Publishing
The Publishing Group posted record operating profit, revenues and operating margins in fiscal 1999. Stronger advertising revenues and an improved cost environment drove results for the year. Better Homes and Gardens, Country Home, Traditional Home, Midwest Living and Crayola KidsŪ magazines, along with Meredith Integrated Marketing, performed exceptionally well in fiscal 1999.

In the U.S. publishing industry, we believe we have one of the most successful lineups of magazines and books, the most extensive consumer database, one of the most effective interactive media operations and the best integrated marketing operation. The great resources at our disposal fuel our optimism about the future of Meredith’s publishing business. Here are some detailed examples.

Strong Magazines
Our magazine lineup is exceptional. Better Homes and Gardens, which recorded its fifth consecutive year of record operating profit and revenues, continues to lead the competitive women’s service field in advertising revenue market share with more than 26 percent of the advertising revenue for the 12-month period ending June 30, 1999. That’s more than the advertising revenue of two women’s service magazines at each of our closest competitors. Combined with Ladies’ Home Journal, Meredith has a 40 percent share of the advertising revenue market in the field.

Our success extends to other fields, too. Over the past five years, advertising revenues at Country Home have grown 243 percent, compared to 140 percent for its closest competitor. The same is true at Traditional Home, which has seen advertising revenues grow at 238 percent over the last five years, compared to 146 percent at its main competitor.

Our collection of Better Homes and Gardens Special Interest Publications is among the top newsstand revenue producers of all magazines, with powerful positioning at checkout stands nationwide. We also initiated several frequency and rate base increases in fiscal 1999, all part of our ongoing focus on growing and strengthening our existing group of magazines.

Nonadvertising Revenues
Largely because of income generated by Meredith Integrated Marketing, circulation and book sales, more than 50 percent of Meredith’s Publishing Group revenues is generated by nonadvertising sources.Our integrated marketing operation, which creates custom communication programs for clients, is growing. By providing comprehensive marketing solutions, we serve customers in a way that provides us with access to nonadvertising budgets, expanding our revenue sources beyond traditional advertising sales.

We continue to focus on circulation efficiency as a powerful way to increase operating profit. We’re generating additional subscriptions by selling to individuals who order merchandise through national catalog companies. Our gift subscription program is growing, and we’re receiving more orders through our Internet sites. These subscription acquisition channels are important because they decrease our use of less effective sweepstakes offers. In addition, methods such as Internet and catalog sales increase our circulation margin because they eliminate expensive paper and postage costs associated with subscription mailings.

Favorable Cost Environment
We’re currently operating in a very favorable publishing cost environment. At June 30, 1999, paper prices had declined in the mid-single digits on a percentage basis from a year earlier.

We recently renegotiated our printing contracts. As a result, we’ll benefit from diversification of vendors and from substantially lower unit printing costs in fiscal 2000 and beyond.

Postage rates increased an average of 4.6 percent for the publishing industry beginning in January 1999. Our increase was less than that due to our use of efficient mailing processes.

How We'll Achieve Profitable Growth
We believe the following key initiatives will result in the continued profitable growth of our business:

• Capturing additional advertising dollars, particularly in growth categories such as travel, luxury goods, financial services and technology

• Continuing our strong magazine launch program

• Adding major new marketing partners and expanding existing relationships

• Developing and implementing new business opportunities related to interactive media.

Capturing Additional Advertising Dollars
Our core advertising categories of food, home-related goods and furnishings account for about 35 percent of advertising pages in our magazine business. We believe there is still growth potential in those areas, and we’ll continue to develop those opportunities wherever possible.

A look at our past successes will help illustrate our potential for capturing additional advertising dollars. Several years ago, we planned to broaden our advertising base by growing revenues in the automotive, pharmaceutical and beauty categories. From fiscal 1990 to fiscal 1999, the number of beauty pages in our magazines grew more than 40 percent, and pages in the automotive and pharmaceutical categories have grown more than 200 percent each.

There is significant opportunity for expansion into additional categories, especially travel, luxury goods, financial services and technology. In the magazine industry, these four categories account for more than 20 percent of total pages, while they currently account for less than 10 percent of total pages for Meredith.

Our publications for American Park Network and the California Division of Tourism, as well as Midwest Living magazine, provide a foundation for sizable travel-related accounts such as state tourism and hotel chains. American Express, Marriott and Hyatt are recent new advertisers, illustrating the potential in this area.

Many of our magazines – Golf for Women, Traditional Home, Renovation Style and Decorator Showhouse, for example – reach large numbers of high-income readers. These magazines are expanding their advertising categories to include upscale, non-home furnishing clients such as Christian Dior, Chanel, Rolex and Jaguar.

Launching Family Money magazine has helped us attract both financial services and technology advertising to our other magazines. Examples of new advertisers include PaineWebber, T. Rowe Price, Merrill Lynch, Hewlett Packard, Microsoft and Seiko Epson.

In the spring of 1999, we signed a major marketing agreement with Intel Corporation. Intel is a platinum sponsor of the Better Homes and Gardens Blueprint 2000 Showhouse. The program includes a virtual three-dimensional house tour visiting 20 major-city malls. The house tour is supported by a special extended editorial feature in Better Homes and Gardens magazine; a Blueprint 2000 section appearing on the Better Homes and Gardens Internet site; coverage on the Better Homes and Gardens television show; and a full-scale promotional campaign including print, television and Internet exposure.

Launching New Magazines
A second growth strategy is to continue our strong magazine launch program. We have one of the best records in the industry. We now publish 20 subscription magazines, up from three in 1983. Most of that growth came from internally created titles. Our most recent launch, MORE magazine, is designed for women ages 40 to 60. Its advertising results have exceeded our expectations, and its circulation is currently 500,000 and growing. Its focus on this fast-growing demographic group will be instrumental in driving the magazine’s growth.

We are conducting major tests for two potential new digest-sized magazines. Hometown Cooking features recipes from hometown cookbooks across the country. Antiques Extra is designed for readers seeking in-depth coverage of antiques and collectables.

Adding new marketing partners
We also will continue to add major new marketing partners and expand existing relationships. For example, our relationship with The Home Depot, the nation’s No. 1 home improvement retailer, is stronger than ever. We continue to play a major role in the company’s consumer communication programs and in related marketing activities. We expect the depth and breadth of our work for The Home Depot to continue to grow.

We’ve added Kraft Foods as a major marketing partner. The combination of our editorial expertise, Kraft’s knowledge of food, and each company’s understanding of American families has led to the creation of a wide variety of powerful communications vehicles.

Developing Interactive Programs
Finally, we’ll continue to implement new business initiatives related to interactive media. Our relationship with Intel provides an excellent example of how we can use our strong Internet presence to create and enhance marketing programs for clients. We’re selling our products electronically at bhg.com, and we’ve created programs such as WOOD Show Online that let vendors sell products on our Web site in exchange for a booth fee. We’re effectively combining our Internet capabilities with our home and family content to grow our business. We see great potential for revenue generation through interactive channels.

We’ve announced the creation of Shop Online 1•2•3, an advertising and promotional program for online shopping services. It will include a dedicated Internet site and a magazine polybagged with 4.3 million selected Meredith subscription copies in the fall of 1999.

Our Publishing Group is in very strong shape. Our stable of successful magazines and books, our extensive consumer database, and our strong integrated marketing and interactive media capabilities set us apart from our competitors and position us well for success in the future.
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