In the last couple weeks, two major publishers have decided to outsource their circulation operations. Interestingly, both are almost identical stories. IDG outsourced circ for PC World, Mac World and GamePro. Ziff Davis Media, another tech publisher, outsourced circ for, you guessed it, PC Magazine and Electronic Gaming Monthly. The stories attempt to answer why publishers might consider outsourcing such a vital operation to a third party. Here, John Klingel, former president, worldwide circulation for Reader’s Digest, offers his take on why some publishers should be weary of outsourcing circulation.

As a general rule, outsourcing circulation on a large magazine is a very bad decision. For small magazines, it makes sense. They often can’t attract the necessary talent; and companies that offer outsourced circulation services can provide better circulation management than small magazines can do on their own. In outsourcing to Charles Mast, Ziff Davis retained someone who used to be their circulation director. Frankly, it would be hard to find better talent.

As someone who has consulted on over 400 magazines and managed the world’s largest circulation operation, I’ve had to deal with rising costs, downsizing and the declining economics of circulation and magazines in general. One of the issues I’ve confronted many times is merging the circulation operations on multiple titles through acquisitions or just merging operations. Generally, what we found was relatively little reduction in overhead. It simply takes a certain number of people to run circulation for a title.

If an outside company offers lower costs to run a circulation operation, that outside company simply must be offering to do less. There might be somewhat lower labor costs in another part of the country, but there simply cannot be enough efficiencies of scale to lower costs substantially. If you’re cutting a lot of overhead cost in circulation, you have to be reducing workload.

It’s easy to cut workload and simplify operations. But those actions are likely to reduce revenue. Publishers are usually very poor at understanding circulation. Actions that will lead to reduced renewal rates in the future are hard to monitor. And there are many short-term cost savings that will do enormous long-term damage.

So if a publisher is getting substantial savings through outsourcing, they will sooner or later get a lot less for their money. A person who is working on titles for multiple owners is not going to be as concerned about your title as your own people will be. That’s just common sense; and if you believe an outside service who tells you that won’t be true, I’ve got a bridge to sell you. And a vendor who’s having a problem making a profit on your fees will have to find shortcuts and reduce services.

Circulation profit occurs over a long period of time. Investments made today won’t yield a payback for years. Paid circulation on magazines makes money from renewals. Often it will take three to five years before the really high marginal profit on renewals is achieved. What publishers are experiencing today are declines in profitability from past bad circulation decisions. A cut in circ investment five years ago may have helped short-term profits and made some manager look good at the time, but that same decision is killing profits today. And for a long time, many, if not most, magazines have been making very bad short-term decisions.

Outsourcing circulation by large titles is just another example of bad short-term thinking. In fact, I think of it as the “kiss of death.” Tough times demand great talent. Magazines are dying. The traditional profit formula simply doesn’t work for most titles. Now is when more investment in circulation personnel and acquisition costs is needed, not less. Cutting costs does not generate revenue. And if you don’t fix the revenue problem, you’re just prolonging the death of the magazine. There are three critical legs of a publishing formula: editorial content, circulation and advertising. To fix today’s extremely tough publishing problems, you need all three legs working closely together.

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