Profiles in Creative Management
To succeed in the magazine industry, a great idea and a catchy cover isn't enough. A company needs talented, dedicated employees and a leadership team that can set the vision in motion. Folio: spoke to executives at three magazine companies in different stages of their growth about how they're creating and managing growth.
Going Against the Grain
944 sticks to a grassroots work ethic even as it morphs into a multimarket magazine.
Marc Lotenberg's glossy, luxury entertainment and lifestyle magazine 944 made its debut much like the garage startups frequently cited in Silicon Valley, that is, self-funded through maxed-out credit cards and dogged, under-the-radar street marketing from a largely inexperienced publishing team. Lotenberg's operation has since expanded into four markets and received big-league backing, all while adhering to many of the same operational mandates the magazine started with.
944 was launched in 2001 in Phoenix, taking its name from the office's street address, by 22-year old Lotenberg and his friends who craved a publication that delivered local entertainment and lifestyle content to their demographic of affluent twenty- and thirty somethings. Humble beginnings have morphed into a four-market brand that will soon be expanding into nearly 20 more markets in the next three years. Currently, the 944 network is profitable and has offices in Phoenix, San Diego, Las Vegas and Los Angeles.
"We learned everything by falling on our faces and not having any money," says Lotenberg. "When the magazines came out, there were five of us who took them off a U-Haul truck and put them into the stores."
That distribution method has largely remained intact. Lotenberg has eschewed other traditional methods of magazine distribution in favor of delivery to local upscale boutiques. While copies are available on the newsstand for $4.95, the total represents a percentage in the low single-digits of the titles' overall circulation, which now stands at about 200,000 copies spread across the four markets.
Lotenberg has built up an internal distribution network with its own team and truck fleet managed by a custom-built online inventory management system. "We're at three thousand locations with 20,000 drops per month. There's a lot of management and databasing involved. It's not the easiest model but it's cost-effective to the customer," says Lotenberg. Not so much for the company, however. Lotenberg admits his loyalty to grassroots distribution comes at a cost. He says that his system requires five- to ten-times more capital to maintain. But the upside is, in his mind, significant. "It's far more effective and it maintains our growth because national companies can now count on us to deliver that marketing reach far more than our competition. We have advertisers who used to pay $300 a month five years ago escalate up to over $20,000 a month today as we have grown and increased circulation," he says.
Lotenberg took the Phoenix model, launched on a handful of credit cards, and applied it to San Diego in 2003, this time with $100,000 backing from Eric Crown, founder of Tempe, Arizona-based IT service provider Insight.com. Crown would eventually become Lotenberg's principal backer and connection to more seasoned publishing executives, who were in place by the launch of 944 Los Angeles. Crown has since put up $200,000 for a Las Vegas launch in 2005 and a seven-digit figure and equity stake in 944 for the Los Angeles launch earlier this year.
Each of the launches were based on the same formula, with a dedicated publishing team in place in each market;a characteristic Lotenberg says sets his operation apart from other regionally produced magazines. "A lot of the other regional magazines have a New York office and their Los Angeles office has three people and their content comes from New York. We make sure we have local people on staff and are fully functioning in each market," he says.
The Las Vegas launch was the litmus test for 944, and its introduction to big-time, national advertisers. In fact, Crown based his future involvement, and investments, in the company on its success in Vegas. "He said, 'If you break Vegas, you've got me on board,'' says Lotenberg.
Lotenberg engineered a partnership with WenDoh Media, which literally gave 944 entre into the tightly controlled Vegas market. "They did everyone's printing so they had all the relationships," he says. "They said they wanted to launch a magazine and they had all the connections with sales and marketing but no magazine or editorial access."
From the start, Lotenberg demanded an all-digital environment, from photography to ad materials to credit card-only processing. The digital workflow allows the teams to make sure content and event coverage is never more than 30 days old. "All our timelines are very quick," says Lotenberg. "We can shoot an event on Thursday and get the book out on Saturday. We're trying to compete with the dailies and weeklies but in a glossy monthly format."
Three 20-somethings pooled their money to buy American Songwriter, a modest music craft magazine, and increased its circulation ten-fold.
When Doug Waterman was searching for a job after college and came across an ad sales position for tiny music magazine American Songwriter, he knew he had to take the opportunity. The chance that Rolling Stone would call him back for an edit job was slim to none, and he needed the commissions. A few years later the owner of the magazine was ready to sell and Waterman jumped on his chance to turn the magazine into the industry source for the craft of songwriting.
In early 2004, Waterman, along with two business partners, Robert and Tom Clemet, purchased American Songwriter for about $100,000, which was also the magazine's revenue at the time. This past summer, the magazine turned a profit, the first time since the early nineties. "If all goes accordingly," says Waterman, "at the end of our fiscal year (April), we should be anywhere from $475,000 to $500,000 in revenue with a little profit in there."
Circulation was approximately 2,800 when the trio took over in April of 2004, and has exploded to 25,000 in two and half years. Total advertising revenue before the acquisition was around $6,000 to $10,000 per issue and currently rests at about $20,000 to $27,000 per issue, accounting for 65 percent of overall revenue. The real catch: The magazine still charges $2,000 per full-page ad, the same rate it charged when the magazine had a 2,800 circulation. "The prices were set fairly high anyway," says Waterman. "We had to feel out the advertisers and we are right where we need to be as far as what people are willing to spend on their ads."
Impressive numbers have come out of a full-time staff that had consisted of just Waterman and Robert Clemet until very recently. Waterman, now 27, also serves as co-publisher and editor-in-chief while Clemet serves as co-publisher and business and operations manager. Matthew Shearon, a 23-year-old former summer intern was recently hired to fill the role as managing editor. Shearon's age and lack of experience did not faze Waterman. "He's a hard worker and a passionate music writer," he says.
The road to profit was not a walk in the park, however. The journey started with a complete overhaul and redesign of the 22-year-old American Songwriter title, converting it to a brand focusing on the craft of music. Waterman's first area of concentration was taking care of edit and design rather than marketing. According to a reader survey, the average reader age is 38 to 40, down from the 45 to 50 age bracket that prevailed before 2004. "We all do ad sales, we all do marketing, photography, and Internet marketing," says Waterman.
Marketing initiatives have been grassroots-based, including attending a number of festivals to gain subscribers. In October, the magazine conducted its first direct mail campaign to about 30,000 potential subscribers, which cost about $15,000. "If we can get 3.5 percent back we'll break even, which is pretty much our goal for now," says Waterman. "Our goal is not to grow to 100,000-circ immediately. We just want to keep our 40 percent sell-through rate high and give potential advertisers our real numbers."
New revenue streams are what Waterman and Clemet are concentrating on, including a book collaboration with F&W Publications, which will utilize the library of stories from back issues to introduce new readers to the magazine. Other ventures include a new approach to the magazine's traditional lyric contest. Each month, readers can submit their lyrics to be published in the magazine for $10 per entry. "We realized in the beginning that there was a lot of value in the contest," says Waterman. "We get probably 500 submissions per issue with almost no expenses and about 50 to 75 of those submissions come from non-subscribers."
Other projects include a compilation CD of music that is included with each copy of the magazine. A bartering system was used with the CD printing company in which services were traded for ad pages. The magazine also conducted a song contest that required musicians to pay $5 to get their song considered for the CD.
Waterman hopes to be making $50,000 to $100,000 profit in the next few years, and says he hopes to add another 10,000 subscriptions in the next three years.
How Hanley Wood's four division leaders tie personal and group goals together to keep the company growing.
The top guns of Hanley Wood (co-founder Mike Wood, now ambassador to Sweden, and CEO Frank Anton) receive much deserved praise for building one of the top b-to-b companies. But it's Hanley Wood's executive team, which leads the publisher's four core divisions, that has the most day-to-day impact on HWX, Hanley Wood's five-year plan to boost revenue from $200 million and double earnings.
The four divisions include Washington, D.C.-based Hanley Wood Business Media, a newly combined print magazine and online unit; Irving, Texas-based Hanley Wood Exhibitions, the conference and events unit; Costa, Mesa-California-based Hanley Wood Market Intelligence, a data and research group; and Minneapolis-based Hanley Wood Marketing. While each group has individual goals, each executive's compensation is tied to overall performance. "Even though we have four operating units, the biggest driver between the Hanley Wood executive team is collaboration," says Peter Goldstone, president of Hanley Wood Business Media. "We have goals platform by platform but at the executive level we're all tied to the common good."
The newly combined Hanley Wood Business Media sees about $110 million from print and $26 million in e-media, according to Goldstone. "This was an evolutionary change, not a revolutionary change," he says. "We had 60 print sales people and five online sales people. Now we've banded that force together to help everyone understand e-media. Publishers and editors will all be connected to the e-media goals and objectives in terms of compensation, goal setting and strategic implementation."
Hanley Wood Business Media boasts 30 magazine brands and nearly 40 special events of its own, while also collaborating closely with Hanley Wood Exhibitions. "Peter and I are in lockstep when taking products to market," says Exhibitions president Galen Poss, who expects the group to do around $65 million in revenue next year. "We believe in market sector dominance. As Peter's team focuses on specific markets, our team does the same."
When Hanley Wood decided to grow in the spa and pool sector, Poss approached a trade association about partnering with an existing show. At the same time, Goldstone approached the publisher of Pool Spa News. "We worked those acquisitions so they closed within days of each other," says Poss. "We didn't just have a show, we immediately had a presence in the market;a leading trade event, and two leading publications. Our strengths feed off each other."
While Hanley Wood Marketing conducts the promotion for Hanley Wood products, it also handles projects from custom publishing to search engine optimization for HW clients, according to president Jeanne Milbrath. The group has 75 employees and does about $25 million in revenue.
Hanley Wood Market Intelligence is the new kid on the block, having been formed two years ago from the acquisition of The Meyers Group, Hanley Wood's first foray into a data business. But today the unit, which generates about $25 million in gross revenue, is the tie that really binds the four groups together, according to president Tom Flynn. "Of all the parts of Hanley Wood, we're the ones most in touch with builders on a daily basis just because we're selling them data and access to software all the time," adds Flynn. "We're a natural conduit for other products because we deal with clients every day."
The group conducts custom research and builds a suite of products from 14 regional offices culling data in 36 top building markets around the country. The group's flagship, Builder Info Tools, was created by merging several legacy products and is a subscription service that enables clients to pull data on specific areas around the country. The product has 500 clients, with fees ranging to $500,000.
Many observers have wondered how Hanley Wood would fare if the incredibly hot residential construction market cooled. That's becoming a reality but Hanley Wood continues to thrive, thanks to a push into the commercial construction sector and continued niche-ification of its market. "Some companies can acquire very successfully, others can launch successfully. We do both," says Goldstone. "Our growth plan calls for 50 percent from organic growth and 50 percent from acquisitions. Other companies are reluctant to niche but we knew construction comprises lots of different types of niches within residential and commercial construction. "