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TNG’s New Distribution Fees: A Game-Changer or the Same Old Game?

For one thing, the fee structure will make it harder to plan for the future.


Linda Ruth By Linda Ruth
11/26/2013 -15:31 PM






 

Over the past week I have spoken about little else than the new fees coming in from TNG, formerly The News Group, the largest wholesaler group in North America and responsible for over half of the continent’s magazine newsstand distribution. The fees, imposed unilaterally and to be implemented right away, range from two cents a copy to eight cents a copy, with 131 publications exempt. 

TNG is imposing these fees in a move that is eerily reminiscent of the fee-for-distribution that Anderson News Company attempted to impose in 2009. The fee imposed then was opposed by publishers and resulted in ANCO going out of business. There are differences now. And whatever the outcome is, it will be very different from that of the ANCO affair.

Which is good, as no one wants another wholesaler group to go out of business. No partner in the newsstand distribution supply chain could afford that today. As an industry, we need to try to create a situation where every member of the distribution channel is healthy and profitable.

But the situation troubles me, a lot, and for many reasons. Some aspects of this TNG mandate are game changers. Some are not. But the businesses most vulnerable to the consequences of these changes are the independent publishers.

I have heard—and probably so have you—comments made by some that this industry will become stronger, healthier, and more profitable by the removal of the “clutter” of the little guys from the newsstand. The irony is that the growth and stabilization of revenues in our business over the last two decades or so has come from the rise of special interest publications. Haven’t these guys been paying attention?

I am troubled by the ironies. And I am troubled by the game-changing aspects of this, and by the aspects that are not game-changing at all.

I am troubled that the extra fees are not being negotiated—they are being applied. That’s a game-changer. Now, is there a possibility that a publisher could talk to TNG to discuss other ways of skinning this particular cat? There might be. But to do so each publisher needs to take his or her own initiative to bring a plan to TNG. The initial wave of correspondence doesn’t include an invitation to show up at TNG to discuss. But I would encourage you to do so.

The fee is expected to be updated every six months. That means that publishers cannot know what they should expect to pay for distribution of their newsstand copies throughout the coming year. They will be charged at the will of TNG. Budgeting for revenues for a year will not be possible. Planning for what might come down the pike is impossible. That’s a game-changer.

The formulas used for imposing the fees are not to be shared with the publishers that they affect. Consequently, publishers have no say in how these fees are imposed, no way of improving their financial picture in the agencies. That’s a game-changer. 

Experience tells us that once those fees are imposed, we cannot expect them to be rolled back. Wholesalers are not known to reverse fees, once imposed. This is not just me grousing about life. This is an explicit policy on the part of the wholesaler community. That would be the same old game.

However, I have been told on excellent authority that this game is changing as well, and not for the worse. The six-month re-evaluation is formula-based. If a publisher’s standing changes for the worse, per the formula, the fee gets higher. If it changes for the better, the fee gets lower. So that’s another game-changer.

Of course, once the fees are imposed, they will obviously not be restricted to TNG. They will spread to other wholesalers, of which there are mostly only two. That is the same game.

I’ve heard from some industry sources that these changes are expected to succeed because the business models of publishers don’t rely on newsstand as a source. Publishers, I am told, discount subscriptions dramatically, so they don’t need the circ cash. They make their money from advertising, so they can afford to pay higher circ fees. But the publishers for whom these outdated business models still hold true are in many cases the ones exempted from the TNG fee. Many of the publishers taking the brunt of these changes depend on each revenue-generating channel to be profitable in its own right. Creating assumptions based on business models of the very publishers that aren’t hit by the consequences? That’s both an irony, and the same old game.

Where we are now is not any one company’s fault, but the fact remains: There are deep paradoxes involved in the concurrent consolidation of the distribution channel and the fragmentation of publishing and its consumption. I take the wholesalers at their word that they can’t afford to stay in business under the current model. And we ignore this reality at our peril. With a 10 percent loss year over year on a fixed-cost business, the agencies need to find a way to bring their business models into alignment with today’s newsstand realities. The costs of maintaining their truck fleets are huge; the costs of maintaining their merchandising teams are huge. Revenues are slipping. And we as publishers need for them to stay in business.

But from the supplier side, publishers also need to stay in business as costs keep rising and revenues keep slipping. I’ve done the math. Many of the publishers affected are already getting the thinnest slice of remit for the newsstand sales of their products.

From the point of view of the wholesaler, the game is not changing as much as it needs to. The fees levied are not enough to create the profit. They are not enough to fix a system that no longer works. They are seen as a bridge. Something to keep the distribution channel alive while the game is truly, finally changed.

So here we stand, yet again, on the brink of big sweeping changes, on the brink of a whole new way of doing business, and we still don’t know what it’s going to look like. But for today the changes are going to be about who can afford to stay in the game, who is going to leave, what counts as a “little” publisher and what the medium-sized publishers who don’t make the top 131 are going to do.

Some are going to go with TNG’s plan. Some will talk about alternative plans, ones that meet the goals of the suppliers as well as their distribution partners, ones that keep the balls in play for at least a while longer. And some are already speaking to book distributors, direct distributors, and retailers directly. Companies are going to disappear from the system as we know it. Most—but not all—will be publishers.

One thing that will not change is that publishers will continue to produce quality content that people want to read. And they will continue to find a way to get it into their audiences’ hands.

The details of how that will happen are under advisement.

 

 





Linda Ruth By Linda Ruth -- Linda Ruth is Principal of PSCS Consulting. Her book of case studies, "How to Market Your Magazine on the Newsstand," is available at Amazon. Find her online at Google Plus.

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