Monday, September 2, 2013

What Do the Nook, Road & Track, and Martha Stewart Living Have in Common?

While visiting Carmel-by-the-Sea with my family recently, I didn’t see one camera, digital or SLR.  My son and I walked past a group of 70-something men talking about the pros and cons of taking photographs with their iPads and lesser tablets, commenting on the virtues of storage, thumb drives and ease of posting to FB and Twitter.  No, we did not mutter, “What is this world coming to;” rather, we vowed on the spot to move aggressively up to the next preppy plateau on the technical food chain.  Before leaving, we did our part by taking hundreds of photos with our smartphones. 

Labor Day is not usually the time for predictions about what brands will likely disappear in 2014, but here we go with Douglas McIntyre at 24/7 Wall St. getting early into the game with the ten mostly likely failures.  He uses standard metrics such as declining sales, rising costs, bankruptcy or sales of entity, significant loss of market share, etc.

I didn’t have to visit my local and deserted J.C. Penney, which I have admired of late from a distance, to learn that the company tops the list of brands most likely to disappear next year.  The executive idea to abandon sales and related promotions to keep the riff-raff out has worked stunningly well.

As my experience in Carmel confirmed, I should not be surprised that the Olympus digital camera is also high on the list.  The company simply can’t compete with smartphones that “now offer lenses and chips that capture high quality images.”  Whether the company’s shift to high-end SLR cameras will make a difference, remains to be seen.  But you never know.  I fondly remember the editor of American Photography, now owned by Bonnier and still beautiful, telling me that digital cameras were decidedly not the future. 

I have been a fan of Barnes & Nobles’ the Nook since its launch in 2009, primarily because I thought that publishers would benefit from another robust platform for content as well as a channel for magazine subscriptions.  The Nook’s battle has been uphill from the start and made worse as device prices dropped and they essentially became generic.  Content would become the differentiator and where the money is.   Even the $300 million Microsoft invested in the Nook in 2012 didn’t seem to make a difference.  At the end of the day, it’s always about scale.  Amazon has 130 million visitors per month; B&N has 6 million.  I have published four print books with Amazon and one Kindle Select. I have also published books with Dell, Warner and Rodale and, in terms of file conversion and ease of use, Amazon goes to the head of the class. (Please see

None of the above predictions will serve as much of a brain teaser.  Nor should the presence of Volvo, Living Social or the WNBA on the list.  I see the occasional 1960 Volvo parked at an abandoned ski lodge in Maine, but not much more.  The $175 million that Amazon invested in Living Social in 2010 hasn’t seemed to help and might have been better used in buying a newspaper or magazine.  Ask any Millennial; the daily deal sector lost most of its shine years ago.   So did the WNBA which, despite being a showcase for women’s talent and an important statement about equality in sports, never caught on with the arena or television crowds.

I was surprised to see Road & Track and Martha Stewart Living on this list of predictions, perhaps because I have been involved peripherally with both titles and knew some of the players.  When I worked at Hachette, then owner of Road & Track, I would marvel at all the buzz around Elle magazine when the financials said that Car and Driver and Road & Track were the big money contributors to the bottom line.  But that was then and fashion still rules.  Advertising pages in Road & Track are about half what they were in 2008, down from 1,092 to 699 in 2012.  The decline continues.  

At that time, Road & Track was generating about 80% of its revenue from advertising; circulation revenue was not much of a factor.  I’m not sure how much this ratio has changed since the purchase of Road & Track by Hearst.  Certainly, the automotive sector is crowded with Road & Track, Car and Driver, Motor Trend and Automobile magazines fighting for precious ad dollars.  While I would be very surprised if Road & Track did actually make the dead brand list, this is no longer a simple case of special-interest magazines duking it out for print dollars.  Hearst owns the Jumpstart Automotive Group that serves the full purchasing cycle of the consumer.  The company has significant digital and strategic options.

I’m less sanguine about Martha Stewart Living, though having worked with her years ago on repositioning Rodale’s Organic Gardening, moving it from digest size to full-size, I would never bet against her.  But the advertising numbers paint a bleak picture; in 2012, the publishing division lost $62 million and trend continues in 2013.   McIntyre concludes that Martha Stewart Omnimedia Inc. (M.S.L.O.) might be better off restructuring around its merchandizing and broadcast businesses because the magazine lost is ability to standalone years ago.

It might be considered faintly ironic that the media company and J.C. Penney are tied at the hip, with a ten-year $200 million licensing deal for merchandize design.  At the time of this deal, signed in 2011, J.C. Penney had already purchased 17% of M.S.L.O. for $38.5 million dollars.  As The New Yorker magazine notes in an August 12, 2013, piece, “J.C. Penney’s Martha Stewart Mistake,” that the Penney deal “infuriated Macy’s which thought its own deal with M.S.L.O. gave the company exclusive rights in the bed, bath, and kitchen categories.” Macy sued both companies for breach of contract.   A ruling is pending.

Whatever the legal outcome, the Penney/Stewart doesn’t seem to be working for either party.   As The New Yorker article notes, “Since the deal with Penney was announced, M.S.L.O. shares have dropped nearly forty percent.”  J.C. Penney’s woes have been widely documented, including the fact that it has burned through a billion dollars in cash in the last two years.

Mr. McIntyre, with his list of brand casualties, might be right after all about the Martha Stewart enterprise but for the wrong reasons.  It is difficult to believe that the next Penney management team, especially with the public concern of Pershing Capital Management, its largest investor, will see the M.S.L.O. marriage as in their best corporate interest.

The real money is in the merchandising and not in the magazine.


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