What's Love Got to Do with It?

With no business plan and little money a young publisher launched a music magazine.
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No business plan, little money, zero experience -- is Shirley Halperin's passion enough?

"Does phish stink?"

Sixty-thousand readers in New York City's tristate area got the answer ("No!") to that cover-line question last August in the pages of Smug, Shirley Halperin's new alternative-music magazine. Since Halperin launched Smug, in February 1995, its circulation has grown from 5,000 to 20,000, its readership has expanded to 60,000, and monthly ad revenues have climbed from zero to $15,000. Four-color, full-page ads are increasingly supplanting quarter-page, black-and-white ones, in issues that have swelled from a dozen pages to 50. After just four issues, Smug beat out larger and long-established dailies and weeklies to win a prestigious local music award.

All this from a 23-year-old college dropout who hits the club scene at night and is building a magazine on a couple of networked computers in her bedroom by day.

Halperin's foray into self-employment wasn't planned. Three credits shy of graduation with a double major at Rutgers University, the Israeli-born Halperin had, as she says, "temporarily suspended my enrollment" to devote time to her nonacademic priorities: her jobs at a small record label in Manhattan and as arts editor of the Rutgers Review. But Halperin was fired from the paper in the fall of 1994 because she was no longer an enrolled student. She quickly decided the time was ripe to launch her own magazine, and a quarter of the Review arts staff, which she had grown from one person to 40, elected to join her.

In making the leap, Halperin overlooked the obstacles -- she had no business plan, little money, and zero experience running a company -- to focus on the opportunity: publications covering the music scene between Philadelphia and New York City, in her words, "sucked." The Village Voice carried club schedules, but its music coverage, she says, was overshadowed "by all that political stuff"; the Aquarian Weekly, in New Jersey, covered musical events, but Halperin saw it as targeted more toward "aging hippies and wanna-be musicians" than to young fans -- like herself. Those publications also cost money, something Halperin knew young people never have enough of. She reckoned that her magazine should be free. It wasn't a business decision. At that point, Halperin didn't know from business. Now that Smug threatens to become a business, Halperin vows she'll keep it free, "covering music that people like me care about, or should care about."

Smug: the name comes from a record label Halperin thought about starting, which she wanted to call Smug & Indifferent. The 10-issues-a-year publication is intended to provide music fans aged 16 to 30 with well-written stories "about musicians that matter," explains Halperin. The fact that that qualifier includes bands with names like Swinging Udders, Bent Backed Tulips, and Super Chunky Monkey begs the question, music that matters to whom?

Halperin -- and by extension, Smug -- has a nose for new music. The cover of each issue always carries, in addition to the names of the notables covered inside, the phrase "plus bands you haven't even heard of yet . . . " It's a key element in the magazine's business model: bands people typically haven't heard of yet can't afford to advertise in Smug's established competitors. Spin charges $29,700 for a four-color full-page ad; the Village Voice, approximately $7,000; and Smug, just $1,000. "This business is built on developing artists," explains John Germinario of Polygram Group Distribution, in Queens, N.Y. "The way we break and build them is to use vehicles like Smug." Barb Dehgan, a publicist at Hollywood Records, based in Los Angeles, notes that "Rod Stewart doesn't need Smug. But if it's a regional band, our money will be allocated to a regional publication -- like Smug -- where the band may have a following already. It doesn't make sense for baby bands to advertise in the bigger publications until awareness of them rises." Halperin's point is that even small bands and record labels have to start somewhere. Smug's ad rates will gradually increase as its costs rise, but they will always be "a little bit cheaper" than everyone else's, Halperin says.

Targeted advertisers -- recording labels, clubs, music retailers, and alternative clothing boutiques -- base some of their buying decisions on a magazine's look: its graphics, typefaces, photos, and design. They ask themselves, as Dehgan puts it, "Is this a publication you should be seen in?" Jason Colton, assistant manager for Phish, says he knew Smug was "respectable" when it asked to conduct a photo shoot with the band instead of running the standard handout shots.

Halperin is the creative force behind Smug's hip look as well as its content. As resident entrepreneur, she does many jobs at the start-up -- setting story lineups, writing and editing copy, selling ads, hiring staff, shooting some of the photos, overseeing prepress and printing operations, and even delivering stacks of Smug around Manhattan. She claims to like design best, laying out the magazine "sometimes on napkins, if I'm really bored at a show." Interviewing a Parsons School of Design grad student and intern prospect for Smug, she skips all formalities and goes right to his sample work. "Is the crop mark purposely off-center here?" she asks after glancing at it.

The founder's penchant for detail is matched in intensity by her obsession for frugality -- a cost consciousness that enabled her to launch Smug with just $1,700 in personal savings and $7,000 in what she calls "donations" from a dozen friends, relatives, and music colleagues. For contrast, note that for Time Inc. to launch a monthly magazine, "it's almost impossible to contemplate anything under $10 million, and you're probably talking closer to $20 million," according to Robert Miller, who funded new magazines for five years under Time Inc.'s recently interred publishing arm Time Inc. Ventures. But then Time has to pay its employees, while Halperin's staff of 30 writers, photographers, editors, and designers work, so far, for no money. They labor for the sake of love, loyalty, and incentives such as bylines, photo credits, college-internship credit, free film, and invitations to parties and concerts. The first exception is Smug's advertising director, who earns a commission of 20% on the ads she sells. "I used to be afraid they'd walk away," says Halperin of her wageless crew, "but they keep reaffirming their loyalty." Freelance photographer Bob Berg, whose photos for Smug have landed him several additional jobs, says, "It's so obvious to me that she's going to make it. When she does get big, I want to be right alongside her." The second exception is Halperin herself, who draws a salary of less than $2,000 a month, $640 of which goes toward joint rent -- her own and Smug's being the same.

It would not be inaccurate to say that Halperin launched Smug, initially, at least, as a means to save, not to make money. The magazine finances her music habits, bringing her club invites and CDs. "I'm getting for free what I'd be spending my paycheck on," she says.

Her Faustian bargain: she's traded in her college-graduation credentials and a lucrative sideline (teaching Hebrew at $50 an hour) to live a life in which she eats and sleeps very little and parties a lot -- for business purposes, naturally. "You can't be in it without being out there," she says.

To leave work, Halperin has to leave home. Smug's nerve center is in her bedroom; her two roommates are on Smug's masthead (as managing editor and senior writer); and their multilevel Gramercy Park apartment constantly teems with writers, photographers, interns, sales reps, and couriers delivering 20 to 30 CDs a day. People come and go at all hours. There is always music, but it's the new music that Smug needs to keep up with -- indeed, ahead of. Since most of Smug's articles and artwork arrive via modem, Halperin's only regular daylight foray is her daily trip to the corner newsstand, where she peruses the stacks -- paying particular attention to music, photography, and design books -- and gets her MediaWeek and Adweek fixes. ("I can't afford to subscribe.") Her other outings are mostly nocturnal.

It's not a lifestyle she'd like to live forever, but it suits her for now. "Nothing consumes Shirley like this magazine," notes her father, Eli Halperin. "This is her life." For the record, Smug is also a little bit of his life. While his daughter runs the show, Eli Halperin keeps the books. Recently he cosigned with her for a $10,000 bank line of credit. It's a job the Goldman Sachs technology specialist says he is happy to do. "I don't think she should get involved with the numbers right now," he allows.

And it's true that while you'll never catch her with a spreadsheet, Halperin admits to no embarrassment. She volunteers her strengths instead. "I'm very good at knowing what music people are listening to and what people want to read about," she points out -- which is arguably this start-up's greatest competitive advantage. "I know that one day I will be a big publishing person of some kind," she says. "I have the ideas and the will to keep going." Music insiders invariably compliment the publisher more than her magazine. "What I find impressive," observes Jody Miller, president of JLM Public Relations Inc., in New York City, "is that there's a real panache to Shirley. She's got a forging-ahead attitude and lets nothing stand in her way."

In Halperin's business, that might be what it takes. "Passion, contacts, vision -- these are more valuable to us than business savvy. You can supplement the business savvy," states Miller, the former Time Inc. executive. Samir Husni, a professor at the University of Mississippi's department of journalism, concurs. "It takes creativity to do a magazine, not degrees," he says, noting that Henry Luce was an army private, not a publishing magnate, when he got the idea that became Time magazine. Research from Husni's annual publication of new-magazine start-up and failure rates indicates that "the creative [as opposed to the business] side will determine whether a magazine makes it. You have to be able to produce something a reader will want to read," he says.

Halperin's apparent lack of business sophistication is less a liability in her industry than it would be in, say, semiconductors. "She's in the alternative-music market, which tries not to be successful," notes Dennis Erokan, the founder of BAM, one of the most successful and well-known alternative-music publications, based in Pleasant Hill, Calif. "I never thought of advertisers or focus groups. Rolling Stone came out of love for the subject matter," Jann Wenner has said of what today is considered the music-industry bible. The biweekly generates an estimated $98 million in revenues on a circulation of 1.3 million. Wenner started it when he was 21.

So, it is possible to start out as Halperin has -- for love and not money -- and learn the business along the way, however grudgingly.

A year into her venture, Halperin finally wrote a business plan for Smug -- but only because she had to in order to raise capital. After nearly breaking even on first-year revenues of $70,000, Halperin is looking for $500,000 to take Smug "to the next level," as she puts it. That would mean upgrading its paper quality from newsprint to a semiglossy stock, shrinking it in size from a folded tabloid to a stapled magazine, and, most important, beginning to pay her staff. She hasn't raised the money yet, but her solicitations are giving her a crash course in publishing. For instance, she balked at one potential investor's suggestion that she increase the claimed pass-along rate (the estimated number of readers per copy, handy when figuring out a publication's readership) for Smug, which at 2 seemed too conservative to him. "I worry about lying," she says. But she reconsidered after learning that People touts a pass-along rate of 11, and Time and Newsweek a rate of from 5 to 6 and a half. After posting observers in college cafeterias and clubs to track the life cycle of a single issue of Smug, she felt comfortable lifting its rate to 3.

The publishing lessons supplement what Halperin calls her simple business philosophy: "Every year your circulation should go up, your pages should go up, and your ad revenues should go up." On a monthly basis, Smug has met those criteria so far. Assuming she raises the $500,000 she's seeking, Halperin projects that Smug's circulation will increase from 20,000 in 1995 to 30,000 this year and to 40,000 in 1997. Her business plan says that ad pages will rise from 150 in 1995 to 200 this year and to 250 in 1997. By gradually increasing Smug's ad rates while keeping them at least 50% less than those of the Village Voice, she intends to build Smug's revenues to $120,000 this year and $700,000 in 1997. Halperin is hoping to attract blue-chip college advertisers like American Express and Coca-Cola and to increase distribution up and down the Eastern seaboard -- from "Baltimore to Boston." Her goal for Smug: "to become the primary source of music information for every college student, concertgoer, and record buyer interested in New York's eclectic and hard-driving music scene."

Halperin defends her projections with several arguments: Music is an evergreen topic for Smug's target audience, which is itself evergreen, since a new crop of music-crazed college freshmen sprouts each year. Smug is free and therefore is more likely to be picked up by cash-strapped readers. And Smug offers high-quality writing and photography while charging competitive ad rates. It remains to be seen whether the blue-chip advertisers Halperin is courting will care to be seen in a publication that carries pictures of people with pierced tongues.

Smug's projected profit margins -- 12.5% in 1996 and 21% in 1997 -- appear ambitious, given the precarious nature of most magazine start-ups. Half of them fold within the first year, and most take four to five years to break even, according to Husni's research. But some of Halperin's competitors think she could achieve her goals. James Rensenbrink, publisher of Aquarian Weekly and EC Rocker, and a 27-year industry veteran, says that profit margins of 5% to 15% are typical. Arie Nadboy, publisher of the free 18-year-old biweekly The Island Ear (circulation 30,000), published out of Long Island, says profits can range as high as 20% to 30%, but getting there isn't easy. "Club owners and music types are people who aren't that easy to deal with and who don't pay on time, if they pay at all," Nadboy says.

Halperin can attest to that. She's learning the hard way the importance of collecting money up front: when the year ended, $7,500 of Smug's $70,000 in 1995 revenues were still accounts receivable. Smug now offers prepayment incentives to advertisers, but industry veterans suggest that slow payers and no-payers are just part of the landscape in this niche of journalism. Furthermore, Smug's fledgling status means that many advertisers expect -- and receive -- deals. "Since they're the new kids on the block, they go out of their way to be flexible," notes Polygram's Germinario. "If I say I have only x dollars to spend, but they have something that costs more than x, they'll cut a deal," he says, appreciatively. Smug's price flexibility boosts its popularity but not its revenue stream.

Smug's distribution could also use a little work. Although the magazine is available in 169 outlets in New York City, New Jersey, and Philadelphia, it is yet to be carried by large music retailers. "We're working on Tower," says Halperin.

One thing consistently good about Smug is its writing. Halperin emphasizes experiential, opinionated accounts that tell the reader what the writer felt or thought about the music. Occasionally the humor can be sophomoric ("The band's performance provided an excellent definition of the term 'blah"), but most of the prose is clever and smart. ("Hootie and the Blowfish is the Pat Boone of the '90s -- music your parents can like, too.") Compared with some of its competitors, Smug looks positively literary. The writer of the cover story on Phish wove Ayn Rand's definition of music into the piece. People in the music industry notice the quality. "They take care and pride in not presenting just another piece of crap," notes Hollywood Records' Dehgan.

"I don't know what I was thinking a year ago: a fifth-year senior in college, I got kicked off the staff of the school paper (where I was the best damn arts editor they ever laid their eyes on) and in a fit of revenge decided to put out my own magazine. Who would have thought that this is how it would turn out?"

Halperin penned that in an editor's note in Smug's anniversary issue, and 600 pairs of eyes read it in a framed version at the magazine's "We Can't Believe We Made It One Year" celebration, this past January. At the party, held at ultrahip CB's Gallery, in New York's East Village ("where Drew Barrymore and Madonna hang out," brags Halperin), the publisher briefly took the stage to thank the standing-room-only crowd of musicians, publicists, journalists, photographers, and record-label folks for their support of Smug. Dressed in a plaid jumper and white tights, the diminutive Halperin looked more like a schoolgirl than an entrepreneur. (OK, a schoolgirl with platinum-dyed hair and heavy black-framed glasses.) Gesturing toward her photographers' work displayed on the gallery's walls, she said she was "proudest she actually got to witness several people's careers happen" with the creation of Smug. But despite her self-effacing comments and her attempts to draw the crowd's attention to the photos, it was obvious that Halperin was the driver behind the evening's buzz, and that what was being celebrated was the launch of her career. She hadn't slept for three days, she had been at the printer until 2 a.m. the night before, and she was too frazzled to enjoy the free bar or the three bands that would play that night. Nonetheless, she declared, "This is perfect for me. This is what I was meant to do."


EXECUTIVE SUMMARY

Company: Smug Inc., in New York City, founded by college honor student and dropout Shirley Halperin

Concept: Become the alternative-music information source for young people between Baltimore and Boston

Competitive advantage: Youth. Halperin, 23, is neither old, jaded, nor sedentary; she understands Smug's readership because she is her readership.

Hurdles: Youth


THE FOUNDER

Education: Dropped out of Rutgers University in fall 1994, one semester shy of graduation

Last jobs held: "Jack-of-all-trades" at independent record label in Manhattan, and Hebrew tutor

Salary: Less than $2,000 a month. ("It doesn't leave much for going to the opera.")

Equity: 50%; Dad holds other half

PROFILE OF SMUG'S READERSHIP

Age: 16Ñ30
Male: 58%
Female: 42%
Picks Up Smug --
On campus: 37%
At record or alternative store: 28%
At club or concert: 27%
Other 8%
Music Junkie:
Buys music CDs weekly

Wired: Typical Smug reader goes on-line through a home computer

THE FINANCIALS

1995 1996* 1997* 1998
Issues 10 10 10 10
Circulation 20,000 30,000 40,000 50,000
Ad pages 150 200 250 300
Revenues $70,000 $120,000 $700,000 $900,000
Expenses $77,000 $85,000 $150,000 $460,000
Net profit ($7,000) $15,000 $150,000 $260,000


Where Smug Has Grown
To achieve the revenue levels Shirley Halperin has projected in Smug's business plan, the number of ad pages the magazine sells must increase by half from 1996 to 1998 -- from 200 to 300 pages. But the magazine's per-page advertising rates will have to grow by a factor of five -- from $600 to $3,000 per page.


WHAT THE EXPERTS SAY

Media observer
Dennis Giza
Associate publisher of Columbia Journalism Review, in New York City
In an industry where start-ups are increasingly dependent on marketing surveys, focus groups, direct-mail tests, editorial mock-ups, and, of course, five-year business plans, it's refreshing to hear of a magazine founded on a passion for the subject matter. Smug's unique editorial focus and alternative distribution -- and its being free -- have so far allowed it to succeed. However, I'd be more optimistic about Smug's continued success if it reached an agreement with a large music retailer like Tower or HMV. While I can't predict the magazine's future, I do predict we'll catch Halperin with a spreadsheet yet.

Industry observer
Jason Colton
Member of the Phish management team
For smaller bands, the ones covered under the "plus bands you haven't heard of yet" thing on Smug's cover, good press in Smug can have a priceless impact. For Phish, the Smug article was really cool because it gave the band a certain amount of underground credibility. It doesn't make us seem a lot bigger than we are.

Smug can't match the distribution, the circulation, the reputation, or the journalistic prestige of many larger music or general-interest magazines, but we decided to do the story with Smug because it stuck out. And Shirley stuck out. It was a great article.


Industry observer
Leslie Chinea
Vice-president of advertising and marketing at Compact Disc World, a nine-store chain based in South Plainfield, N.J.
About a year ago we were having trouble reaching the Generation X demographic, so I decided to try advertising in college papers. That was a nightmare. They were run by students, sometimes my ads never ran, the accounting was disastrous -- and I was at my wits' end. Then I got a call from Shirley Halperin; her timing couldn't have been better. I was dealing with someone with business savvy, who knew the importance of running my ads when they were supposed to run and of keeping the accounting in order. She promised and delivered.

It's tough to measure the effectiveness of our ads in Smug. I look at them as image advertising, because the publication has excellent design and superior editorial; its writers are on the cutting edge of music, and the writing is very good. Smug readers are savvy enough to know that whoever is advertising there is the kind of establishment they'd like to patronize.

Industry observer
Dennis Erokan
Founder and editor-in-chief of BAM magazine, based in Pleasant Hill, Calif.
Twenty years ago I was in exactly the same position as Halperin -- down to the same first-year revenues -- so I am tempted to try to tell her, "Don't do this, and don't do that."

That said, she must get a sense of what her magazine can do best and how to home in on that. She wants to run up and down the East Coast, but what does the world need? Some of her advertisers and readers are telling her, and she should make sure her plans match what they're saying.

In a year or two music is going to change -- meaning that alternative will no longer be the hippest thing in the world. She's got to be prepared to make the switch with her readers. When the switch happens, everything you thought you knew about the world changes. It happens in the music business about every four or five years.

Last updated: May 1, 1996




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