Inside The Covers Business Magazine Editors Identify Trends That Could Affect Your Bottom Line June 16, 2005, New York, NY
Jean Chatzky (moderator)Editor-at-Large, Money
William BaldwinEditor-in-Chief, Forbes
Eric PooleyManaging Editor, Fortune
Steve AdlerEditor-in-Chief, BusinessWeek
JEAN CHATZKY: It is my great pleasure this afternoon to be here in the company of this fabulous, although somewhat intimidating, panel of journalists. I’m going to introduce them to you and bring them up in order of their tenure with their magazines.
William Baldwin -- Bill to those of us, like me, who worked for him, and just about everyone else, joined the Washington, DC, bureau of Forbes magazine in 1980 as a writer. Starting in 1987, he received a series of promotions, first to Assistant Managing Editor, then Executive Editor, then Managing Editor, then, in 1999, was made the big Kahuna. He is about as close to a lifer as you get in the industry these days. Bill has written or edited hundreds, if not thousands, of articles about investing strategies and taxation, as well as written software for rating mutual funds and optimizing stock and bond allocations. He is also (a little bit of trivia) an avid reader of the Morbidity and Mortality Report, a fan of old movies, and is reported to have memorized the entire U.S. Internal Revenue Code while in high school. Please welcome Bill Baldwin. [APPLAUSE]
Steve Adler was named Editor-in-Chief of BusinessWeek in December of last year. He began his career with stints at the Tampa Times and Tallahassee Democrat. He then, I’ve learned, went to law school at Harvard, took a job at a big law firm, but lasted only two weeks before returning to journalism at, where else, the American Lawyer. He joined the Wall Street Journal as Legal Editor in 1988 through a series of impressive promotions. Steve then held just about every job at the Wall Street Journal, including Special Projects Editor, Deputy Page One Editor and Assistant Managing Editor. Between 1995 and 1999 he directed reporting teams that won three Pulitzer Prizes, after which he was, no surprise, promoted once again to Deputy Managing Editor of the Journal in 2000.
When Steve was named Editor of BusinessWeek, a surprising move for a magazine known to be reluctant to go outside for talent, former Editor Steve Shepard sent around a memo to the staff noting, “He is a terrific person, decent, thoughtful, witty, full of ideas and a good listener. You will like him.” He was right. Please welcome Steve Adler. [APPLAUSE]
Last, but not least, Eric Pooley joined Fortune as Managing Editor just this past April from his post across the pond, where he had been editor of Time Europe since September of 2002. Under Eric’s stellar leadership, Time Europe won awards for its coverage of business, European affairs and international relations, as well as for design and photography. Prior to his run at Time Europe, Eric was Nation Editor for Time in the U.S., Time’s Chief Political Correspondent and Time’s White House Correspondent. He came to Time Inc. in 1995, following 12 years at New York magazine, where he began, as many of us did, as a fact-checker and worked his way up to Senior Editor, Contributing Editor and Political Columnist. Eric is an avid rock guitarist, a huge music buff and was once reported offered the editorship at Rolling Stone. Thankfully for those of us at Time Inc., he turned them down. Please welcome Eric Pooley. [APPLAUSE]
JEAN CHATZKY: Our topic today is the economy, business and economic trends and how they’ll affect advertising and marketing in the year to come. I’d love this to be a freewheeling discussion, so feel free to interrupt each other. Feel free to interrupt me. And as we draw to a close, we’ll leave some time for questions from the audience. You can either raise your hands and we’ll send around a microphone, or you can use the cards in front of you and write them down.
But let’s start by setting the stage. In 2004, $141 billion was spent on all forms of advertising. Of those dollars, about 20% went to newspapers, 18% to network television, 17% to magazines, 12% to cable television and 6% to the Internet. But the newspaper share was falling, the magazine share flat. And not only was the Internet growing, but Advertising Age recently predicted that the combined advertising revenue of just two portals, Yahoo and Google, alone would rival the advertising revenue of the big three television networks, which begs the question that all of us in the magazine world want to know, Is the Internet going to eat us for lunch? Eric?
ERIC POOLEY: No, the Internet’s not going to eat us for lunch. Every publication is developing or has developed an online strategy, and it’s very important. I’m happy to talk about how we’ve done that and are continuing to do that.
But let me just say a few words about print, because I am a huge believer in print and the power of print. Not to take anything away from what we’re doing online and how important that is, but I’m a magazine person born and bred. As you said, 12 years at New York magazine, ten at Time, now two and a half months at Fortune magazine, and I understand how powerful the bond between the reader and the magazine really is.
I think that, sure, we’re in a cyclical downturn, and we’re also in a trend toward increasing online, at the expense of some percentage of offline advertising. But if you just take the business magazine sector alone, we’re still at 10,000 ad pages a year. There’s a lot of advertising flowing into us. If you compare it against the very heights of the 1999-2000 boom, sure, there’s been a decline. But I think the sector is vital, and I couldn’t be more optimistic about where we are, because I know just how much fun we’re having at Fortune magazine putting out this magazine, what a great, vibrant window on the world business is, and the kind of feedback that we’re getting from our readers, which has just been extraordinary.
People are interested. I mean, there’s not a story in the country or on the planet that’s bigger than the business story, and if we can harness -- and we are harnessing -- that kind of energy, we’re going to be just fine. So I don’t see the Internet as being separate from print. It’s a different content delivery form. We do think we will definitely -- You know, we take the power of our extraordinary reporters and we bring them to bear on what’s going on on a daily basis on our website so that when Phil Purcell steps down at Morgan Stanley, you can read Bethany McLean on that, or you can read her at length in our magazine, getting at the heart of what’s going on there. We’re breaking news on our website and we’re breaking news in our magazine, and they’re not in conflict. They’re very much on concert.
JEAN CHATZKY: Steve, do you agree?
STEVE ADLER: I totally agree. I’d even go so far as to say if the Internet didn’t exist, we in this industry would want to invent it. If the goal is to connect well with your readers, to connect well with your customers, to serve them well, then it’s just an enormous opportunity to have this extremely exciting medium to work with. And the opportunity for a weekly or, if you’re coming out every two weeks, to speak to people daily, to speak to people by the minute in any frequency they want. You can send e-mails to people. You can have newsletters. It’s just tremendous reach, tremendous opportunity.
One of the things I love about it is it creates an intimacy with the user, with the reader. It’s way more interactive. It’s kind of a very 21st century way of working. You can be doing blogs. You can have people do product -- having the readers do product reviews. Your readers can be reviewing behind you the books that you’re reviewing. You’re engaging in a conversation, which I think is very much the direction the medium’s going in, and it’s a wonderful medium in which to do that.
The other great thing about it is, first of all, it attracts readers to your brand. People find you because you’re breaking a story. Somebody who links to you, they come over to you, they say, “Oh, BusinessWeek. I didn’t realize BusinessWeek was writing about this. I didn’t realize they were breaking this kind of story.” They’ll find your brand. They’ll find your magazine.
We’re using the pages of the magazine, also, to send people to the Internet. So there’s tremendous interaction, greater reach, great opportunity to interact with readers. I just think it’s fabulous.
JEAN CHATZKY: Now, Bill, those of us who saw Shattered Glass know that Forbes.com has been a real leader in this area for quite some time. What are you doing to stay on top?
BILL BALDWIN: I think we are staying on top, if I can just plug our friendly rivals up the street. Forbes.com gets 13 million unique visitors a month, which is three times as much as the combined websites of the two gentlemen on my right, and like them, we consider this an integrated effort. They’re not going to be somebody who takes away our lunch. We’re preparing lunch with them. As an example, I require all of my writers to produce original content for Forbes.com at least monthly. So there’s very much a two-way interaction. Some of their writers get their stuff into the print version of Forbes magazine.
Jim Spanfeller, who runs the business side of Forbes.com, is doing great these days. He’s really feeling very, very self-satisfied, and recently he was quoted -- I don’t think misquoted, I think he was quoted accurately -- as saying that he predicted that in a very short while the ad revenues of Forbes.com would surpass the ad revenues of the print magazine that I edit.
Now, it just so happens that Forbes.com is growing at this moment at 100% a year. One thing that Jim Spanfeller hasn’t totally calculated on is the possibility that this might plateau someday. If it didn’t plateau after a decade, he would be claiming more unique visitors than there are people on the planet. So I think at some point it will plateau. It’s an explosively growing medium that helps us, just as you heard from Steve Adler and Eric, that it feeds the brand, it helps us. We’re all in this together. We don’t feel intimidated by them.
JEAN CHATZKY: What about the notion that, as David Kylie recently wrote in BusinessWeek, in advertising 2005 will be the year of the sharpshooter? Though you and I talked earlier this week about how the fact that -- about how direct mail expenditures are already five times that of magazine advertising expenditures, that’s a form of sharpshooting. What does all this niche marketing do to those of us in print?
BILL BALDWIN: Well, I don’t think that junk mail is sharpshooting. I think that junk mail -- direct mail, I guess, is the polite way to describe it -- is in the same -- has the same flaw that television does. I’m saying this with an ax to grind, because I work with print, not with television -- but the television problem is one that we outlined in our cover story a few years ago, “Saying Zap.” It’s so easy to zap ads. So you can TiVo television and you can trash your junk mail. And you’re not going to do that ordinarily with magazines. You just turn the page. So I don’t feel that intimidated by junk mail.
On the other hand, it is bizarre, isn’t it, that they spend $51 billion a year, about five times as much, as they do on print.
I’d also like to address something about Irwin Ephron’s statistics. Despite the clear superiority of print in connecting with readers, Forbes magazine to this date has gotten no advertising for diapers. So I guess that means that some things are sharpshooting and some things are not.
JEAN CHATZKY: Okay. How are they -- Yes?
ERIC POOLEY: I just wanted to jump in, because I think that magazines are engaging in more and more sharpshooting of our own. It may not be exactly what you had in mind by that phrase, but I’ll give you an example. Today, David Kirkpatrick of Fortune broke on our website the news that Michael Dell is willing to embrace the Apple operating system, the first PC maker to say publicly that he would do it. A nice little story. So it was on our website, but it was also delivered into Blackberries and Treos across the land with people who have signed up for David’s “Fast Forward.” And they get the first few paragraphs of it or the whole thing. They’re invited to click on it. That takes them to the website. That’s a form of sharpshooting that you’re seeing more and more of in which we are finding new ways to remind people of all the great stuff that we’re doing, as my colleagues have said, and it’s not enough just to be on the web anymore. You have to be on iPods, in Treos, in Blackberries, in e-mail in-boxes across the land.
JEAN CHATZKY: Well, how are all these other new media going to change our world? Steve, you ran a cover story on blogs. How is that going to affect those of us in the magazine world?
STEVE ADLER: Right. I think there are two things you need to think about when you think about iPods and cell phones and blogs. One is that you’re looking at new methods of distribution, so one side you look at it that way. And on the other side, blogs, I think, quite differently are kind of a different way of gathering information, and I think that’s a quite separate issue. I think the availability of new media is entirely positive for us. It’s going to be any way we can disseminate information to our customers more efficiently in a way that they want it is ultimately good and good for advertisers, and ultimately good for customers.
So I think those are all great, and I think blogs are very interesting. I think the thing you have to think about blogs, they’re not just a medium, they’re not just a distribution method, they’re also a competing way that people are getting information. And it’s a way that’s unfiltered, that doesn’t involve the editing process, that doesn’t involve any expertise -- you know, us standing between the reader and the person creating the content.
On one level that’s a challenge for us, because if people are getting used to getting information that way, again, it’s not edited, it’s not necessarily reliable. Everybody’s a reporter, everybody’s an information distributor. On the other hand, there’s a tremendous competitive advantage for us as the amount of noise out there gets greater. I think one of our big advantages -- all of our big advantages, in a world of increasing noise, people actually need to act on the information that’s provided. Businesspeople who need to make business decisions, need to make personal finance decisions, need accurate information. We’re using the buzzword “actionable insights.” We’re talking about the necessity to be indispensable. And I think the more noise that’s out there, the more blogs, the more stuff that’s just rumor and innuendo, in some sense the more valuable the filtered content, the thought-out content, the edited content becomes, and I’d say that’s true for readers and true for advertisers, as well.
JEAN CHATZKY: Bill, do you want to weigh in?
BILL BALDWIN: Yeah. I don’t think these new media are going to eliminate print. I’m reminded of a demonstration that was given that I attended three and a half years ago by Bill Gates, who is given to as much breezy overstatement sometimes as our own Jim Spanfeller. He was demonstrating this tablet PC that would replace magazines. You know, you would press a button, and you’d get this beautiful photograph of a car that was being advertised. You’d press another button, and you’d get the story from the New Yorker or whatever.
I don’t see those things being that ubiquitous just yet. But even if they did succeed the way Bill Gates said they would succeed any moment, even if they really took over, they wouldn’t be putting magazine out of business. They would be putting pulp manufacturers out of business.
I really don’t care how Forbes is distributed. You can get it on the web for free or you can pay some sum of money, between $20 and $60 to get it, whatever’s convenient. We don’t make any more money necessarily getting to you in print. I’m sure that’s true of BusinessWeek and Fortune, too. It costs a lot of money to print something. If people are happy to look at it on a beautiful display, that’s fine. If they’d like to take it with them on the train, that’s fine, too.
STEVE ADLER: I actually think digital may turn out to be even more promising than that. We’re in the very early stages of the technology on digital. BusinessWeek has a Zinio edition. And we’ve got subscribers. It’s not an enormous amount. It’s in the thousands, but not in the tens of thousands. But why is that? Why aren’t there more? It has enormous advantages. It’s global instantaneously Thursday night when BusinessWeek goes public in a couple hours. You get it immediately any place around the world. It’s a magazine format, so you’re pressing buttons to turn pages, but you can also click on things and get your ads interactively.
This week we did what we call the super-Zinio edition. We threw in every piece of technology that is now available. There’s rich media everywhere, everywhere you turn. Every page you can get some video, some interesting interactivity --
BILL BALDWIN: How big is it?
STEVE ADLER: -- for the advertising. I’m sorry?
BILL BALDWIN: How big is the screen?
STEVE ADLER: Well, you’re basically doing it on your computer screen.
BILL BALDWIN: Oh, okay.
STEVE ADLER: Or you’re doing it on a tablet PC?
BILL BALDWIN: Oh, this is not --
STEVE ADLER: No Blackberry. It’s a digital edition. Right. It’s full size. So it looks
like a magazine, but you can get it anywhere immediately. You don’t have to cut down trees. The ads display beautifully, and you can click on them.
So why don’t more people buy it? Well, partly because the technology isn’t great yet and the tablets particularly aren’t light enough yet. They’re not transportable enough. People are looking at technology where you kind of roll out a screen so it folds up and rolls out. Once you can start downloading wirelessly on an airplane and get five or six magazines on there and have a small screen that opens up, I think this becomes a very, very promising global medium of distribution, and one that’s pretty exciting for us, which is one of the reasons we’re trying to innovate in that particular medium.
JEAN CHATZKY: All of this, though, blue sky or not, depends on the fact that there are advertising dollars out there to be spent. As we all know right now, there are a lot of problems in Detroit, for example. What does the trouble in Detroit mean for advertising and marketing and for the health of magazines? Eric, do you want to start?
ERIC POOLEY: Sure. As I mentioned before, this is a cyclical downturn in advertising. I think we’ve seen them before. I don’t think that General Motors is going to go out of business. In fact, we have a story in our current issues about the stuff in their pipeline. They’ve got some very promising automobiles in their pipeline, and when they roll those out they’re going to want to advertise them. So we have two things going on in Detroit right now. We have very serious problems. We have structural problems. We have union pension, health care problems. And we have the fact that they haven’t created many cars that folks want to buy.
You can see in Chrysler and the 300C how quickly perceptions of a car company can change when they come up with a model that folks want to buy. Will General Motors be able to do it with the current crop? I think they may well. In fact, I think they probably have a better shot right now than Ford does, just in terms of what’s coming. That said, they’re going to be pushing with a lot of ad dollars, and the cycle’s going to change.
So, is Detroit having trouble? Sure. Does it hurt us? Yes. Is it permanent? Possibly. But are car ads going to come back to the magazines? Absolutely.
JEAN CHATZKY: Do either of you want to comment?
BILL BALDWIN: Well, we’re going to sell 17 million cars and light trucks this year, about the same as last year. Is that bad news for magazines? The last time I looked, BMW was in advertising.
STEVE ADLER: I guess the only thing I’d say about the economy, yes, we’re in a cyclical environment. The economy is quite good. We’re looking at growth of maybe 3.5% a year. Corporate profits, I think, we’re saying in this issue look like 10 or 11% up. So I think that maybe what’s happened to some degree is during this period of downturn, advertisers have been slower to come back after withdrawing or pulling back. But as I know, and I think you all know, the budget season now takes pretty much all year long. You don’t know when your budget’s approved. It maybe used to be in October, and now you’re not really sure until March. So I think there’s a lag in the recovery of advertising as the economy does speed up. But I think as the economy stays strong, which I think it’s going to do, the advertising comes back with that and comes back quite strong. So I think we’re looking at that.
ERIC POOLEY: And there are all these pendulum swings. I mean, corporate branding campaigns aren’t especially hot right now. You know, there’s been a lot of consolidation, so there are fewer players in some industries. You know, corporate branding will come back. It happened in Europe recently where corporate branding came back. A lot of consumer products that used to sell -- or technological products that used to sell B2B are now selling direct to consumer, so that’s shifted some positioning in strategies.
Strategies change. Some of those strategies have hit different sectors of the magazine industry. It isn’t tied directly to the economy, but when I talk about cyclical change, I’m talking about advertising sales generally. I’m not an ad salesman, and frankly, I’m talking about it right now.
JEAN CHATZKY: But does trouble for what we generally think of as some of our best advertisers mean that magazines are going to have to look other places for revenue, or we talked about the Internet. But are we going to have to cross the line into the netherworld of product placement? I mean, you can’t go to the movies --
ERIC POOLEY: Paid product placement, a la the movies?
JEAN CHATZKY: A la movies --
ERIC POOLEY: Over our dead bodies. Am I speaking for you, too?
STEVE ADLER: Of course, but -- and as you’ll see in the issue of BusinessWeek that comes out in a couple hours, there’s a major auto advertiser who has gone to at least three major magazine companies, very aggressively pushing direct product placement. So we’re living in that world now, and the magazine companies have to cope with this. And they’re pushing what they’re doing on TV, and they’re saying what they’re doing on TV should come into print.
Also, there have been some online operations. I think Forbes.com for a while was doing these paid links inside content. So there have been some inroads. But I would say that it’s incredibly shortsighted for the advertising community and the publishing community to go down that path, because all we really have is our credibility, our reliability. The customers, the readers believe that what they’re getting is not influenced by advertising. And it does you, it does the advertising community no good whatsoever to start breaking down that wall and undermining what is really the value of the content we produce.
BILL BALDWIN: I should explain what was going on at Forbes.com, and they have discontinued it.
STEVE ADLER: Well, I was going to stay on the high road until you said you have three times as much traffic. [LAUGHTER]
BILL BALDWIN: Fair game, fair game. It was not product placement. It was Super Google. You’d be reading and article, and it would know where you were reading, and if you hit on the word “car” then it would give you a car ad. But it just seemed kind of heavy-handed. Either that, or the advertisers didn’t want it, and it’s no longer being used.
But I don’t think we should impute too much grand power to the ability of the Internet to feed back and know what you’re looking at and then give you an ad. It’s all too particular. The classic example was the one that was only a year or two ago when somebody was reading a New York Post article about a grisly murder that involved body parts being stuffed into a suitcase and put in a locker somewhere. When you read this article, the software automatically served up an ad for a luggage dealer. [LAUGHTER]
So, do we need more of this? Did we need more of it in Forbes.com? I don’t think so. I think --
JEAN CHATZKY: I don’t think so.
BILL BALDWIN: Most of the advertising there, you’re going to see on Forbes.com or BW.com, is going to be generic advertising. You’re reading about technology. You might get an ad for Cisco there. If you’re reading more of a consumer-y site, you might get an ad for General Motors. But it’s not going to try to read your mind.
JEAN CHATZKY: On the dead bodies now, let’s just shift gears for a second and talk about demographics. It turns out that that was a really bad segue, because what I was about to say was that on July 1st the leading edge of baby boomers will turn 59 and a half, and what is the fact that they are now entering the phase where they’ll be able to start pulling money out of their retirement accounts mean for the economy in general and for our business? Steve?
STEVE ADLER: Sure. By and large, I think there’s a tremendous opportunity in magazines, tremendous opportunity for advertisers. You’ve got 80 million baby boomers out there. They have always defined their generation’s culture, their generation’s economy, their generation’s buying habits. I think the advertising community has been slow to see that this somewhat older audience is not the old people of the old days. They’re much healthier, they’re working longer, they’re living longer and they’re starting fresh more often. They’re not locked into brand decisions that they made when they were 25 anymore. They’re thinking much more freshly. They’re going back to school. They’re starting new careers. There’s just a burst of creativity in this group.
Again, to hype the coming issue of BusinessWeek, that’s what our cover’s about. It’s called “Old, Smart, Productive,” and it talks about how older people are already working longer and how in so many ways they can be very, very productive in the workplace, sometimes more productive and more creative than people with less experience. So I think actually we’re going to be pleasantly surprised about the impact of this flight of baby boomers in terms how much money they have at their disposal, how much thinking they’re doing about it. They’re going to be doing adventure travel. They’re going to be going back to school. They’re going to be buying things. They’re going to be thinking about new ideas and new plans. So I think it obviously has some of the obvious negative effects, but I think it has more positive effects than people are expecting.
ERIC POOLEY: It’s also true that the boomers have redefined as hip every age group they happen to enter. So middle age became hip when we became middle-aged. Certainly, retirement will become hip when we’re all retiring. I think media will be happy to harness that, and so will advertising.
I also think another angle that is important for advertisers to hit on is to try to reach the segment of self-reliance in the sense that we’re on our own now as we’re trying to fend for ourselves in our retirement years. We can’t count on the company we work for to take care of us. We can’t count on Social Security to be there forever. We can’t count on our health care to be there. So people are becoming unsettled, but they’re also becoming incredibly self-reliant, and they’re growing in the face of these new challenges. I think that advertising that captures that feeling is very powerful advertising.
BILL BALDWIN: I’d like to ask a question for the audience. Who here can explain to me why I always see this line in discussions about advertising, especially television? In the key age 16 to 34 demographic, which advertisers most want to reach, I just don’t get this. If you’re selling skateboards, fine. But in our magazines, all three of them, the advertisers are trying to sell software systems that cost $50 million to install and BMWs which cost $60,000. I don’t think 16-year-olds buy those things. So should we worry that our readers or some group of readers is getting to be a little bit older and richer? I’m not that upset about that.
JEAN CHATZKY: No, not at all. You don’t seem to have very many takers, though, for your question. There we go.
BILL BALDWIN: Here we go.
AUDIENCE MEMBER: I would just say it’s that ... model of brand loyalty and the idea that you have to develop it a very young age. And to your point, that’s really changing.
BILL BALDWIN: Well, it might be true for Pepsi versus Coke. When you’re 16, you decide what you like and you stick with it until you’re 66. That may be true. But how you develop a brand loyalty to a particular software system when you’re 16? I don’t think that’s the case. A corporate software system.
JEAN CHATZKY: While we’re questioning the audience, let me just ask how many people out there believe that we are in the middle of a housing bubble? Let me just see some hands. How many believe we’re in the middle of a housing bubble in New York? How about the three of you, when I ask this question, as Bill pointed out, as somebody who just bought a house at the top, ostensibly, housing bubble? Yes or no?
BILL BALDWIN: Well, we -- Yes, certainly, in some markets. Not nationwide. Fortune did a cover story called “The Real Estate Gold Rush,” which tracked the insane antics of condo flippers, housing speculators, get-rich-quick scam artists and people who generally like to put as many houses as they can on their credit cards. Some of those people told us that they began getting scared when they went to closing after closing, opening after opening, and found out that they were seeing the same faces over and over again trying to get in early at different developments.
And if you look at the inflation-adjusted housing price charts over the last century or two, we’ve never seen anything like the run-up that’s happened recently. And yes, crashes happen. I think if I were investing in Phoenix or Vegas or Miami, I’d be a lot more concerned than if I were investing in New York.
JEAN CHATZKY: What does it mean for our business if this bubble bursts?
STEVE ADLER: I would just reiterate, I don’t think it’s a bubble. Nationally it’s not a bubble. Bubbles burst when you’re in a recession, when there’s a huge amount of oversupply, when, as in the tech bubble, you’ve got companies with no products or companies with no revenue or no profits. I think that there’s froth. I think it’s a little too high. It’s a lot too high in some places, a little too high in other places. But in a growing economy, with something that people can live in and use and that’s something that’s real and valuable, I think what we’re going to look at is a gradual flattening, and there may be a little tailing off. In some markets like San Diego and San Francisco and Phoenix, it might come down more. But my own instinct is it’s not going to have a dramatically negative effect.
BILL BALDWIN: Let me describe two bubbles to you. Five years ago, these three magazines were in an Internet bubble that we were very much enjoying, because we each had 6,000 pages of ads in 2000. It’s a lot lower now. The combined total you said was 10,000 for this year. A very good estimate. So from 18,000 to 10,000.
Last week I was in the Amsterdam airport, and I was looking at business magazines and other magazines, and there was Forbes with something that looks like a slimmed-down version of the domestic Forbes being sold in Amsterdam. BusinessWeek, the same. A slimmed-down version of BusinessWeek. Fortune, the same. We all had thinner editions because it costs a lot of money to ship paper over there, and the advertiser has to really want to reach Europeans to be buying those ads.
And then I looked around the corner and there was a magazine that was about as fat as the Manhattan phone directory, and it had paid the air freight to get over there into that airport to sell what must have been mostly American advertising. It was Dwell magazine. I think that’s a bubble. I think it’s going to come down a couple pegs. I don’t think it’ll disappear. By the way, it’s a beautiful magazine. It deserved its National Magazine Award. But something of a bubble there.
A fourth of the houses that were sold last year were sold to people who didn’t want to live in them. That’s a bubble.
JEAN CHATZKY: Okay. I’m going to open it up now for questions from the audience. I have a couple to start us off. If anybody else has one they want to write down on a card or we can raise some hands.
Do you think that we are in a budget deficit crisis? If so, when do you think the negative effects will hit the economy? Anyone?
BILL BALDWIN: I think we’re in a -- I’m a deficit hawk. I think we have a big problem. I’m concerned about the size of the deficit, and I’m concerned about the current account deficit, the balance of trade. I’m kind of old-fashioned. I don’t think we save enough. I don’t think it’s healthy that our consumption is financed by the rest of the world, and I do think it will come home to roost.
There are a lot of doomsday scenarios about how and when that’ll happen. I won’t go through all of them now. I don’t think it’s going to happen because the central banks of China and other countries decide to stop buying American bonds. I think they’re in it with us, and they want it to go. I think it’ll be a more gradual -- not a great collapse, but a more gradual accretion of our problems, starting probably with interest rates continuing to creep up. They’re being held down by international pressures, too, but I don’t think that’s going to last forever.
ERIC POOLEY: I’m not at all worried about the $340 billion Federal deficit we’re going to have this fiscal year. We’ll grow our way out of it. It’s trivial. I am very worried about the $51 trillion long-term deficit in Social Security, Medicare and Medicaid, and that’s something that no politician will ever deal with. It’s going to be a mess.
JEAN CHATZKY: Here's essentially the same question, but, on an individual level, how concerned are you about rising consumer debt and its potential implications on consumer spending? Steve.
STEVE ADLER: Well, I think that's the piece of the housing discussion that I'm most worried about. You have these interest-only loans, you have these new option mortgages where you can kind of decide each month whether you want to pay some interest or pay some principal and put it off a few months. And I think people are just now and in the last six months, you know, the lenders are just going crazy offering these nutty products and people are really sopping them up, because they want to get in on the housing frenzy. So I think that's a real potential problem.
And I do think consumer debt is potentially a problem, but I find that this -- the current kind of thinking about the current economic situation very befuddling, because, on the one hand, you've got this enormous deficit. On the other hand, if you -- if you made the re- -- particularly talking about Social Security, if you made the retirement age later, significantly later and started to let the demographics guide you in how you thought about when people started getting Social Security and you had some adjustments for people who really needed it, all of a sudden, you take care of a serious part of the problem. You can index and take care of a serious part of the problem.
All of a sudden, tax revenues are up and people are saying, "Oh, we're growing out of the problem." So I think there's so much global liquidity out there. There's so many things going on. I think everybody's pretty confused and I gotta say I'm pretty confused.
ERIC POOLEY: Let me just add one thing about what's really scary about the relationship between consumer debt and the housing market is that people are sucking equity out of their homes and using it to finance lifestyles, for instance. So you do your fourth re-fi, you take out another 50,000 and buy a boat or pay down some -- I mean, paying down credit card debt would be the smartest thing you would do with it, but there -- but where you end up is with no equity in your house and that's compounded, of course, by the no-interest loan. So when you finally get to retirement, the single thing that Americans used to be able to count on will be there only in trivial ways for many of these people, so that's scary.
BILL BALDWIN: I think a whole generation of Americans are deluding themselves into thinking that it constitutes savings when you do nothing but sit on an appreciating asset, the house that you're going to live in an maybe retire in.
There's really a bimodal distribution of wealth in this country. There's a whole collection of people, they mostly read our three magazines, who have extremely high liquidity, gazillions of dollars to throw into hedge funds and everything else and BMWs. And then there's middle America, which is spending itself poor against their houses. And that's going to really hurt consumer products companies.
JEAN CHATZKY: What is your prediction on energy costs and how might that affect the economy? Eric?
ERIC POOLEY: Well, I think they're going to keep going up, because, even if we get greater investment in -- let's just talk about oil. Even if big oil starts spending some serious money on research and exploration, which they've been reluctant to do, there's just -- it's a finite resource, there's not a lot of it out there and the demand curve is going wild. So I think you're going to see more and more competition for a dwindling resource and that's a recipe for high prices.
It may not -- we're not going to be unbroken, but I think we'll see a spike over the summer, we'll see a decline, but, long term, it's going up.
BILL BALDWIN: I think that price is the mother of invention. We had an article a couple of years ago in Forbes, explaining why and how oil prices collapsed in real terms between 1979 and 2003. And it was because a spike in oil prices two decades ago evoked all sorts of creative ways of getting oil we never knew was there. And I think that's going to happen again and oil will go back to $35 a barrel.
ERIC POOLEY: Except what wasn't around back then was China and its demand.
BILL BALDWIN: Well, what wasn't around back in 1979 or certainly not in the early 1980s was all -- were all these ridiculously overpowered SUVs that advertise in Forbes and BusinessWeek and Fortune and get thirteen miles to the gallon. There's been a huge growth in world oil consumption over the past 25 years and yet, until two years ago, the price had collapsed, in real terms, because people got creative.
STEVE ADLER: I think, also, we shouldn't underestimate technological possibilities. We've gotten sort of down on technology as a driver for productivity and innovation, but it also takes quite a long time for an idea to go from the generation stage to implementing. We're seeing it now with biotech. All of a sudden, biotech, I think, is about ready to become a business. Cellphones, it took twenty years for it to really be extraordinary. And I think some technological advances in both getting energy out and new forms of energy can also potentially have an impact that we're not seeing right now.
JEAN CHATZKY: Steve, this one is also for you. You can create My Yahoo! to select your content; the new reader on the web has the power. Will we see My BusinessWeek print editions tailored by individual readers including advertisers that we want to see?
STEVE ADLER: Okay, I mean, my first reaction to that is I don't know; I'm too new at the job to have figured that out. But I would say that targeting is real and targeting is important, and I don't think that that's a bad thing, and I think that going vertical is not a bad thing, going after particular segments.
I think there's certainly an important room for our horizontal publications, which is, frankly, taking an awful lot of editorial resources. We've got over 200 editorial people on our staff and, in a pretty under-leveraged way, is producing largely a product a week and plus, now, a serious internet operation.
I think there can be much more -- we have much opportunities to go more vertical. To think we started Small Biz as a spinoff magazine. There may be other spinoffs aimed at particular demographic groups, particular interest groups.
But, also, I think the Internet -- I see the Internet more as an additional delivery tool. I don't -- I think of ideas as being BusinessWeek-branded ideas, ideas that are good for our readers, good for our customers. But you can target particular groups of readers, particular segments, whether it's people interested in Asia, people interested in design and innovation or people interested in the economy. You can target them very narrowly, either with magazines or with internet channels or newsletters or very specific properties and I see us going a lot in that direction, keeping the horizontal, but also going much more vertical.
BILL BALDWIN: Well, I can remember Forbes running an article about -- an eager-beaver article about targeted newspapers fifteen years ago. It was clear that the technology would enable each customer to write his own newspaper by saying in advance, "I care about the automobile industry because I work in it. I'm very interested in, I don't know, maybe apparel or lawsuits and sports." Why did none of these My Newspaper ventures really ever work?
I think it was because people failed to understand that there are two things that people get from media. One is information they're looking for; the Internet is superb at that. And the other thing is information they're not looking for. You just pick up that day's paper and you get surprised by the headlines. You can't identify in advance that you want to be put on a mailing list to tell you about the explosion of space shuttle. You had to pick up a newspaper for that.
And, in a similar vein, you've got to pick up a business feature magazine to read powerful features about things that you weren't thinking about, but if they grab you and they say something important, you'll keep reading that magazine, you'll keep subscribing. And we do very well at the latter kind of information and we're never going to do very well at the targeted information.
If I want to know a particular stock price, I will no longer get it from The Wall Street Journal. It's a stupid way to get it. I will get it from the Internet.
Forbes used to devote skillions of pages to rating funds and to listing companies and so on. Nowadays, I see those lists as just as avenue to remind people that, if they want targeted information like that, Forbes.com is a great way to get it.
STEVE ADLER: I just want to make kind of a semi-rebuttal to that, because I think, on the one hand, there's commodity information that more and more publications like ours and brands like ours aren't in that business. Information that's so widely available, you just don't want to incur the cost, and we're not the best place to get that. And that's not what I mean by "targeted."
I think we have enormous capabilities in particular areas where we're deeply staffed and have a lot of knowledge and there are readers who would like more in that area, who would like to go deeper. And I think there's real potential and tremendous value to certain groups of readers to take them there. To have the insight, the actionable insight in particular areas that we also give people broadly over a bunch of different areas. And I do think there's a lot of future possibilities in that.
ERIC POOLEY: Just to elaborate on something Bill said. He talked about surprise and I think the element of surprise in the magazine-reading experience is extraordinarily important and extraordinarily powerful. And the -- as Internet -- as the Internet experience is and as interactive, as Steve said, there's still something extremely intimate and extremely powerful about settling down with a magazine and not knowing what you're going to get, page to page, and the experience of reading it.
And, to the extent that all three of our magazines can maximize that intense personal enjoyment, just the enjoyment of the simple act of reading and discovering. And it's not just energy dissem- -- or information dissemination. It's a lot more than information, although information and analysis is at the heart of it. It's also wit and beauty and surprise and passion and humor, and these are things that any great magazine brings to the reader. And to the extent we do that, we will succeed and thrive. So I think there's nothing wrong with magazines that making great magazines ain't going to fix.
JEAN CHATZKY: And, on that note, appropriately, I think we'll leave it for this afternoon. I want to thank Eric Pooley, Steve Adler and Bill Baldwin for joining us today. [APPLAUSE]
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