After months of speculation, the carnage came to Condé Nast earlier this week. The company, one of the nation's three biggest magazine publishers, announced it would close four magazines, including Gourmet, one of the industry's most iconic publications.
A NEWSWEEK analysis of industry data provides new evidence of the financial toll that drove that decision: based on estimates of publishing data, Condé Nast could see its ad revenue drop by $1 billion in 2009.
Through August, ad dollars already have plunged by about $600 million from the similar eight-month period in 2008 when revenues also were depressed. Of Condé Nast's two dozen magazines, among them some of publishing's glossiest titles, all suffered declines, most stretching into the double digits.
The grim analysis, based on data from the Publishers Information Bureau, provides the starkest rationale yet for Condé Nast's decision to shutter titles and lay off nearly 200 people this week. The closures are only part of the company's effort to trim perhaps hundreds of millions of dollars of expenses, likely to include more layoffs on top of those caused by the closures. Under corporate edict to slash budgets by 25 percent, each of the surviving 20 titles must comply by early November, according to a senior Condé Nast insider who wouldn't be identified discussing internal matters. Condé Nast's titles include Architectural Digest, Vanity Fair, The New Yorker, GQ, Vogue, and Wired.
The sharp cost-cutting comes at the urging of McKinsey & Co. whose consultants spent weeks prowling the company's glass-skinned office tower in midtown Manhattan, renowned for its Frank O. Gehry-designed 260-seat cafeteria. When the bloodletting is completed, it will have transformed a publishing culture of lavish spending so ingrained that only now, nearly two years into a deep recession, is Condé Nast seriously bowing to what for many in the industry is an existential reality.
Numerous published reports have already noted the steep percentage drop in ad pages at the upscale publishing house, a unit of Advance Publications Inc., the sprawling, privately run media company controlled by the Newhouse family. But the massive dollar amount has never been estimated, and was derived through a NEWSWEEK analysis of data supplied by magazine publishers to Publishers Information Bureau. For each of its titles, Condé Nast reported to PIB monthly ad revenue based on the rate card off of which it sells space to advertisers. Condé Nast is believed to steadfastly adhere to its stated rates, unlike many other publishers who discount off of their rate card, a practice believed to have become especially rampant during the current recession.
The drop in ad revenue is dizzying. For the eight months ended in August, ad revenue plummeted by more than a quarter to $1.5 billion from the year-earlier $2.1 billion. Among the hardest hit titles are Architectural Digest, off by almost half to $54 million from $102.4 million; Condé Nast Traveler, down 42 percent to $62.1 million from $106.6 million; Wired, down 35 percent to $33.4 million from $51.8 million; and Vanity Fair, off about 27 percent to $101.8 million, from $138.8 million.
Revenue figures for September and October issues of Condé Nast's monthly magazines are not yet available. However, their diminished page counts suggest the revenue shortfall is continuing. Barring an unexpected rebound in advertising spending, revenues for the rest of the year are likely to put the company's year-over-year revenue decline at close to the $1 billion mark.
For the Newhouse family, Condé Nast's woes represent a spreading economic meltdown that has dramatically eroded the financial base of one of publishing's storied empires. Through Advance Publications Inc., the family also owns newspapers in more than 20 cities, including the Cleveland Plain Dealer and the Portland Oregonian; Parade Publications; Fairchild Publications (Women's Wear Daily); and American City Business Journals, a chain of local business publications and newspapers in communities nationwide. Since early last year, the once enormously profitable newspaper business has cratered, with the industry buffeted by the recession and the rise of the Internet. The family has closed papers, reduced their frequency, made massive layoffs, cut pay, ordered furloughs, and frozen pension contributions.
The company is headed by S. I. Newhouse, the magazine mogul, and Donald Newhouse, who runs the battered newspaper division. As a result of the historic economic reversals, Donald's wealth slipped by a half billion to $8 billion this year, according to Forbes magazine's recent list of the nation's 400 richest persons. Meanwhile, S.I.'s estimated wealth plunged to $4.5 billion from $8 billion.
Condé Nast declined to comment on the magnitude of its revenue drop.