving Turner Networks and HBO to make up for the loss.

FILMED ENTERTAINMENT
Warner Bros. Entertainment Group produces, distributes and licenses the rights for its films and distributes films from other producers. Warner Independent Pictures and another independent producer and distributor, Picturehouse, ceased in October 2008. Warner Bros. still rely on “event” movies/blockbuster hits and its franchises to rake in revenue. Warner Bros. also operates home entertainment, games, TV, digital media, and various worldwide distributions (Warner Bros. Digital Distribution [WBDD] has many channels). One of the most interesting on-demand distribution services expected to launch in 2009 are online or in-store kiosks to select content to burn on discs to deliver it to your home. WBDD also plans to work with Warner Home Video to offer electronic copies of movies through specially marked DVDs with a code to download it or a file already on the actual DVD to download. Competition exists between motion pictures, TV, games, animation, DVDs, the Internet and shifts in consumer habits.

Both Time Warner networks and filmed entertainment must respond to changes in technology, consumer behavior’s shift from physical to digital needs and consolidation from already vertically integrated companies hurting ad revenue and licensing revenue, especially for syndication. DVD sales are declining because of retail hardships and maturation of the format (i.e. Toshiba’s discontinuation of HD and shift to blu-ray). Production and marketing costs stay high as the company is relying on international business and other media outlets for distribution and must keep an eye out for piracy and risk of “labor interruptions.” Offering legal, electronic copies of its movies through DVDs seems like a great compromise to the growth of piracy and desire for viewing digital content other than the TV. Of all the upcoming innovations Time Warner discussed in the 10-K, this plan seems very viable in its digital efforts and hopefully will be easy for consumers to understand and use.

NETWORKS
The company’s domestic and international networks are under Turner Networks and premium networks are under HBO, distributed via cable and satellite. Turner gets its money from advertising and affiliates who receive and distribute the networks as well as ads and subscriptions from its news websites. It also relies on Time Warner’s library and partnerships for exclusive sports programming with the NBA, MLB, NASCAR and the PGA. HBO relies on subscribers, DVD sales of its series or original films, and licensing for syndication. It is the nation’s “most widely distributed premium pay television service.” The CW (joint venture between Warner Bros. and CBS) was carried by an astounding 94% of households in the U.S. as of December 31, 2008. Both of these companies compete with other networks for marketing, distribution and advertising.

The networks’ ad and subscription revenues are being hurt by the consolidation of multichannel video programming distributors (vertical integration limits options for distribution). The networks still struggle in trying to predict or capitalize on fluctuating popularity of its programs to third parties, and license rights and renewals may be costlier. Still, the film and network segments of Time Warner don’t seem to suffering as much from the pressure of the Internet, as its operating costs are not a daily fluctuation, unlike AOL. Its partnerships with sports organizations must be a huge profit and I wonder how the revenue from these deals compare with Disney owning an entire sports station—ESPN.

PUBLISHING
Time Inc. is the largest magazine publisher in the U.S. based on advertising revenues. It also gains revenue through direct marketing and direct-selling businesses, websites and product/license extensions. In the fourth quarter of 2008, Time Inc. reorganized its magazines and websites into three business units with its own management: Style and Entertainment, News and Lifestyle. The company hopes this new structure will reduce costs, as it also reflects the centralized operations of distribution and subscriptions. Time gets about half of its revenue from magazine advertisements, then circulation (mostly subscriptions) and some from its websites. The company also runs direct marketing, direct-selling businesses, niche book publishing and many international publications. Costs and competition include postal rates and competition from the Internet and other media, mostly for advertising.

As with the company’s other sectors, Time is suffering from the decrease in advertising revenue and the competition for the ads and audiences shifting to the Internet. All magazine publishers are having trouble with the consolidation or desertion of wholesalers and increasing distribution costs, making it hard to meet rate bases for advertisers. Legislation on a “do not mail” option can severely affect Time’s revenues from direct mail. Because the information on publishing was less than the company’s other sectors, I wonder if it is being somewhat neglected. I was surprised that the 10-K didn’t report on Time’s online efforts. Unlike News Corporation, Time is lucky that most of its publications are major magazines which don’t seem “foldable” quite yet, so this may explain the neglect.

REGULATIONS
Though the 10-K reported on the potential effects of regulations, I felt that the company treated these factors as a separate entity rather than really integrating them with their improvement efforts in 2009. Several regulations that could significantly affect the company’s practices and revenues are pending. Under the Communications Act and FCC Regulations, local commercial television broadcast stations every three years elects a cable company to carry its channels (“must carry”). A cable system with more than 36 channels must designate a portion of it to third parties. The Communications Act allows for negotiation for the amount of cable’s public, educational and government programming. The FCC, however, has not been receptive to net neutrality (networks limiting access to certain content and websites). Other ongoing regulations to be dealt with include the switch from analog to digital television, product placement policy and marketing regulations. If anything, these regulations could serve as indicators of future trends to look out for.

The February 2009 issue of Esquire featuring an ad from the Discovery Channel which previews the articles inside.

Is this the height of a magazine's creativity or compliance to advertisers? According to MediaWeek.com, Esquireeditor David Granger plans to make the May issue have "three perforated covers that can be separated into three horizontal strips which, when flipped over, will create different images. George Clooney and President Barack Obama are two of the three planned cover subjects for the issue, themed How to Be a Man." Similar to the February 2009 issue pictured above, the History Channel already purchased two of the multiple covers plus the two pages after the third cover. The History Channel will use the "mix and match feature" to promote their new show "Life After People." But Chris Mosely, Senior VP of Marketing for the History Channel, stated that the pages won't have any connection to the cover. In regards to the success of the February 2009 cover, Granger said the issue sold "better than average" on newsstand sales and "captured buzz."

Aside from the possible ethical arguments that could be made about this, I wonder if this could be an indicator of a future trend: magazines trying to innovate with print instead of entirely succumbing to the Internet. In a sense, however, the innovation of such covers immediately gauges attention on the newsstands, where sales have always been incomparable to subscriptions over the past ten years. Could the boost in sales from these types of issues be generating significant income for the magazine during these tough times?

If anything, buzz has definitely been achieved, even from men outside Esquire's targeted demographic. Esquire's October 2008 cover featured a sort of mini digital screen and digital background for a car ad on the next page, in celebration of the magazine's 75th anniversary.

The cover

The ad on the next page

The Independent all the way in UK featured an article written by Dawn Alford, the editor of Tesco Magazine, one of the most-read women's magazines in Britain (circulation 5.65 million) according to the latest National Readership Survey. What's interesting about this article is its relation to the blog post below. The magazine plans to feature readers on its covers (though it didn't specify for how long). Even in the UK, Alford cites the "gloomy economy" and competition with more than 8,000 magazines in the UK as reasons to appeal to more readers. Shoppers comprise a large portion of Tesco's audience, as it is produced for the supermarket by Cedar Communications. But the effort is not entirely done to please advertisers. Alford still feels that a magazine is a "luxury" and "escapist pleasure," and must therefore remain optimistic. Alford's optimism about the economy seems more positive than publishers here in the U.S.:

I was struck by a recent survey that reported that the recession was having many positive effects. We were eating together more as a family, we were wasting less food and taking pleasures from the simple things in life, like going for a walk in the country. The credit crunch has resulted in a new way of thinking for many people. Priorities have changed. What is important to us now is the reality of day-to-day life – but enjoying it along the way.

It is refreshing to see more optimism and creativity being churned out of the economic crisis instead of declining statistics, magazines folding and people losing their jobs. Moreover, it would be worthwhile to explore how the magazine business in the UK is dealing with their economy and compare it to how the U.S. magazine industry's current trends and efforts to survive. Though having different cover near supermarket isles is a strong and effective way to get attention, putting readers on the cover doesn't really veer into the escapism element which Alford attributed to a magazine's worth.

Amidst the debate between having online content paid or unpaid for, Time Inc. CEO Ann Moore was quoted in England's Telegraph newspaper for considering having paid content by making Time.com and People.com subscription-based.

I think it is time for Time Inc. to sit down and seriously think, what is the model. We are going to have to figure out a way to have paid content in the future.

As Time Warner's latest 10-K conveyed, Time Inc. did not seem to be in as much troubled water than the company's other assets. But even if only "select content" were to be paid for, would this compromise detract more viewers than Moore expects (i.e. think WSJ or NYT)? I somehow feel that this business model may work for People.com, as celebrity news and gossip is much more rampant online than the content on Time.com. On the flip side, that could be the very issue, as viewers can easily go on other celebrity/gossip websites for free.

On Sunday, Playboy's website featured a new digital archive of more than 50 complete issues (even with the same advertisements) for free. The only requirement is downloading Microsoft's Silverlight software, a plug-in to make viewing digital content a smoother process. Interestingly, the new digital archive evolves from Playboy's initiative in 2007: digital magazine archives on DVD-ROMs. The first "Cover to Cover" box set includes select issues from the 1950's. Playboy hopes to release 1960's select archive soon.

Playboy's strong, loyal niche audience and its presence on the web so rampant with similar and racier content make this new initiative seem viable. Even non-Playboy loyalists may be curious to flip through actual old issues for a sense of history, especially if the advertisements are kept intact. It seems to be a fun and more engaging way to merge print and digital platforms while relaying the brand's history. The "Cover to Cover" box sets achieve this even more so, as the products have a sort of "collectors" ambiance to them. Overall, paying a price for these select issues seems more valid than paying for random articles online (ala the New York Times online archive).

Last Wednesday, Time Inc. announced their latest venture: mine magazine. The "made-to-order" magazine is the company's attempt to make print comparable to personalized news feeds. Readers select sections from five of the eight publications under subsidiaries of Time Warner Inc. and American Express Co. Editors will pre-select the stories to go into the bi-weekly issue which is free; 5 issues will be published over 10 weeks. An online version will also be available.

Of course, the customization of mine is meant to reflect the campaign of its advertiser: Toyota for its new Lexus 2010 RX sport-utility vehicle. "There are 56 editorial combinations in all (the Lexus SUV has 22 customizable settings, plus eight options handled by a dealer)." What readers may find even more interesting, to say the least, is that "hyper-targeting" advertising would appear in the issue if an online survey was complete beforehand.

A sample ad tag line for a respondent named Dave, who lives in Los Angeles and eats sushi, might read: "Hey Dave, your friends will be really impressed when you drive down Van Ness Avenue on your way to get sushi."

In terms of content, would readers actually put in the effort to get a pseudo-"customized" magazine? The idea plays off of the "luxury" aspect of reading a magazine, but the options are still limited: you have to pick a Time Warner publication and will receive content picked by editors. If anything, the fact that the publication is free is attractive. But will readers want to fill out the survey to get personalized advertising? Similar to Esquire's cover innovations, I wonder exactly how much income these issues generate.

On Monday, over 300 magazine editors and retailers gathered in Miami for the 2009 MPA Retail Conference to discuss the publisher-retailer relationship. Overall, the professionals "decried the state of the newsstand market, but focused on the need for systemic change." A major distraction to focusing on sales is the miscommunication between both parties who "aren’t giving each other the right data." Lee Nichols, President and CEO, Dechert-Hampe & Company stated,

Retailers are saying to publishers, ‘Help me tailor these titles to my store,’ but publishers want to know things like how the changes in daily traffic at the stores will affect how many titles are sold. But they won’t know these things unless they’re given the right information.

Each side is worried about how they can get more money for themselves instead of what they can do to help build the business.

Unfortunately, the coverage of this event portrays lots of "fluff" to me. I didn't even include my usual intro picture since photos of the event showed editors mingling at cocktail hour against the backdrop of a Miami beach. Will both parties make serious efforts to better communicate with each other? In regards to the previous two posts about new magazine initiatives, do publishers take into consideration the profits of distributors? If anything, such tactics seem to be taking care of the short-term circumstances. Besides flashy advertising-sponsored issues, what else can publishers do with print magazines to make them more conducive to a retailer's business?

Similar to the previous post about mine magazine, the New York Times reported last Sunday on Hewlett Packard's newest innovation: MagCloud. MagCloud is a web service for people to make their own magazines more quickly, easily and cheaply.

A user creates their own design
makes it into a PDF file
sends it to MagCloud via the Internet
H.P. sends the file to printers they've partnered with
H.P. covers the billing and shipping and the "publisher" pays 20 cents per page
The "publisher" can charge whatever he or she wants for the magazine

H.P. hopes to target aspiring publishers who want to make "underground zines" or have particular interests, from professors who want to distribute a magazine in the classroom to those who want to show off their art. Ashlee Vance reports, "H.P. dreams of turning MagCloud into vanity publishing’s equivalent of YouTube." Publishing a magazine through MagCloud is easier compared to going through a larger printer since changes can be made more easily at the last minute, if necessary. MagCloud also presents many opportunities for H.P. to sell more of their digital printers and ink. However, H.P's intentions don't seem to be entirely dedicated to MagCloud's prospects:

For H.P., MagCloud is also a way to provide customized service at low risk. And if the niche does not thrive, the company will simply move on.

Is the magazine industry relying on spurts of income? MagCloud seems promising, as other online publishing providers like Blurb.com have been successful. However, the last statement of this article indicates that the industry does not seem to be giving enough efforts for long-term, economic success. The article did not mention any side promotions H.P. has for MagCloud as well. Nevertheless, I feel the service could be very viable, as it bridges interaction on digital and print platforms.

A more successful initiative is Time Inc's launch of Life.com, a photography website partnering with Getty Images. The website will "pool Life magazine's vast archive -- only 3 percent of which has ever been published -- with a Getty collection that grows by 3,000 images a day." Life.com will have "the single largest online cache of professional photography, with 7 million pictures and counting." Content will be divided into five categories: news, celebrities, sports, travel and animals.

Life.com's initiatives to get more viewers and revenues are even more interesting and even exciting. Users will be able to create their own photo collections and share them on blogs or social networking sites. Celebrities, such as Ellen DeGeneres, will also be invited to guest-edit pages (Ellen is "curating" a collection of dog photos). Eventually, Life.com hopes to create the "Timeline," which will allow users to upload their personal photos with photos from the website to create a sort of scrapbook. Another future initiative includes being able to purchase photos as a collection in a magazine or book.

Most importantly, the site will be "primarily advertising-driven" and ad sales will be handled through Time.com. Rolex has already been confirmed as the first sponsor.

The tie-ins of involving users and celebrities to interact with the site's content, as well as the sturdy advertising model, seem to make the launch of Life.com a successful one not just on the first day, but for much longer. I initially thought allowing users to purchase an individual photo would be a successful component in the business model. But, it makes sense that Life.com would only allow the purchase of photos if they're in a collection, thereby forcing users to interact and sift through the site.

Another interesting initiative for the magazine industry finally moves to television. Popular Science magazine and The Science Channel will be partnering for a new 10-part series in June on Science Channel and Science Channel HD which will explore "different future iterations" in each episode. The partnership involves "shared accountability for both editorial and ad sales." Both parties will share ad sales and marketing duties as well as revenues on convergent ad packages. More interesting is that this initiative will include a "seamless cross-platform approach for advertisers, readers and viewers." Deborah Adler Myers, senior VP-programming for Science Channel and Discovery Emerging Networks explains:

We wanted to create a creative experience for advertisers that you can't get by buying any one package. We'll be posing questions on the show so that you have to go to the magazine to find the answer, then go to the web site, so that it really becomes a multiplatform experience.

The article also explains that this initiative will help the magazine reach out to females, the consumers of the household, who may not even know about the magazine. The article cites that other magazines that have partnered with television shows haven't been successful, but this partnership seems possible, as its niche audience moves to more niched channels. I wonder if there are any online initiatives with this program; perhaps putting the answers to the questions posed in the series would be better placed online. Here is where my main question emerges: why aren't most of the magazine industry's initiatives actually targeted toward the actual print publication's content? Online and televisions partnerships are innovative, but perhaps the industry needs to hone in on the actual print experience to secure more long-term revenue.