I am certainly not right about everything. There are many variables, some of which I do know and some of which I do not. But I am a macro view writer. Always have been. And pretty much always will be. So take what you will and value it as you will…

THE TRADES, as of March 4, 2013

You would never know that trade magazines are a dying business from the intense battles going on around the Hollywood trades. But there is a very high profile battle going on over a very specific pool of money… the award season. Specifically, the Academy Award season.

Deadline has done a particularly good job of building an ad business for the Emmys, starting with a long relationship with Fox. But still, Oscar season accounts for no less than 60% of revenue at any of the trades—Variety, The Hollywood Reporter, Deadline—or the wannabes, like The Wrap. (Or, for that matter, MCN.) None of these sites has the amount of non-industry consumer traffic to make spending more than marginal amounts targeting consumers worth the spend. But all of them seek inflated amounts for reaching the industry primarily. And those pricey spends tend to be cheaper, on the whole, than buys at outlets that have wider audiences but bigger price tags to go with them. The two major newspapers in this business, the LA Times and the New York Times are a more complex hybrid, though LAT is especially focused on bringing in awards revenue because of an greater shrinkage of non-industry readers (and thus, ad prices).

After the Hollywood Reporter faded, they finally sold and got revived in a less trade-oriented direction by Janice Min. There are ongoing debates about whether the privately-held THR is losing money, making money, or breaking even. But the difference in profile is breathtaking. And the reduction of the print business of that trade to a once-a-week glossy, helped redefine that game.

Meanwhile, Deadline sprung to life, expanded into a trade by the cash of Jay Penske. This allowed Nikki Finke to expand her personal petting zoo—for which she worked her ass off, even as she became compromised by many players in town—and to become, essentially, a trade, particularly adept at filling up on the trade news that keeps the site inside baseball… the exception being box office, which is supported by a weekly Drudge Report link good for hundreds of thousands of page views weekly.

As Mike Fleming—a top earner at Variety for years—and Nellie Andreeva started filling blog inches in a more trade-like way, Finke has faded into the background, now a spice in the stew, but not the site driver. Still, according to insiders, the power of Finke to push Penske to play the game as she wanted it played was mighty, even if self-defeating.

Variety, pushing on a corporate level to be more of a brand & meetings business, got lost behind a paywall that went up just as it became crystal clear that no one would ever have any “exclusive” to themselves for more than an hour (even in a business in which “exclusive” is mostly about where a source wanted their content placed first, for whatever reasons).

But then a real turn in the tale. Variety went on the sales block again… this time with no real bottom on price. (And the sale netted, reportedly, about 25% of what the expected price was just a few years earlier.) More importantly, who would be the buyer?

The presumption was that Penske, who was in the hunt, was buying the veteran title for his girl, Nikki. This was a source of horror, amusement, and in some shady, creaky corners, pleasure.

But that is where our tale gets interesting. Penske landed Variety on October 9, 2012, along with financial partners, Third Point LLC. The rumor was that the deal to purchase Variety included a clause precluding Nikki from taking over for one year. I haven’t seen the contract nor have those claiming this, but who knows? Many felt that by the first of 2014, Nikki Finke would be the editor-in-chief of Variety.

But 5 months later, she is not. And Penske has used much of these 5 months trying to hire someone other than her for the job. So clearly, whatever Finke and many others presumed, was not the case. Daddy had other plans. Did he change his mind after Nikki lost hers, finding out that Variety was not to be her toy or was this always his plan? Again… no one except Jay Penske really knows the answer to this. But with the hire of Claudia Eller… a looooooong-time LA Times employee… and the promotion of two well-liked Variety editors to make a 3-headed editor-in-group, Penske signaled loudly that he was serious about giving Variety the room to compete.

So now, the bigger question… compete with whom?

There are rumors (again, rumors) that Penske has a plan to have Variety and Deadline drive down different tracks. But as noted before, there is barely enough revenue out there to sustain 2 commercially successful trades and the LA Times and the many others, much less 3.

The Hollywood Reporter hasn’t abandoned the trade business because no matter how successful becoming the movie industry hybrid of Entertainment Weekly and Ocean Drive Magazine, that awards money is still a strong play. If it’s going straight up against the glossies, it is not a clear winner. The awards budgets of studios are seductive… and come with editorial content involving major movie stars for 6 months a year.

So where can Variety go? To compete with Deadline’s inside baseball “who changed agents… who got an audition… HOT trailer” schtick or to go up against a glossy weekly with a leader who has specialized in that area and has a two-year head start cultivating the brand (and may well not even be profitable)?

Ask Team Variety and they will tell you that they already outscoops Deadline on a daily basis. And given that it carried about triple the reporters, that makes perfect sense. So does Penske try to stop those scoops and funnel them to Deadline? After hiring Claudia Eller, seems unlikely.

Does Variety try to compete with The Hollywood Reporter’s angle? Do they look for middle ground?

The big question mark in this whole picture is about the advertisers. They are not stupid, even if they have wildly overpaid for trade print in years past (and/or present). At some point, they will realize that they are paying three publications with almost exactly the same readership and mostly, the same content.

There are two possible strategies by Penske. First, he can try to reduce the costs at Variety to a slightly higher level than Deadline, trying to have the two website businesses with a minor, but financially critical print component balance. The theory here would be that there is more advertising money to be made by two small businesses than by one larger business. They would cannibalize each other, but the overall sum would be greater than either could make on its own and with two modestly successful brands, some sucker might come along and buy one of the for a significant profit.

Second, Penske could choose… and would inevitably choose Variety. Push Fleming & Andreeva to Variety and Deadline would be decimated… and much, much cheaper. Nikki would have to go back to work to avoid being seen as a failure… and you know that she would work herself to death rather than ever to allow the perception that she is flawed in any way. Nikki’s bile re: Variety would be marginalized, as would her tool of threatening people and companies for content. Variety accelerates, both in reality and perception and becomes the clear alpha trade based on what we call news in the entertainment business. Time Magazine to THR’s EW (as the brands were perceived in the past).

Third scenario would be to truly “church & state” the two entities and let them battle it out. This would be insane… but then again, Sumner Redstone split CBS and Paramount and allows them to continue to bicker, undermine, and marginalize one another. So it would not be the first such crazy choice.

Truly, there seems little that THR can actually do in response to Penske’s two outlets. THR is not in the same game. And if it focuses on countering Variety and Deadline, they will self-screw.

So is think the ball is very much in Jay Penske’s court. What will he do now that he has paid for control of the Hollywood trade business? How will he handle his unruly daughter? How much of this is ego and how much is business? Will he overplay his hand and cause the advertisers that are so critical to these business’ futures to retreat?

I am, honestly, more hopeful than I have been about the trades in many years. But it can go south in a hurry. I don’t care whether the people at Variety feel good about what he’s saying or not. They are, mostly, into tactics, not strategy. The big decisions here are strategic.

And as strong a reporter as Claudia Eller is and has been, she is a minor pivot in this story. Her hire is not going to define Variety. It’s bigger than any one reporter. Bigger than Nikki and all that crazy-ass “personality.” It’s about a declining category that will get stronger or weaker based on the strategic choices of one rich guy.

Fascinating.

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