Confederation of European Paper Industries

Brussels, 30th November 2000

The Four Horsemen

Good morning ladies and gentlemen.

Some decades after the birth of Christ, a child was born in a town called Chen-chou situated in modern Hunan province in central China. The name of this baby boy was Tsai Lun. He entered government service as a eunuch in the imperial palace at 15 years of age.His career was meteoric and by AD 75 he had been made chief eunuch under the emperor Ho-ti.

Then came a reversal of fortune amid the intrigues of the Han court and he found himself banished, for a time, to an isolated province as an administrator of farmers and fishermen. Here, bored and frustrated, he observed the age old process of felt making, then, as now, a vital material for the survival of nomads and peasants on the steppe of Central Asia.

Inspiration struck Tsai Lun! Collecting together discarded fishing nets, hemp, old rags, tree bark and other waste, he set about experimenting with these materials employing similar techniques to those he had seen used to make felt. Tsai Lun eventually produced the worlds first sheet of paper in about AD 104. On that day, his paper pasted onto a primitive wall drying under a harsh Asiatic sun, Tsai Lun stepped into the pagesif you will excuse the punof history.

As a highly experienced administrator, he recognised instantly the power and usefulness of his invention. At that time, governmental records, which served to control the largest and most sophisticated society the world had ever known, were either written on fragile sheets of bamboo or on waste silk, neither of which lent themselves to permanence, duplication or hard usage.

Within a year, returned from exile, Tsai Lun had presented his finding to the emperor himself. Commendation and swift promotion to the aristocracy followed and use of his new material was rapidly adopted throughout China. Sadly, at the age of 71, Tsai Lun is recorded as having been ordered to take his own life by poison.

We know these details of his life and invention because, in an exquisite historical irony, they were written down and preserved on paper within the imperial archives. Tsai Luns creation of paper served to cement Chinas supremacy for six or seven centuries over any competing civilisation. It is interesting to note that the Wests cultural dominance also came about only

after the introduction of paper in Europe along with the arrival of Johann Gutenbergs printing press and movable type.

All of us in this room owe our living and our profession to Tsai Luns genius. I salute him as a magazine publisher. Those of you working in the paper industry itself must feel similarly. But in no way could he have understood the enormity of what would follow in the course of the next twenty centuries, and especially in the past fifty years.

The paper industry today is a colossusa stirring demonstration of the ingenuity of the human race. It would be perfectly possible today, I believe, to create an entire house, together with much of its contents, from paper alone. Paper protects us; it conceals, it comforts, it contains, it insulates, it cleans and it preserves. Versatile to a fault, it is utterly indispensable to modern man. All this you know far better than I.

However, I have been asked to speak to you this morning about the future, not the past; and specifically, about one of papers primary functions: that of a material on which information is reproduced and disseminated en masse through the medium of magazines and newspapers.

My views on this matter are contrarian. They may be disputed and argued. In no way do I imagine myself to be clairvoyant or a man who can see further than others into the future. Nevertheless, the news that I bring you from our industry is not what I would wish it to be. Frankly, it is not good. For that reason, first let me set out my credentials and issue a health warning on what I have to say, in order that you may judge for yourselves how much weight to apportion to it.

I am the proud owner of Dennis Publishing, a medium sized magazine publishing company operating out of London and New York. Dennis Publishing has a portfolio of 14 thriving magazines, in the computer, console games, automotive and lifestyle sectors. I founded the company 30 years ago.This coming year, we plan to turn over approximately 200 million US dollars.

In 2001, Dennis Publishing will use in the order of 34,000 metric tons of paper. Using the simplistic formula of six trees to a ton of paper, this means that Dennis will consume some 294,000 tress in the year 2001. If my figures are inaccurate, I claim refuge in reliance on our production director, James Tye, and the advice of one or two paper suppliers. Dennis Publishing is a successful, privately owned company which makes millions of dollars each year, a substantial proportion of which is ploughed back into the business. We have been growing at an average of approximately 20% of turnover per year for nearly a decade.

I should be a very happy man, then. Not only are our magazines successful, I also own an internet agency with customers like the Disney Corporation and Mercedes Benz. As if this wasnt enough, Dennis Publishing also controls 50% of one of Britains largest magazine distributors, Seymour Distribution; in addition, it owns 50% of its subscription fulfilment house and operates a digital interactive division which, virtually uniquely in the world of magazine publishers, makes a decent profit.

As I said, I should be a very happy man. But, ladies and gentlemen, I am not. Instead, I am troubled, professionally speaking. It is my duty here today to tell you why. But before I do, before I come to the four horsemen in the title of this speech, let me turn to an anecdote. Or I should say, a true story. What follows is the transcript of an actual radio conversation monitored by a lifeboat squadron off the coast of British Columbia in October 1995:

Naval voice:

Please divert your course 15 degrees to the North to avoid a collision.

Civilian voice: Naval voice: Civilian voice: Naval voice:

Recommend you divert your course 15 degrees South to avoid a collision. This is the Captain of a U.S. Navy ship. I say again, divert your course. No. I say again, divert your course. This is the aircraft carrier Enterprise. We are a large warship of the U.S. Navy. Divert your course now!

Civilian voice:

This is a lighthouse. Your call.

This anecdote illustrates a serious aspect of the problems I wish to discuss. In my opinion, we are asking the wrong questions; we are steaming ahead, certain that the obstacles in front of us are just a minor annoyance which can be overcome either by direct orders or a show of force. Secure in our power, certain of our cause, beguiled by our history of success... we are heading, in the magazine industry, full steam ahead towards the rocks!

In the immortal words of Bob Dylan, ladies and gentlemen, as far as the magazine industry is concerned: Its a hard rains a-gonna fall!

I believe that four forces are converging on the magazine industry as we speak. These four threats, which I refer to as the four horsemen, pose a grave menace to our future growth. Please note that I say threat, and not catastrophe. Yet. All threats are challenges, of course, and, as everyone is constantly reminding me in their new fangled management jargon, a challenge is just another word for opportunity. Well, perhaps, but, being a little old fashioned,

I feel that these threats are real enough and serious enough to warrant careful and sustained analysis. Before I come to these four forces, however, let me sketch out the present lie of the land as I see it.

We have lived, all but the youngest of us, through the golden age of magazine publishing. Print quality, paper quality, range of titles and value for money to our readers have all improved enormously in the second half of the 20th century, as, indeed, have advertising revenues. Compared to the famous periodicals of the late 19th and early 20th centuries, we are as giants. Whether we like to admit it or not, we have been living off the fat of the land for much of our working lives.

Ominously, when one begins to ask the right questions from those at the front line of our trade, our national distributors, a rather different picture emerges. I quote here, for example, three comments from Bob Castardi, President of Curtis, the largest magazine distributor in the U.S.

(i)

Measured by total volume, less magazines are sold on US news-stands today than 10 years ago, and a lot less than 3 years ago. Yet subscription levels, far from taking up the slack, are actually on the decline. Launches of new magazines in the U.S. over the past 10 years have remained fairly consistent at 700 - 800 a year. But the difference is that today many of these new magazines are aimed at filling small vertical niches and that so many fail compared to the strike rate a decade ago. Very few large, successful consumer magazines have been launched in the past 5 years. Maxim and In Style are exceptions, not the rule.

(ii)

(iii)

In addition to Mr. Castardis analysis of the U.S. market, it should be noted that in the UK, high sell-throughs on the newsstand, so necessary to generate sustained profits, are achieved only with the aid of expensive cover mounts, banded or bagged supplements, or other expensive gimmicks.

In my own company, of the 15% growth we have as our target next year, only 5% of that figure comes from traditional ink-on-paper publishing activities. To sum up, the consumer magazines business may be a good business and a reasonably profitable one, but it is not growing in any meaningful sense of the word growth.

So much for the present landscape. Now we come to the main event: the four threats; the four horsemen standing in a hard rain.

THE FIRST HORSEMAN: New technology; interactive media generally; the internet in particular today and internet convergence with digital televised media tomorrow. THE SECOND HORSEMAN: Environmental pressure relating both to the negative public perception of tree harvesting and the burning of fossil fuels to deliver our magazines to market. THE THIRD HORSEMAN: Growing illiteracy in essentially static populations together with a fixation among the young to become viewers, not readers. THE FOURTH HORSEMAN: Vastly increased costs in launching magazines, printing magazines, distributing magazines and acquiring magazine subscribers.
A hard rain. Bear with me while I dissect these four grim reapers in reverse order.

Increased costs. In every sphere of our industry, costs are rising and margins are shrinking: from the consolidation of wholesalers and the increased role of powerful supermarket chains, to the demands of paper manufacturers, printers, our own work forces, the postal service, haulage operators and even the provision of new infrastructure costs like computers, servers and software.

Everyone wants just that little bit more than last year. And next year it will be the same story. The trouble is, magazine publishing margins have never been that sensational, despite a great many rumours to the contrary! Common sense tells us these margins can only go downhill from here. Especially with the volatility of the price of oil, which looms over everything we collectively aspire to.

As to the third horsemen, the increase in child and adult illiteracy, the UK is now third from the bottom of literacy skills in the league table for the eight most industrialised countries of Europe; 20% of British 18-year olds are now classed as functionally illiterate. One wonders how many magazines and newspapers this sector of the population will be buying in the course of the next 25 or 30 years. Nor can the tide be turned quickly. The damage has already been done and will haunt our industry for years to come. I will return to screen fixation later in my speech.

And the second horseman? Environmental pressures are building and will continue to build, ranged directly at the magazine industry. We are in the business, whether we like it or not, of killing trees. No one will listen when we protest that we planted those trees and continue to plant them. After covering their rolled pulp with noxious inks and chemicals, we pile the finished products into lorries and trains and despatch them hundreds of miles to their destinations, consuming fossil fuels all the way.

No matter that paper forests are probably the best-managed in the world and that as we wait for them to be harvested they consume huge amounts of carbon dioxide. All environmental fundamentalists will care about is that we are chopping them down right now. No fanatic ever allowed logic to spoil a good witch hunt.

And what of the waste inherent in unsold copies of magazinesthe millions upon millions of unsold copies we produce each week? Against this catalogue of waste, we have no defence. In an increasingly politically correct world, this, to paraphrase Oscar Wilde, is the pulp that dare not speak its name.

We have been protected to some extent in the past by the vague knowledge that paper is recyclable, that harvested trees are replaced and, most important of all, that there was really no alternative. But glossy magazine paper costs more to recycle than making new paper of similar quality. Nor is recycled paper popular with the operators of modern, high speed printing presses.

Killing trees is becoming increasingly unpopular in the public mind, especially with all the recent talk of climate change, global warming and the importance of forests as Co2 sinks, whatever that may mean. The environmental lobby is no longer a pressure group; instead, it is a sophisticated and highly litigious industry which sometimes, to me anyway, appears more interested in its own righteousness and growth than entering into a balanced dialogue. All too often, their pronouncements smack of scaremongering, spin and hype.

I make these highly contentious remarks as a man who financially supports tree organisations in Britain and who has caused to be planted many tens of thousands of broad leafed trees on my own land in the U.K. Tree lovers are one thing; but the environmental industry is quite another. Moreover, and mark this well, ladies and gentlemen, environmentalists have already and will, with increasing vigour in the years to come, point out that there is now a viable alternative to the use of ink-on- paper for transmitting news, information and entertainment.

Which leads me, naturally and inevitably, to the first and grimmest horseman of all. To the internet.

Despite the comfort we can take as an industry at magazines having survived the onslaught of radio, movies, television and all the rest, the internet represents, in my opinion, an entirely different dimension of threat. Magazine publishers should not allow the recent spate of dot

com failures on the stock market to create any false sense of security. This first wave of dot coms are reminiscent of those companies who speculated by building railway tracks across continents 150 years ago. They are as nothing compared to what will come. Trust me on this.

I fear magazine publishers are in the horse and carriage business while plans for railway locomotives are already on the drawing board. Perhaps you suspect that I exaggerate? I wouldnt blame you. But, then, you do not own the vast array of computer and technology titles belonging to Dennis Publishingas a result, we have one foot in the enemys camp!

Recently I was shown a prototype of a titanium framed e-book that folds away into a side pocket, flips out to the size of a small magazine, weighs only a few ounces, and whose screen is made of what felt to me like space-age fabric. The demonstrator informed me gleefully, that it could hold electronically at least half a dozen books or two or three illustrated magazines worth of material which will take just seconds to download. The type was quite sharp enough to read. No wires were involved. Totally portable; totally reusable; totally depressing.

I stepped out of that demonstration shuddering; not at the million dollars they had already invested in their e-book, but with the feeling that I had been introduced to my own nemesis.

Nor is the internet the only new technological threat to the survival of magazines. Increasingly, a generation of young boys and girls are growing up utterly screen fixated. Just ask anyone with a child from seven or eight years old and up. Their preferred indoor activities are watching cable or satellite television, browsing the internet, sending e-mails or playing computer based console games. They are not reading books or comics to anything like the degree of a generation ago, and I say that with the greatest respect to young Harry Potter.

My god children are astonished that I will happily pay $30 for a book. But Uncle Felix, they protest, I could have bought a Play Station game with that money and I can play the game hundreds of times. You only read your book once and then its finished! Out of the mouth of babes come truth.

So, what have publishers been doing in response? Naturally, we have created our own internet operations. Well over one hundred people toil in Dennis publishings internet divisions, which represent 18% of our total work force. We have created a web-based business model that is the envy of our peers on both sides of the Atlantic. We make money, real money, on the web. Maxim magazine saves over four million dollars a year in acquisition

and renewal costs and acquires more new subscribers online than any periodical in the world. Not just in its category. In the world, period.

So wheres the problem?

The problem is, ladies and gentlemen, that I am an ink on paper man in my bones and a magazine man in my guts. I have therefore taken the decision to use the internet, in a form of jujitsu, to enhance and bolster my existing brands, to reduce the cost of subscription acquisition and renewals to those paper products. And, if necessary, to cannibalise my own children (for that is how I see my titles) rather than permitting web barbarians to butcher them outside the gate.

I have heard all the counter arguments. That magazine publishers are making more money than ever. That newspapers did not succumb when radio arrived and radio did not die when TV arrived. That the internet encourages the growth of magazines because people need offline guidance through the jungle of two billion web sites. That I am being alarmist. That magazines will thrive and grow as more and more types of magazines arrive, like contract publishing for huge conglomerates who wish to use the power of the printed word to stay close to their customers. Thus, goes this seductive argument, the number of magazines and the amount of paper they will consume will grow and grow.

I have heard these arguments. I have examined them all. I have digested them all. And I reject them. I am so sorry to say it, but on balance, I reject them.

I cannot hide from you that for the first time in my professional life I am deeply troubled for my industry. I am in fear. And, as you may have already guessed, I am not a man of a particularly sensitive or nervous disposition. Naturally, being of a pugnacious nature, that fear is mixed with adrenalin. The thrill of the unknown is the thrill of the chase. And what a chase these new developments represent. Repeat after me: A threat is only a challenge. A challenge is only an opportunity. A threat is only a challenge... oh, forget it!

Mark that I do not predict the death of magazines. Let me make this clear and say that again. I do not predict the death of magazines.

Instead, I predict we have already unknowingly entered the autumn of ink-on-paper periodicals after a summer which has lasted for nearly 50 years. I fear that the four horseman are the harbingers of a long, slow, inevitable and, to me, immensely sad decline in the fortunes of magazines; as our readers mutate into viewers; as our distribution, sales

channels and margins shrink; as environmentalists batter us with claims of social irresponsibility; and as our advertisers, slowly at first, but in growing numbers, migrate to the electronic sea.

No one horseman can bring us down. But their combined threat is such that even should we survive, the aftermath of the struggle will reveal a new media landscape. If my fears are well founded, however exaggerated they may sound here this morning, then to all intents and purposes magazines will become little more than an also-ran in the media mix of the 21st century.

It gives me little pleasure to share these fears with you. They represent pessimism of a high order, I accept that. But I would rather stand accused of pessimism than be caught with my pants down in denial. We shall do everything in our power to fight the good fight for ink-onpaper, you may be certain of that.

But hone your skills as paper makers and paper distributors, ladies and gentlemen, especially in the manufacturing of toilet paper and cardboard boxes. Your allies in the publishing industry, books, newspapers, leaflets and magazines all of us after hundreds of years of alliance in your cause, are about to become otherwise engaged in a deadly game of Darwinian survival.

Perhaps I will be proved wrong. Perhaps my autumn will prove to be an Indian summer. Or perhaps autumn itself will prove to be more fruitful than the summer ever was. Perhaps.

But in my heart of hearts I do not believe it. And nor should you.

In the words of the great Irish poet W. B. Yeats: Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world.

Or if you prefer Bob Dylan Its a hard rains a-gonna fall.

Thank you ladies and gentlemen.

Brussels Hilton Hotel 30th November, 2000 Felix Dennis 2000