Mexican publishers expand into the Southwestern United States [2-A]

American Media's strong retail magazine distribution system will now work to include Hispanics through Spanish versions of its recently acquired Weider titles. Will Shape en español, Muscle & Fitness en español and other Spanish versions of Weider titles be able to replicate the success of their English siblings? Some industry insiders think so. It is no secret that Hispanics tend to get their print media at newsstands and other retail sales outlets, (for instance, supermarkets) rather than through subscriptions.

After announcing the acquisition of Weider for US $350 million in December last year, American Media chairman and CEO David Pecker told AdAge.com that he plans to launch Spanish language versions of Weider's titles along the lines of Shape en español and Muscle & Fitness en español. “This is something we will be doing aggressively,” he said, adding that American Media systems and distribution structure could take on another 50 to 75 additional magazines. Regarding his Hispanic magazine strategy, Pecker told Portadatm in February that he is not yet prepared to answer questions about Spanish launches. “We only closed on the transaction two weeks ago,” said Pecker. Weider publishes seven mass market magazines with a combined circulation of around 4 million copies.

Is American Media's strong retail distribution network prepared to distribute mass market magazines targeted to Hispanics? It is worth mentioning that the only other very large circulation magazines for Hispanics are People en español and Reader's Digest Selecciones. Can the Hispanic market support another high circulation publication?

American Media has a distribution network that fits well with the print media buying habits of Hispanics. Subscriptions, the main means of distribution for the overall US market (at least 2/3 of the circulation of most US magazines is through subscriptions) are not that important to Hispanics. American Media's distribution breakdown (newsstands/subscriptions) weighs heavily in favor of

newsstand sales which is similar to that of a typical Latin American publisher like Grupo Televisa in Mexico. For the twelve months ending September 23, 2002, approximately 88% of American Media's circulation revenues and 73% of total operating revenues of US $362.7 million were generated by single copy circulation.

The Boca Raton publisher of tabloids including The National Enquirer, Star and Globe, is the leader in total weekly single copy sales of magazines in the United States and Canada, with approximately 41% of total U.S. and Canadian circulation. Its publications are distributed in approximately 150,000 retail outlets in the United States and Canada. In a document filed at the Securities and Exchange Commission (SEC) to explain a debt offering related to its acquisition of Weider, American Media stated that its subsidiary Distribution Services Inc.(DSI) “manages approximately 55% of all new front-end racking programs initiated annually in the United States by supermarkets and other retailers.” It also states that this distribution system has allowed it to “efficiently launch new titles such as Mira! and Auto World.”

A Hispanic premium

The hefty multiple (13 times operating profits or an aggregate purchase price of US $350 million) American Media paid for the Weider titles shows a high degree of interest. American Media probably included in its valuation of Weider, the likely revenues to be derived from launches of Spanish versions of some Weider titles. In the bidding wars, American Media beat out several potential buyers, including Aurelian Communications, Veronis,Suhler & Stevenson and Cypress Capital. The cost of financing the acquisition increased American Media's debt load to US $1 billion.

Weider is the leader in the health and fitness advertising category, the fastest growing advertising segment of special interest magazines. According to media merchant bank Veronis, Suhler & Stevenson, advertising spending for health and fitness magazines has grown at a 12.2% compounded rate for all special interest magazines. Hispanics are younger than the average population and, therefore, an excellent target for advertisers. The lack of print media targeted to Hispanics in the health and fitness category makes the prospect of Weider titles in Spanish especially interesting. According to Neil Ascher, senior vice president and director of communications services at Zenith Media, “there is a need for more print media vehicles targeted to Hispanic men.” He also told Portadatm that advertisers would welcome new Hispanic health and fitness titles “as long as publishers emphasized their target market.”

American Media is not one of the major US publishers in terms of advertising sales. Aizaz Shaikh, senior analyst of Global Media and Telecom at Paribas in New York, said in a recent study that “American Media newspaper business is virtually advertising-free, with 90% of revenues deriving from circulation.”

However, the tabloid publisher has made some progress on the advertising front in the past year. The National Enquirer and Star adpage count increased by 20.69% compared to 2001. The 2001 figures were impacted by the post 9/11 advertising slump. However, during the first half of 2002 adpage count at American Media's two main titles increased by 27.69%. Most of the new advertisers came from the entertainment, packaged goods and pharmaceutical industries.

The Weider acquisition is intended to diversify American Media´s revenue streams by increasing advertising revenues, and enhance the company´s position as a leader in retail magazine sales. The publisher intends to promote advertising in Weider and its tabloid publlications by creating a corporate advertising sales network. Currently almost 70% of Weider's US $135 million projected revenue for 2002 comes from advertising. The health and fitness magazine publisher receives significant business from vitamin, nutritional supplement, exercise equipment, sports apparel and other fitness-related companies. Weider has also attracted advertisers from the automotive and other industries that are usually outside their traditional sphere in consumer products. These advertisers may also be prospective clients for media space in the Hispanic versions of Weider titles.

This is not American Media's first attempt to break into Latino print media. In June 2000, it launched Mira!, a Spanish language magazine that features news and gossip about the hottest stars in the Latino community.

Mira! is distributed through retail outlets in 43 Hispanic markets in the US. It has a total biweekly circulation of approximately 100,000 copies and an estimated total readership of 700,000. Mira! has not yet audited its circulation and ad pages. Spanish TV broadcaster Telemundo and radio station Radio Unica advertise in Mira!, along with gemstone sellers, jewelry, cosmetic and tobacco (e.g. Kool) companies. However, most of the major brands for cosmetics and consumer goods have yet to do business. American Media may be able to broaden Mira!'s base of advertisers by cross-selling its space to advertisers in Weider publications.

The Boca Ratón based publisher will face many hurdles in its attempt to increase advertising and successfully launch Hispanic versions of the Weider titles. Some companies may be reluctant to associate themselves with a publisher whose main source of revenues comes from its tabloids. They may be weary of having their brand associated with potentially outrageous and bizarre stories like the ones posted in National Enquirer, Star and, to a lesser extent, the “gossip” filled Mira! magazine.

Declining circulation of American Media's major tabloids over the last two years is another hurdle. Aizaz Shaikh of Paribas says that this trend is likely to continue in the long term. American Media's tabloids compete with other publications sold at checkout stands, as well as media concentrating on celebrity news, such as television and radio programs. “We believe that historical declines in single copy circulation have resulted in part from increased competition from these publications and forms of media,” American Media stated in its SEC filing. It counts AOL Time Warner Inc. (People, In Style and Entertainment Weekly), Wenner Media Inc. (US Weekly), Gemstar TV Guide (publisher of TV Guide) and Bauer (In-Touch) among its main competitors.


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