Magazines Losing Some Big Ads : Tobacco, Liquor Firms Cut Back as Consumer Habits Shift
Americans’ new moderation in drinking and smoking may be improving lungs and livers, but it is doing nothing for the financial health of consumer magazines.
The magazines, which have long enjoyed generous advertising from tobacco and hard liquor companies, have recently seen such advertising flatten and decline as demand for the products has stopped growing. Last year, consumer-magazine revenue from tobacco ads fell about 13% from 1984, to an estimated $336.6 million, while revenue from hard liquor ads dropped an estimated 10% to about $173.9 million.
While the two industries contributed almost 20% of magazine ad revenue in 1979, by last year that figure had fallen to 12%, setting off a gloomy debate about how severe and long-lived the trend will be. Some believe that the advertising slowdown will cloud magazines’ earnings prospects for a long time.
‘Slowdown in Demand’
“There’s a secular slowdown in demand in these products, and that’s going to affect earnings of the big consumer magazines for a long time,” said Peter Appert, analyst with the Cyrus J. Lawrence brokerage in New York. He said the distillers and tobacco companies are coming to recognize that they can no longer spur greater demand with heavy advertising, and have shifted to a strategy of boosting earnings by reducing advertising and other expenses.
Few others hold this dark a view of the situation, but officials of the tobacco, liquor and magazine business acknowledge that things have changed.
“It isn’t really a surprise that this happened, but it is surprising that it’s happened this suddenly,” said Andrew Dempsey, president of Times Mirror Magazines, which publishes Golf, Outdoor Life, Popular Science, Ski and Ski Business magazines. “The challenge now is for us to get new ad categories to make up for the ones that have weakened.”
‘Negative Forces’
Peter G. Diamandis, president of CBS Magazines, would like to see the tobacco companies and distillers mount a counteroffensive against their critics, such as the federal government, anti-smoking and anti-drunk driving groups, because he believes that these groups have unfairly dampened demand. “There are all these negative forces working against these industries,” said Diamandis, whose unit publishes 20 special-interest magazines. “But I think you’re going to see them get aggressive, and that will increase demand.”
The magazine business has warily watched a flattening of demand for cigarettes and hard liquor for some time. Per-capita consumption of hard liquor by American adults declined 11% between 1980 and 1984, while per capita consumption of cigarettes fell 10% during the same period, according to industry figures.
Some analysts believe that cigarette sales growth has been depressed not only by the public’s consciousness of tobacco’s adverse health effects but also by the general aging of the population. “It’s a young person’s habit, so growth of sales can’t help but suffer as Americans get older,” said Roy D. Burry, an analyst with the Kidder, Peabody brokerage firn in New York.
Industry officials predict that while magazine advertising spending by tobacco companies and distillers and may edge up slowly over the next couple of years, it will become a smaller share of their total revenue. Among tobacco companies, “ad budgets won’t grow as fast as advertising rate increases, so our buying power will definitely be hurt,” said Dan Pearson, who directs advertising purchases for R. J. Reynolds and Co. “The old days of big growth year after year are gone.”
Lion’s Share of Ads
Magazines have long received the lion’s share of the ads for hard liquor and tobacco companies, in part because federal prohibitions on the television advertising of cigarettes. Liquor companies have a voluntary agreement not to advertise on television.
With the slowdown in sales growth, the tobacco companies have looked around for ways to spend their advertising dollars more efficiently. They have recently tried to direct their ads toward a smoking audience which is younger and less well-educated than the population as a whole.
“They call this the ‘young-and-dumb’ audience, and it’s never been the group that most magazines reach,” lamented one magazine executive.
The cigarette companies are increasing spending on outdoor advertising and special local promotions, such as stock car races.
Switch in Advertising
The growing market for generic, or unbranded, cigarettes has also tended to reduce magazine advertising, because cigarette companies do not advertise nationally to support such products.
Tobacco companies are also switching advertising from some of the magazines where they have traditionally spent the most, such as the newsweeklies, to more specialized magazines whose readers more closely fit the average smoker’s demographic profile.
The newsweeklies have relatively high advertising rates, and also are read by audiences that tend to be older and more well-educated. As a group, the newsweeklies may be hit hardest by the slowdown in cigarette and liquor advertising, for historically liquor, cigarette and automotive ads have been their most important categories.
Last year, revenue from advertising for tobacco products fell nearly 25% for Time and Newsweek, and more than 30% for U.S. News & World Report, according to figures compiled by the Publishers Information Bureau Inc.
Big Winners
Some of the big winners for the year were Road and Track magazine, with a 53% increase in tobacco-advertising revenue to about $3.2 million; Hot Rod, which was up about 23% to $2.4 million; and Rolling Stone, which saw a 28% increase with revenue of about $5.1 million.
Analyst Appert said that among individual companies, the weakness of tobacco and liquor ads poses the greatest threat to Time Inc., which is the biggest-grossing magazine publisher with its stable of Time, People, Fortune, Money, Sports Illustrated and Discover. For the first 11 months of 1985, Time Inc. revenue from tobacco advertising declined 13% to about $91 million, while its revenue from liquor ads fell 11% to $48.6 million, according to Publishers Information Bureau figures.
Time Inc. advertising officials were unavailable from comment. A spokesman said there is “no question” that the two product categories provide less advertising than they used to.
An Inconvenient Moment
The slowdown in tobacco and liquor advertising comes at an inconvenient moment for the publishing and entertainment company, which has recently been trying to boost profits to ward off those who might contemplate an unsolicited takeover bid.
Many industry executives believe distilled spirits may make a comeback in the years ahead, with some contending that the move away from liquor is a fashion like any other.
“It’s based on the faulty idea that you can’t get drunk on wine and beer,” said CBS Magazines’ Diamandis.
“I’m not writing that category off,” said Dempsey of Times Mirror Magazines, which is a unit of the company that also owns the Los Angeles Times. “The problem’s just marketing and I think the industry can solve it with new products.”
He noted that demand, and magazine advertising, has been strong for new, lighter alcoholic beverages, such as wine coolers and sherries.
Beer Ads Up
As the public’s taste for hard liquor has cooled, demand for beer and wine have increased, and the magazine publishers have recently benefited from a surge in advertising for those two beverages. Revenue from magazine advertising for beer was up about 80% last year, while wine advertising grew 50%.
Yet beer- and wine-makers do a larger share of their advertising on television, and total magazine ad revenue for the two groups came to about $57 million--about a third of what the magazines took in from hard liquor ads.
