Who Funds Magazine Startups?

by Cheryl Woodard, Posted March 2000
www.publishingbiz.com

Samir Husni and I wrote the two most widely distributed books about starting new magazines. Mr. Husni is a journalism professor at the University of Mississippi. I am a co-founder of three computer magazines and a full-time publishing consultant. His book is called, Launch Your Own Magazine and Hamblett House in Nashville, Tennessee published it in 1998. My book is called, Starting and Running a Successful Newsletter or Magazine, published first in 1997 by Nolo Press, and constantly updated in new editions. Both of us have web sites offering tips and advice to startups . Between us, Professor Husni and I get about 6 or 7 emails or phone calls every day from people asking how they can raise the money to start a new magazine. Adding all those calls together, we talk to about 1500 people per year more than 7,000 since our books were published.

Everybody wants to know how much money it takes to get a magazine off the ground, and where he or she can get startup money. Most people hope they can sell their idea to one of the big media companies. Of course, that never happens. In a private conversation with John Mack Carter, former president of the Hearst Corporation, I learned why his company never finances new publications launched by outsiders. Here's what Mr. Carter told me:

Opportunity costs: Hearst can earn a 50% or better return on investment by creating a new foreign edition of Cosmo, or by expanding one of their other franchises. They simply have no incentive to invest money on magazines with lower potential return.

Operating scale: Hearst spends money standing still. They can't afford to bother with a small-scale business, which means that to interest Mr. Carter, a new magazine needs at least a million potential readers and multi-million dollar advertising revenue potential. Only a handful of magazines have the potential to be blockbusters.

Risks: With so much entrenched overhead and a track record to protect, Hearst avoids risk in every possible way. Thus, they prefer partners like Oprah who have 33 million television viewers and extremely favorable odds of successfully launching a magazine.

According to Mr. Husni's 2000 annual report on magazine startups there were 864 magazines launched in 1999 and he projected 874 for 2000. Entrepreneurs, usually with credit cards, home equity loans, or personal savings funded many of those startups. Some are able to raise money from friends and family, but few people have access to substantial loans or investments, even from friends. As a result, most independents start out very small and grow very slowly.

Read about more recent launches at Husni's website www.mrmagazine.com

As i write this article, I don't yet know what will happen to the 1999 startups and so I looked back at the magazines launched in 1993 to analyze the funding question. Mr. Husni reports that fewer than 21% of the 1993 startups are still alive today. Husni reported a total of 789 new consumer magazines launched in 1993. Notable launches that year included Wired, Fast Company, Filipinas, and RodaleÕs Heart and Soul.Table One shows the top 1993 categories by number of titles.

TABLE ONE: Magazines Launched in 1993

More than 50% of the 1993 launches were newsstand test launches or spin-offs from established publications. For example the Hearst Corporation floated Good Housekeeping Editors Entertain as a one-time, newsstand title. Recent consolidations on the newsstand have nearly shut down the whole business of one-shots and newsstand tests because it has become so hard to get shelf space for new titles. We see far fewer one-shots and newsstand test launches today.

In 1993, established publishing companies only launched about 200 magazines with a frequency greater than 4. Nearly all of the quarterly, bimonthly, or monthly titles came from smaller, niche publishing companies. For example, Thrust Industry Inc launched 8 different bimonthly gay and lesbian titles. Only two of the biggest media companies launched new periodicals in 1993. Hearst launched Country Living Gardener as a spin-off from their successful Country Living title. And Sunset tested a quarterly called Sunset's Garden Guide. The Hearst title is still going strong today, but the Sunset quarterly is defunct.

Independent, grassroots publishers accounted for about a quarter of the startups in 1993, generally launching specialized, small-scale titles. For example, there was a magazine for tattoo artists, a holistic health magazine for cats, and one called Ancient Americans written by and for amateur archaeologists. All told, there were 180 new magazines launched by small, first-time publishers in 1993, and I could find only 9 of them still publishing today. Table two summarizes the 1993 startups by funding source.

TABLE TWO: 1993 Magazine launches by type of publisher

Wondering how the 1993 independent publishers got funded, I interviewed Nancy Gruver who, with her husband, launched a magazine that year called New Moon. New Moon is "the magazine for girls and their dreams." It is a lively magazine, largely written and edited by pre-teen girls. The Gruvers are typical of the grassroots publishers I meet every day in my consulting practice Δ they had no publishing experience of any kind before deciding to launch their magazine. They spent $10,000 from their own pockets to get a first issue designed and printed, never wrote a business plan, and never accepted any financial support from outside investors.

The Gruvers have been publishing their bimonthly magazine continually since September 1993. These days, there are 8 employees on staff, plus two freelance contributors on contract. Subscriptions cost $29 per year, and there are 24,000 paid subscribers. The magazine still accepts no ads. It's been profitable, more or less, since the second year, and given the odds, New Moon is a huge success. Nancy Gruver attributes their success to many factors, but especially the following:

Motivation: the Gruvers started New Moon to accomplish a mission, not to make money. Nancy says that since money was never the motivation, they've been comfortable without it. What's more, they've been free to focus on their mission because they've never had to answer to investors.
Volunteer support: New Moon has benefited from countless hours of volunteer, unpaid labor donated by people who believe in their mission as strongly as the Gruvers do. They published for more than a year before paying any salaries, including their own, and for the first two years no writers or illustrators were paid either. Now they pay competitive rates for employees, writers, and artists Δ and take decent salaries for themselves. Even so, volunteers are still regularly contributing in many different ways.

Humility: knowing that they knew nothing about publishing, the Gruvers were not afraid to seek advice from more experienced people. During their first year, Nancy contacted Eric Utne, founder of the Utne Reader for advice. She also sought and found a publishing consultant very early on. Both advisors have provided substantial help.

Discipline: lacking money, the Gruvers work continually to improve their business. They have a thorough budget and they monitor it closely, always looking for ways to accomplish the same ends with less money. For example, their annual direct mail campaign always makes money for them because they cannot afford to use marginal mailing lists. Another example: after paying outsiders to run their web site, the Gruvers transferred the site in-house, and trained everyone on their staff to post new pages. Now their site is much more lively and current, but less expensive.

The Internet has been an important resource for New Moon since 1995 when a volunteer created their first site. They use the web to communicate with readers and contributors all over the world, and email has been one of its most valuable functions. The Gruvers also transferred their print catalog to the web site, instantly transforming it into a profitable venture that currently generates about 12% of their revenues. And all along, the web site has been a much more significant source of new subscriptions than direct mail. Nancy Gruver suggests that the Internet helps grassroots publishers like her build successful publishing companies for substantially less money.

So, what do Mr. Husni and I say to all those callers? I can't speak for him, but I find myself asking callers more about love than money. "Do you love your idea enough to devote the next ten years to it, money or no?" If not, I tell them to forget about it. I also tell them about publishers like the Gruvers who are able to have a life they love, enough money to live on, and a business that makes a difference in the world. That's about as good as it gets for most startup publishers, funded or not.

I encourage you to read my book, Starting and Running a Successful Newsletter or Magazine if you're thinking about starting a publication. You can find it in bookstores and libraries, or order it from Amazon.com. I wish this book had been available when we launched PC Magazine back in 1981. You can read our startup story at http://www.publishingbiz.com/html/articlepcmag.html.

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