The second half of 2008 spawned some of the worst Fas-Fax numbers that newsstand distribution experts have seen to date—not to mention the wholesale distributor shakeup-turned-debacle starring Anderson News and Source Interlink—leaving many publishers waiting for the dust to settle, hesitant to move forward with newsstand sales strategies planned for this year.

In the past, titles from Bauer and Wenner were able to skirt failing newsstand sales. But checkout line titles are finally dropping in line with the rest of the industry. In Touch Weekly dropped 32 percent to about 1.2 million copies, with sales of Us Weekly falling almost 21 percent to about 1 million copies. Ian Scott, president of Bauer Media Group, blames the titles’ sales drop on its 50 percent cover price increase from 2007. “During a recession, people slam their pocketbooks shut,” agrees Richard Alleger, senior vice president of retail sales at Rodale. Time Inc.’s People was the only exception to the celebrity newsweekly rule, with single-copy circulation rising 3.4 percent in the second half—a faint light in the newsstand darkness.

Overall, reports from the second half of 2008 saw a newsstand sales decrease of 11 percent, with broken dreams in distribution and advertising sales, and chaos on the wholesaler front leaving many publishers reevaluating their strategies.

However, Buzz Kanter, president of TAM Communications, publisher of motorcycle enthusiast titles American Iron Magazine and RoadBike, equates his approach to a fortune cookie proverb: “‘In confusion, there is opportunity.’ At TAM, and particularly American Iron Magazine, we are sticking to our netting,” he says. “We are not significantly changing approaches. We don’t believe in deep discount subscriptions or in squeezing every production cost we can out of the product.”

Wholesaler Distribution Debacle

In what has been a continuing ebb and flow of hype and uncertainty, wholesale distributor Anderson News announced in January a rate hike of 7-cents-per-copy for publishers, effective February 1, with Source Interlink following suit shortly thereafter. The major wholesalers quickly met an angry publisher backlash. Anderson News exited the market a month later, and Source, after reports that it, too, would go under, filed a lawsuit against publishers including Tine Inc. and Hachette to halt an alleged “plot” to run it out of business. Last month, Source was awarded a temporary restraining order on its anti-trust suit.

“First off, with the disruption of distribution, many publishers are going to be paying for and producing publications that will never be sold and will never hit the racks,” says Kanter. “This means publishers will lose printing and shipping dollars, which will never see income because they’ll never be booked.”

John Harrington, periodical distribution tracker and editor of industry newsletter The New Single Copy, considers this a “severe disruption” in newsstand sales, predicting that even the largest, most important titles will suffer. “They will just not be out in enough places to capture all of the sales,” he says.

Predictions of how long the effects of this wholesaler distribution upset will resonate with publishers range from one to four months. Harrington thinks that by the beginning of March, some of the flow of distribution will be established and in place. Yet, there is likely to be business that is never recovered. “It is just kind of an axiom when things fall apart and are put back together. Two and two may not quite come out to four—it may only be 3.9,” he says, predicting that smaller accounts may not findservice for some time.

Experts Predict Chain Impact

The Direct Marketing Association’s annual Circ Day became embroiled in analyzing the crisis in real-time, when a source at Comag said Anderson News and Source Interlink ceased operations during the February 3 event. Will Michalopoulos, vice president of retail newsstand marketing for Hachette, who in January told Folio: that “our company, just like most, can’t afford the money that these wholesalers are asking for,” outlined how he expected a shutdown of both distributors—which combined handling about 50 percent of the distribution market—could impact the wholesaler distribution chain.

One speculation was that Hudson News, News Group and about 30 independent distributors would pick up where Anderson and Source Interlink left off. “About 60 percent of Anderson’s footprint can be handled by News Group. However, I do think this will lead to a big disruption in the L.A. market.” Mary McEvoy, president of McEvoy Associates, thinks that distribution would go down two paths: supermarket and bookstore. “The path is going to become more divergent, with the supermarket cost of entry being higher,” she says.

“It is going to take some time for the new distribution agreements to be put in place,” as well as moving product and sorting out which distributors or wholesalers will be dealing with particular retailers, says Harrington. “It seems doubtful to me that either of these companies [Anderson and Source] are going to have a lot of product to recover.”

Publisher Uncertainty, Retailer Reaction

Curtis recommended that Rodale not deliver to Anderson or News Group, and on February 3, Comag asked clients to not ship magazines with on-sale dates after that week until further notice. TAM Communications, which uses Comag, is not currently negotiating their contract. “We have a reasonably long term agreement with Comag. Really, we feel lucky to be distributed by a company as professional and strong as they are,” Kanter says. As for retailer reactions to this change, some will likely be slow to come around, with concerns about what these deals will entail.

Medium-sized publications may easily lose 50 percent of average newsstand circulation over the next issue or two depending on frequency, says Harrington. Even People, which previously bucked the newsstand trend, likely didn’t get to all of its accounts during the first week of February. “They claim they got into one hundred percent of Barnes & Noble, but I understand that they didn’t get into Borders. Both of those are high volume accounts,” says Harrington.

The hope is that out of this mess will emerge a financially sound channel allowing for growth and “performance that will not be jeopardized at every hiccup,” adds Harrington. “But getting from here to there has many publishers nervous.”

In the meantime, newsstand experts have created a document on the Periodical and Book Association of America’s Web site—“PBAA Best Practices in Uncertain Times”—outlining steps that publishers should take with regards to distribution and financial forecasting.

In an ironic turn of events, Time Inc., which took an initial stand against the distributor price increase, announced on February 19 that it has inked an agreement to have Source Interlink distribute its magazines, effectively settling the antitrust lawsuit. Under this multi-year agreement, Time Inc. will pay no per-copy fees.

But the crisis still lingers on both sides of the aisle. “Long term, we still haven’t solved the problem that the wholesale community is losing money,” says Kanter. “There will still be financial issues for publishers to keep existing wholesalers viable. The biggest issue is that the financial model is broken and has been for years.”

Small Publishers in Survival Mode

The newsstand story of smaller publishers like Metrocorp, publisher of Boston and Philadelphia, resonates for many. The company was looking great coming into September 2008, and then “the world fell out in October,” said Marianne Kerr, Metrocorp’s consumer marketing director, during Circ Day.

When Metrocorp constructed its budgets for 2009, it did so assuming revenue would be 50 percent less than in 2008. In anticipation, the company shut down its New York City office, relying on less expensive sources as well as very little verified circulation. “Our budgets are 25 percent verified,” Kerr says. “We are definitely in survival mode.”

NewBay Media is part of a cooperative group of music publications where competitors have formed a coalition to get small retailers to buy into idea of selling their magazines. “If you have a small circ and are specialized, it’s harder to negotiate with larger distributors,” says Denise Robbins, vice president and group director of circulation.

Robbins suggests that publishers be cautious about the cuts that they do make. “The most important thing is to make sure you have the best circulation quality possible, since when you start to cut sponsored subscriptions, for example, your response rates and list rental quality can drop.”

Sales Strategies, Take 2

While panicking publishers may consider altering the newsstand plans they made last year for 2009, it may be premature, says Harrington. “I’m not sure if you want to revamp [your newsstand strategy], since first publishers have to see who is handling what part of the business.” While there may be a pervading wait-and-see attitude, numbers for February/March issues will likely be moving in the downward direction. “They are not going to be sales-wise where they planned to be earlier in the year,” he says.

Kanter anticipated the downturn in the fall and took precautions. American Iron Magazine managed to beat out the competition, increasing its newsstand sales by 6 percent to make it the number one magazine in its category. “Our strategy hasn’t changed post-October,” he adds.

Alleger says that due to the supply chain shakeup, Rodale is currently operating outside of its strategy from fourth quarter of 2008. “Certain activities are on hold. Right now, it’s all about managing products.” Throughout 2008, Rodale used its obvious product synergies—mainly in the realm of health and fitness with Men’s Health and Women’s Health—to “work with a number of retailers on combination promotions,” says Alleger. The publisher also implemented temporary price reductions with many of its retailers after the economic hit in the fall, integrating this into their post-October plan. “When people walked into a retailer through the fourth quarter of 2008, these magazines [Men’s and Women’s Health] were available at a reduced price,” Alleger says. Rodale didn’t change its cover price, but created a temporary price reduction available in stores through coupons and fliers, offering $0.50 to $1 off of the cover price. He notes that TPRs aren’t possible with retailers like Wal-Mart, as they already offer discounted rates.

Rodale title Runner’s World, which slid 4 percent in single copy sales in the second half of ‘08 according to Fas-Fax, has already delivered double-digit growth in January, increasing 13.3 percent over last year. Organic Gardening and Women’s Health saw total paid circ increase by 35.3 and 31 percent, respectively.

After some of the hype dissipates in the wholesale distributor front, Jay Annis, vice president of single copy sales at Taunton Press, anticipates “sending some of our staff, myself included, out to some of the wholesalers to rework our distributions because I can imagine how flooded they’re going to be with trying to set up distributions—as well as Curtis.” They will do this to ensure distributions are set up properly, and as an opportunity to improve sell-throughs. “I’m certain that these wholesalers and national distributors are going to be overwhelmed with the amount of work that they have to put through in a very short period of time,” says Annis. He plans to help with distributions, since “we have checkouts to protect on some of our titles and ongoing promotions to ensure get the right amount of copies,” says Annis.

Both Newsweek and Vibe recently announced plans to lower rate base and right-size distribution. Newsweek will lower its rate base by more than one million copies, from 2.6 million to 1.9 million this July, and to 1.5 million by January 2010. Vibe will go from 800,000 to 600,000—a 25 percent slash—effective with its June/July issue. “Mass for us is a business that doesn’t work,” said Tom Ascheim, Newsweek’s chief executive, in a New York Times interview. “Wish it did, but it doesn’t. We did it for a long time, successfully, but we can’t anymore.”

Rodale will be tightening up its print orders, too. “Up until the supply chain disruption, we were working with a number of wholesalers to reduce allocations across a category, not just across a title,” says Alleger. When the disruption dies down, he anticipates resuming the practice.

While some publishers are floundering, others are using uncertainty to their advantage. “Even though we are a small niche publisher, we’re looking for acquisitions in the motorcycle field right now,” says Kanter. “Our feeling is that publishers who are overleveraged or financially stretched will have a very difficult time on the newsstand going forward. This may create opportunities for us to pick up a title or two and reposition them for growth.”



Next Step: Developing the Global Newsstand
Zinio moves to a segmented marketplace.

Consumer magazines clearly felt the effects of the economic meltdown at the newsstand during the second half of 2008, according to the Audit Bureau of Circulations’ latest Fas-Fax. Three hundred fifty five magazines tracked by ABC—some 75 percent—saw their single copy sales decline between June and December, while just 116 managed to increase sales at the newsstand. Overall, 329 magazines saw their total paid and verified circulation decline; 239 were up, and eight titles remained flat. With declining numbers on the actual newsstand, some companies have decided to take the digital newsstand to the next level through segmentation.

Segmenting User Information

Zinio has recently announced a partnership with Digital Element, an IP intelligence solutions company, in an effort to deliver deeper insights about its global newsstand users. According to CEO Rich Maggiotto, by “enhancing our insights, we are creating an intelligence repository that will fuel the continued growth of the digital publishing industry.”

By leveraging Digital Element’s IP technology, Zinio says the results of will be threefold: it will improve understanding about how consumers interact with publishing sites; better segment its online audience; and deliver targeted content to its global online base of readers.

The IP service is able to target specific user parameters including geographic location, connection speed, Internet service provider, language, and domain name, available for free to publishers.


The Supply Chain Breakdown

According to newsstand analyst, Baird Davis, the “who gets what” economics of the newsstand supply chain can be intricate. Davis has calculated the percentages that each party in the supply chain—participant, retailer, wholesaler, distributor and publisher—receive, assuming an average cover price $3.75. Estimations are based on factors including an average efficiency of 36 percent, a wholesaler discount of 40 percent, 10 percent retailer display allowance (RDA), 5 percent national distributor brokerage, and an average wholesaler discount to retailer (before RDA) of 26 percent. These numbers do not include promotional and/or checkout rack expense.







Newsstand Chaos: The Wholesaler-Distributor-Publisher Timeline
In case you’ve missed the first bout of ongoing industry news surrounding the wholesale
distributor supply chain, here’s a recap:

January 14: Anderson News announces it will increase its price by 7 cents per copy, effective February 1.

January 21: Source follows with its own 7-cent price increase, also effective Feb. 1.

January 21 and February 2: Time Inc. and national distributor Curtis Circulation say publishing clients will not comply with the Anderson’s 7-cent price increase. Comag extends its contracts with both Anderson and Source Interlink—without the price increase.

February 3: A source at Comag says that Anderson News and Source Interlink will cease operation.

February 4: Source president and chief operations officer Jim Gillis denies reports that Source is pulling out of the magazine market, saying that most of the market’s top-selling newsstand titles will no longer have homes on his retailers’ shelves.

February 6-10: Prologix East/Source locations create an unexpected delivery hurdle. Magazine printer, Quebecor, reports that QWL carriers arrive at eleven Prologix East wholesaler locations to make routine deliveries, only to discover the locations closed. Carriers are routed back to QWL CF locations or to QW plants. These Prologix locations were primarily owned by Anderson News.

February 7: Anderson News officially suspends “normal business activity.”

February 9: Source files a lawsuit to halt alleged “plot” to run it out of business, seeking emergency court intervention to prohibit the defendants—including publishers Time Inc. and Hachette Filipacchi—from monopolizing the U.S. wholesaler market.

February 11: Source is awarded a temporary restraining order in its anti-trust lawsuit filed two days prior. As a result, print Quebecor says copies have to be re-consigned—again—resulting in a deluge of shipping requests and changes that create havoc with Quebecor’s already delicate distribution plans. News Group, which co-owns Prologix with Anderson News, re-opens the Prologix East facilities.

February 19: Time Inc., one of the first publishers to balk at the 7-cent-per-copy price hike, announces an agreement with Source to distribute its magazines. The agreement effectively settles Source’s antitrust lawsuit with Time Inc. and Time Warner Retail. Under the new, multi-year agreement, Time Inc. will not pay the per-copy fees.

Audiences, Marketing and a No-Holds Barred Peer-to-Peer Conversations With Your Fellow Pros
Check out this related session at The Folio: Show, November 1-2 in NYC!

The marketing department is at the crossroads of the most dramatic changes occurring in media: Digital marketing, content marketing, lead-generation,…