NEW YORK — There’s a magazine-fueled building boom happening in Manhattan: The Surface Hotel, still under construction, is a glass tower looming over the hipster tenements of the Lower East Side; Penthouse two weeks ago opened the first branch of its Executive Clubs north of the Mason-Dixon line, and former House & Garden design editor Suzanne Slesin is currently overseeing the decoration of the Esquire Apartment at the top of Donald Trump’s new building on Park Avenue.
It just goes to show that in tough times, real estate is still a sound investment.
Which is why this particular brand of brand extension is hot, and potentially transformative for those publishers that are small, struggling or have ambitions beyond just being in the paper and postage business. Whether by licensing, which yields nearly risk-free, albeit small revenues, or by direct management, which promises the ability to seamlessly integrate advertisers into a 3-D environment, magazine executives are taking a new look at the benefits of bricks and mortar.
Related Galleries
“Everything you’ve just said has been under discussion at Dennis Publishing for a couple of years now,” said Andy Clerkson, general manager of Maxim. “That said, there’s only a few things a company our size can actually do.”
But the demand is there. At the 2002 Winter Music Festival in Miami Beach, Maxim sibling Stuff opened the promotional “Stuff Hotel” for advertisers and guests. “We realized if we had another 2,000 rooms, we could have sold packages to our readers,” said Clerkson, who was general manager of Stuff at the time. “We have looked at the concept of doing everything from lounges to casinos. But it’s all about doing the right deal at the right time.”
Penthouse parent General Media, which is facing crushing debt, has set a goal of opening 15 more of its upscale topless clubs in 2004 in a drive to generate a significant royalty revenue stream. “Right now, the company is a magazine company, and if you look forward, the [company] has to be a lifestyle brand,” said Marty Staff, the new chief executive officer of PH Brand Management, Penthouse’s licensing joint venture.
Divorcing the magazine’s brand from its corporal form is also the goal of Surface’s founders. They see their hotel as a co-equal of the magazine. “The hotel is one extension of the brand, the magazine is another, and more [extensions] have been in development,” said co-publisher and editorial director Riley Johndonnell in an e-mail. “The hotel project…will serve as the catalyst and launching pad for many of our extension opportunities. This is the prototype for the franchise.”
The big publishers are more dubious, treating the concept as a sophisticated, although temporary, value add for advertisers — the Esquire Apartment will run for a month this fall, and the GQ Lounge last year lasted about as long. At best, it’s a toe in the water. Seventeen licensed a freestanding under-21 night club in Los Angeles and a spa in Texas under then-owner Primedia last year, but a Hearst spokeswoman said its new owners have just begun to review where both locations fit in — even though publisher Ellen Abramowitz says a second spa is due to open in Texas this fall.
Playboy Enterprises ceo Christie Hefner, who has been there and done that with the Playboy Clubs that flourished in the Sixties and died in the Eighties, said there’s a simple reason why she’s never sought to resurrect them — it’s not worth the time. “Inevitably, times changed,” she wrote in an e-mail. “It became economically unfeasible to attract the kinds of well-known talent (e.g., Woody Allen or Richard Pryor) to perform live, as had once been the case.?The business itself is both capital and labor intensive.?Beginning in the early Eighties the company saw its greatest opportunities to expand into the new technologies of home video and pay television, followed by new media and the internet in the Nineties. These higher-margin growth businesses now produce the majority of the company’s profits,” which totaled $12.3 million in operating income in the first quarter — $7.9 million of which came from entertainment.
And it’s telling that magazines as varied as Vogue, GQ and Maxim would rather skip real estate to focus their branding energies on television. Viacom’s TNN (the would-be Spike TV) has already lined up GQ, Stuff and Men’s Health for programming, and Maxim’s Clerkson would rather talk about what he will do in television versus what he would do with a Maxim Club.
But be it television or real estate, even Surface’s Johndonnell admits there are limits to brand extension. “It has to make sense for the brand, and more importantly, it has to make sense to the consumer,” he said. “Originality and execution are key. And the industry would need to be cautious of burning out the consumer with cookie-cutter solutions for every publication’s brand extension: Esquire bar, FHM club, Details lounge, etc.”
He added, “Is it the precursor for what is to come? If we do it right, then I think the answer is as clear as our 20-story high-rise hotel. One publisher said to me, ‘This just might change the game.’ Fancy that.”