Is There a Silver Lining to First Half's Hemorrhaging Newsstand Sales?
The newsstand has gone to hell in a hand basketâ€”or has it?
As FOLIO: reported earlier this week, consumer magazines took a huge hit at the newsstand during the first half of the year, according to the Audit Bureau of Circulation's Fas-Fax figures.
I believe there are two factors that have had a much larger effect on newsstand sales. One is the lightly discussed wholesaler-mandated distribution reduction initiatives. These changes have clearly helped provide a much needed industry efficiency improvement boost. Conversely, they have surely had a negative effect on sales, perhaps up to 1 percent point of industry sales. The other factor involves the powerful consumer marketing effect of cover pricing.
Impact of 'Super' Price Increases by Market Leaders
In the first half of this year, the largest cover price increases in industry history were initiated. Theyâ€™ve had an effect on both sales and product preference. The price increases resulted in the requisite fall in unit sales. But in the first half of this year, the magnitude of some of these price increases is having an outsized effect on purchasing patterns.
The cover prices of two newsstand sales leadersâ€”In Touch and Life & Styleâ€”were dramatically increased (up 50 percent) in October of 2007. These two titles, not unexpectedly, experienced significant unit sales declinesâ€” 29 percent in the first half of this year.
But the real surprise has been how those price increases have apparently affected the purchasing behavior of the other top 12 newsstand publications (People, US, Star, In Touch, National Enquirer, Womanâ€™s World, Cosmopolitan, Life & Style, Ok! Weekly, Globe, First and O, The Oprah Magazine).
Winners in a Down Market
Whatâ€™s going on here? The mega cover price increases for In Touch and L&S appear to have forced buyers to narrow the scope of their product preference and limit the number of multi magazine purchases. This seems to have adversely affected the unit sales of all top 12 titles, except People and OK!. Those two publications, among the top 12, were the only ones to demonstrate both unit and revenue gains the first half of this year.
The strong sales performance of People can be ascribed to high perceived product quality and being a category leader. People has emerged as a huge beneficiary of the In Touch/Life & Style mega price increase strategy. Its revenue was up a staggering $24 millionâ€”nearly 19 percent. OK! was the other big winner. By attending to perceived product quality and maintaining a below category cover price, it has gained market share in the tough celebrity field.
Effect on Other Titles
It's been shown how mega cover price increases by market-leading titles can have a ripple effect on the sales of competitive titles. In the case of In Touch and Life & Style, it certainly impacted, both positively and negatively, the sales of other leading publications. Itâ€™s effect on unrelated publications, however, appears to be relatively low.
Consider thisâ€” the unit sales of the top 12 publications (they represent approximately 50 percent of the industryâ€™s unit sales) were down 10 percent. The sales for the balance of the industry (the other 500 or more audited publications being sold on the newsstand) were down only 1.9 percent in unit sales and revenue was essentially flatâ€” off .4 percent. This performance is very similar to what the industry has experienced in the last five yearsâ€”satisfactory, but not brilliant.
In the first half of 2008, many of the leading womenâ€™s checkout sold titles exhibited fairly steep sales declines, but the sales performance of the balance of the publications was in line with recent sales patterns.