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The rude health of the customer publishing sector can be gauged by the latest ABC circulation figures. Of the top 10 magazines published in the UK, six were customer titles. With the AA set to launch a publication for its 6m members, six will soon become seven.

The AA is not the only new advertiser showing interest in custom publishing.

Recent launches include titles for a diverse range of clients, among them PC World, Vision Express, Prudential and lastminute.com. No longer the poor relation of news-stand publishing, customer magazines are evolving into a fully fledged marketing medium in their own right.

This impression was confirmed by a Mintel report released earlier this year that valued the sector at £344m in 2004, up from £220m just five years earlier. The growth has continued into 2005.

'The past six months have been one of the most active new business periods I have seen,' says Mike Potter, co-founder of Redwood and now chairman of Seven Publishing, publisher of news-stand title Delicious. To make the most of this upturn, this year his firm purchased Sainsbury's Magazine publisher New Crane, which is soon to be rebranded Seven.

Significantly, the Mintel report concluded that the sector's growth is more than a short-term phenomenon, estimating that it will be worth £531m in 2009, a rise of 36% when the effects of inflation are discounted.

Alex Finer, creative director of The Publishing Agency, points out that about 50 companies in the FTSE 100 have launched a magazine. 'That means 50 have not, so the sector is still relatively underdeveloped.'

It is surprising, therefore, that Interpublic Group this year withdrew from customer publishing. The Publishing Agency was formed in July when a management team bought out Interpublic-owned Just Customer Communications in the UK and two US publishers.

The deal effectively ended Interpublic's involvement in customer titles.

Integration breakdown
Grahame Lake, former managing director of Just and now a director at PSP Communications, believes Interpublic's decision reflects a failure to integrate publishing into its other activities. It is a failing he believes is shared by rival marketing groups that have bought publishing arms. 'They have had years to integrate publishing into their marketing services offering, but there is no evidence that it has happened,' he argues. 'The networks lose patience and focus their business elsewhere.'

His views are shared by Toby Smeeton, former client services director of Just and co-founder of new agency Sunday. 'The big networks are working toward multimedia delivery, but in the UK that is not sustainable,' he says. 'Marketing managers here buy expertise in each discipline, not generic ability.'

Naturally, this is an argument that customer publishing divisions owned by other marketing services groups do not accept. Ian Sewell, commercial director at Redwood, points out that his agency works closely with Omnicom sibling BBDO on some pitches.

However, he accepts that integration has not been easy. 'It is a cultural thing - it takes time for people to work together,' he says. 'We are all run as separate businesses, but we are getting there.'

Industry action
Interpublic's decision notwithstanding, customer publishing agencies from all backgrounds enjoyed strong growth last year. Driving this uptake over the long term is marketers' willingness to experiment with other media as traditional channels fragment. In the past 12 months, this has been helped by a concerted effort by the Association of Publishing Agencies (APA) to make a strong business case for customer magazines.

'The big story this year has been the resurgence of the APA,' says Mick Hurrell, planning and business development director at Wardour. 'It has been transformed from a publishers' club into a very active organisation. It has really changed the dynamics of the industry.'

The centrepiece of the APA's activity this year has been the 'Advantage Study'. Unveiled in March, this was 'the most important thing the industry has seen in the past 10 years', according to Patrick Fuller, managing director of Haymarket Network, part of Marketing's publisher, Haymarket.

The report, conducted by Millward Brown, set out to prove the effectiveness of the medium as a marketing tool. It tracked magazines from a number of categories and found consumers read customer titles for an average of 25 minutes, dispelling the myth that freely distributed magazines are simply ignored. It also demonstrated an average 8% sales increase as a result of a customer magazine, and a 32% jump in brand loyalty.

The 'Advantage Study' is not intended as a quick fix. It is an ongoing project that will deliver new results every six months to chip away at marketers who have previously ignored the medium. It is already bearing fruit, according to Jason Frost, managing director of Publicis Blueprint and chairman of the APA.

'The study has given us a huge fillip,' he says.

'There are now 20 world-famous brands that did not have a magazine before talking to us.'

Broadened horizons
As it grows in confidence, the industry is expanding its client base - retailers, financial firms, car marques and charities now routinely use the medium. One area growing rapidly is the public sector, and the past year saw the creation of the COI's first customer publishing roster; 15 shops made the cut.

The government's publications include a title for Visit London through John Brown Citrus Publishing (JBCP) and The Sharp End, a magazine for the police published by Square One. Several other titles are in the pipeline.

According to COI director of publications Andrew Prince, government departments are turning to magazines to deliver complex messages. As a result, roster agencies can expect plenty of pitches in the future. 'Magazines are a growing niche for the COI,' he says. 'There is greater interest within government, as it is seen as a positive communications channel. Customer publishing is gaining momentum as people increasingly understand what it can and cannot do.'

In contrast, the FMCG sector has not grown as quickly as expected. A year ago, when Procter & Gamble launched Mustard, a lifestyle title promoting its brands, there was much talk of FMCG being the next major growth area for the medium. But Mustard never made it past the first issue, and there has been little, if any, activity from other consumer goods firms.

'An FMCG magazine won't work unless people know who the brands belong to,' says Andrew Hirsch, chief executive of Mustard's publisher, JBCP, who believes that the magazine failed because P&G refused to talk about itself. 'Mustard didn't work because it didn't say where it had come from. The brands in it were very strong, but there was no message from P&G itself. People thought that it was just a supplement of the Daily Express (in which it was distributed).'

Despite the failure of Mustard, many agencies feel that FMCG still has great potential, especially now they are armed with the results of the 'Advantage Study'. 'Suppliers are concerned that retailers have their own media,' says Publicis' Frost. 'They want their own ways to build loyalty. Magazines are something they will look at more in the future.'

As well as attracting new clients, agencies have succeeded in expanding existing contracts. This often involves extra publications, but a growing trend is for publishing agencies to supply content for other channels, principally online.

Publishers have a chequered history when it comes to the internet. Several had their fingers burned during the initial dotcom boom, investing heavily in digital content, but finding that clients turned to online specialists to build their websites.

Redwood, for example, set up a dedicated web division, which it subsequently had to close.

Now, however, there is a feeling that clients have their online presence in place, and are looking to publishers to provide imaginative content.

One example is provided by Haymarket Network's recent four-year deal with Manchester United. The publisher already produced the club's match-day programme, but has now taken over United magazine and, significantly, its website, too. 'Anyone can build a website, but you have to fill it with good content,' says Haymarket's Fuller. 'More and more solutions are a combination of online and offline.'

Not everyone is convinced. JBCP's Hirsch believes the margins in internet work are still too thin for it to be a major growth area. Digital content, he believes, will remain an add-on to existing relationships. He believes the real opportunity lies in the blurring of lines between customer publishing and direct mail.

JBCP now publishes an insert that accompanies Orange phone bills, a publication that serves as a piece of direct mail. 'Direct mail spend is 10 times the size of customer publishing spend,' he says. 'If just 10% of that DM spend moved to customer publishing, our industry would double.'

Specialist Publications has adopted a similar strategy by developing a 'mini-mag' format, which is cheaper to produce than a full-blown magazine but more compelling than a mailshot. It is already used by Kwik-Fit, and will be the format for the AA's magazine. AA retention communications manager Sam Day sees the publication as a 'sophisticated piece of direct mail'. It is a marked change from the organisation's previous publication, a glossy lifestyle title which relied on selling ads.

One potentially exacerbating problem for the industry is pricing. There is a feeling that clients are squeezing margins, putting smaller agencies at risk. 'The industry needs to shape up in terms of pricing, or a lot of agencies will go to the wall,' says Brian Grant, chief executive of Redactive. 'We are a competitive business, but you have to have a decent margin.'

His sentiments are echoed by Haymarket's Fuller. 'The next challenge is to recognise that we are not an industry in which creativity is irrelevant,' he argues. 'Creativity and success go hand in hand, and it comes at a price.'

There are steps afoot to tackle the issue. An APA working party chaired by Richard Proctor, co-owner of 21 Carrot, is exploring ways to showcase the industry's creativity, and has toyed with the idea of a dedicated creative awards. According to Proctor, the industry needs to focus on more than return on investment. 'We would like to find a measure that relates to brand meaning.'

Publishers are not the first to find themselves having to prove the value of creativity. But doing so may be crucial if the APA's ambitious targets are to be met. Its goal is to expand the industry so that it commands 7% of total marketing spend by 2010 - double its current share. There are certainly challenges ahead, but if the momentum of the past 12 months can be maintained, it would be foolish to bet against it doing so.

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