Meredith Corp. was one of the few bright spots for publishing media in 2009 (Ad Age named Meredith its “A-List Publishing Company of the Year”). For Meredith’s National Media Group, which includes magazine publishing but also its integrated marketing, brand licensing and database businesses, the past year has been a tale of sliding (but stabilizing revenue) and increasing operating profits.
With the first half of fiscal 2010 under his belt, National Media Group president Jack Griffin [pictured] spoke to FOLIO: about how the group has managed to see growth in print, how it’s dealing with the plateau in Internet display advertising and how the group is boosting profits and efficiencies beyond job cuts.
FOLIO: While advertising revenue is down 3.4 percent to $255 million for the National Media Group in the first fiscal half of 2010, Meredith has several of the 18 national magazines tracked by PIB that grew in ad pages in 2009, including Fitness, More, Ladies Home Journal, Family Circle and Better Homes and Gardens. How have you managed to grow pages in these magazines?
Griffin: This crushing economic downturn has created some cultural factors in our favor. People are turning inward and our brands are well positioned to speak to women about food, health, family, relationships, etc.
We generate well over half of our advertising revenue through group and corporate sales units—one is Meredith 360, one is Meredith Corporate Sales, another is the direct response and travel group. The portfolio hangs together—when we go into a call on a client or agency, we’re not offering a men’s title and a fishing enthusiast mag, all of our magazines hang together. They serve a common purpose, which is speaking to adult American women. We’re not the biggest magazine publisher but we’re the biggest in our segment. When we go into big companies like Procter and Kraft, we’re the biggest player in terms of audience they want to reach and we can help them do it in any way they want.
We took a huge amount of market share in calendar year 2009—four points of share in our competitive set. We did it not at the expense of pricing, which has been flat to down a little bit. We get accused by some of our competitors of dropping our drawers but that’s one of the times when being a public company is good because it’s out there for all to see and that’s not the case. Our strength built throughout the year. Look at Better Homes and Gardens—it was up 40 percent in December.
FOLIO: What is the outlook for print magazines in 2010?
Griffin: We’re not seeing a big uptick but we are seeing some signs of life. The first calendar quarter of 2010 won’t be up but it won’t be down a lot—close to flat. It looks more promising after that. I think 2010 will be a year of modest uptick—but remember, that’s coming off a year of really low base. I felt like we were finding the bottom in September and our second half of 2009 was very strong.
FOLIO: Print sales are becoming much more transactional and formulaic. How does that affect you?
Griffin: If you go back to 2006, we had done our own research and we could see it coming. Media agencies are under more pressure, their clients want to pay less and the process of purchasing print advertising is becoming highly transactional and highly commoditized.
In 2006, we did something that’s served us tremendously well by creating two big units—Meredith Corporate Sales and Meredith 360. Meredith 360 is a media neutral, idea-based solutions unit. They deal heavily with clients and they start with blank sheet of paper. Meredith Corporate Sales does big deals, and serves more on the side of capturing existing demand whereas Meredith 360 is a demand creator. Meredith 360 is going after engaging clients on big ideas, budgets that aren’t about print, and corporate sales is designed to obtain from Meredith largest possible share that are on the table. That dual strategy has been at the center of advertising success we’ve had.
FOLIO: Online advertising revenues in Meredith’s interactive media operations fell 6 percent in the first fiscal quarter due to the slowdown in demand. In the second quarter, they bounced back by 14 percent. How is digital media performing for Meredith and do you have concerns about digital not growing fast enough or even stagnating?
Griffin: The numbers I was looking at the other day show that in calendar year 2009, display Internet ads were down for the first time, about 5 percent. I’m on the board of the Internet Advertising Bureau and that matches the data I see there. From an online display advertising standpoint, 2009 was tough. We showed display advertising growth in the second half of calendar year 2009 but the first half was more difficult.
At the same time, there’s no getting around that display advertising on the Internet is going to be no one’s salvation. There’s not enough of it while the inventory is infinite. There is a tremendous imbalance of supply and demand. In 2010, supply will grow modestly again but inventory is growing at such a clip that the circle can’t get squared. We are not endeavoring to build our digital future on the back of display advertising.
Some of the numbers I’ve seen on display advertising indicate that something like 95 percent of the dollars go to the top 50 players in terms of uniques, and 75 percent goes to the top four. Everybody else is left with table scraps. It’s really hard to be a traditional media company and say you’re going to be a scale leader when you’re competing with the likes of Glam and Yahoo. You have to pick a different path. The path we’ve picked is high quality, branded content in affinity groups that pertain to our subject areas of expertise: Fitness, parenting, home, food. And we invest in the content creation and delivery and that’s both text and video, and in aligning our Web properties with our offline brands.
FOLIO: Operating profit for the National Media Group jumped nearly 23 percent to $70 million in the second quarter of fiscal 2010. Operating expenses dropped 10 percent in the second fiscal quarter, including a 15 percent drop in paper prices, which suggests Meredith’s partnership with Time Inc. to offer joint paper proposals were a success. But Meredith has also done a lot of cost-cutting with personnel, including most recently about 45 jobs from the Special Interest Media group. Beyond personnel, how is Meredith improving processes efficiencies and operating profits?
Griffin: We’ve been underway for a year with a 10-point re-engineering plan inside the business. We’ve made process improvements and internal realignments. We’ve done a tremendous amount of process improvement with our vendors and we’ve been able to do it very quietly. We’re a year into the plan and we’ve had one of big management consulting companies helping us but you haven’t been reading about it. It’s essential to continue to run without a lot of drama. We’ve done a tremendous amount on the cost side and re-engineering of processes and remedying of underperforming businesses.