Although profits remained relatively flat for consumer publishers between 2005 and 2006, especially compared to soaring costs in paper, postal and production, consumer magazine executives seem optimistic about online initiatives and increased spending from both new and existing advertisers boosting the topline.

In the second annual Consumer CEO survey conducted by Folio: and Readex Research, executives from all of the various consumer-magazine sectors described the state of their businesses, from a revenue stream dependent largely on print advertising and subscriptions to a growing but still relatively insignificant e-media business.

The survey polled C-level executives on everything from how they expect to finish 2006 compared to 2005 to their compensation packages to their dependency on live events. Executives from mass-consumer magazines were polled, as were those from city and regionals, enthusiast titles, and association publications.

Not surprisingly, revenue growth topped the list as executives’ number-one priority [Chart 10, page 46]. However, it was a surprise that revenue growth exceeded last year’s number-one concern, profitability.

The year also seems to be ending on a relatively high note for many publishers. “Our seven titles will be profitable for the first time all year,” says one survey respondent. Others identified such aspects for their keys to success in 2006 as:

ユ Events
ユ Web revenue (small but growing)
ユ Multimedia diversification

When we asked publishers what disappointments they expected in 2006, the overwhelming majority cited soaring costs relative to flat revenue growth. Increases in paper and a whopping 17 percent postal increase (thanks to three consecutive rate hikes within the last year and a half) are cutting into the growth many publishers are seeing in both existing products and new launches. “Our biggest disappointment is the inability to effectively carry out a concrete marketing plan due to increased production and distribution costs,” says one respondent. Another stated, “Postage and paper increases will offset ad sales,” and a third says, “We’re not overcoming increases in paper and postage.”

Thirty-nine percent of publishers identified profitability as their biggest challenge in 2006, while 30 percent say it’s business development [Chart 11]. Another 23 percent said topline growth was their biggest challenge. Perhaps worst of all, 16 percent identified “executing overall direction” as the biggest challenge facing their company.

Still, publishers are pulling the trigger on launching new products and initiatives. Seventy-one percent of respondents expect to launch a magazine [Chart 12] this year, while another 63 percent envisioned an ancillary service startup. “We’re launching new products with minimal additional staff,” says one respondent.

Others say keeping pace is a growing concern. “We’ve folded a couple new magazines and we’re not embracing technology as fast as we could,” says one executive. “The technology is not keeping pace with our needs, particularly with Web programming issues,” says another.

“Problems on our Web site have greatly reduced revenues, especially from subscription sales.”
With the apparent surge in consumer magazine deals this year, 46 percent of respondents said they expected to acquire another company in 2006, while 12 percent anticipated being bought by another company.

The Revenue Breakdown
Even though publishers have launched initiatives both in print and online, revenue ratios stayed fairly constant between 2005 and 2006. Print remained the dominant revenue stream, accounting for 50 percent of revenue in 2005 and 49 percent of revenue in 2006 [Charts 1 and 2]. The good news for publishers is that many are starting to see online revenue growth begin to eclipse the loss of print dollars as their publications stabilize, and in some areas, even begin to grow again.

Print advertising was also the fastest growing part of respondents’ businesses in both 2005 and 2006, with 60 percent of publishers seeing the fastest growth from print in 2006. “We’re growing advertising 80 percent year over year,” said one respondent.

Paid subscriptions accounted for 26.5 percent of the total revenue mix in 2006, up slightly from 2005. “We’re starting to see circulation revenue that comes from sources beside print subscriptions,” says one executive. “We’ve doubled our circulation,” claimed another.

While much of the emphasis is online, the returns are still fairly theoretical. In 2006, Web advertising accounted for 10 percent of the total revenue mix, up from 8 percent in 2005. “The Web seems to be a good place with great growth potential and has proven so with FY 2006,” says one executive. However, another cited “Web sites and e-newsletters” as the biggest disappointments this year.

Still, 33 percent of publishers with less than $10 million in total annual revenue and 43 percent of publishers generating more than $10 million per year in revenue say that online is their fastest growing revenue stream. Fifty-three percent of publishers under $10 million say they expect to see increased revenue from online in 2006 while 68 percent of publishers generating more than $10 million expect to see a jump in online revenue this year.

Costs on the Rise
Consumer publishers are taking it in the wallet in 2006, with 77 percent of those with over $10 million in revenue reporting an increase in distribution costs, and 67 percent of publishers with under $10 million reporting the same [Chart 9]. Just 11 percent of smaller publishers and 13 percent of larger publishers say they expect an increase in paper quality.

And while launches are on the rise, most publishers are still conservative when it comes to hiring new staff. Forty percent of large publishers expect to boost the size of their staff in 2006, compared to 34 percent of smaller publishers.

Meanwhile, executives at larger companies seem more optimistic about their compensation than their peers at smaller publishers. Fifty-seven percent of executives at larger publishers expect their compensation to increase in 2006, compared to just 27 percent of executives at smaller publishers.

Optimistic Newsstand?
The newsstand may be the single biggest challenge for consumer publishers, with declining sell-through and skyrocketing distribution costs (to see how one publisher is responding, see cover story). “We’re not growing newsstand significantly after changing distribution early in the year,” says one executive.

However, 59 percent of respondents say they think newsstand sales will increase in 2006 compared to 2005 [Chart 8]. Interestingly, smaller publishers, who often have a harder time securing newsstand space than larger publishers, appear to be more optimistic. Seven percent of respondents that generate less than $10 million in annual revenue say they expect to see newsstand sales jump by 30 percent or more (something none of the larger publishers expect).
Twenty-eight percent of publishers generating more than $10 million per year say they expect newsstand sales to stay the same in 2006, something that 22 percent of smaller publishers agreed with.

Nineteen percent of larger publishers expect newsstand sales to decrease in 2006, compared to just 3 percent among smaller publishers. The majority of respondents expecting a decrease say it will be less than 10 percent.

Methodology: The survey sample of 1,000 was selected by Folio: and Readex Research from Folio:’s domestic circulation. Data was collected by Readex via mail survey from July 6 to Aug. 17, 2006. The survey was closed for tabulation with 233 usable responses, a 23% response rate. Results include only the 163 who noted in the survey that they work at organizations that publish consumer magazines. Margin of error for percentages based on 163 usable responses is 6.0% at the 95% confidence level.

Source for all data: Folio: and Readex Research