Analysis: Second Half 2008 Newsstand Sales Vanish
Sales tumble just ahead of a distribution system meltdown.
In the last week the fragile newsstand distribution system has essentially broken down. Two of the four major wholesalers have, in effect, exited the business. Publishers and the remaining wholesalers are scrambling to pick up the scattered pieces. If this wasn’t enough, the recently-released second-half 2008 ABC and BPA newsstand sales data revealed (based on a preliminary analysis) that the unit sales of audited publications fell a devastating 14.9 percent and the revenue declined a record 6.7 percent.
The story behind the dysfunctional newsstand distribution business is so convoluted that it makes Tim Geithner’s stimulus plan explanation seem clear by comparison. But regardless of its complexities one thing is sure—there is plenty of blame to go around for the collapse of the distribution channel. It includes wholesalers seeking massive unilateral price increases and a ranting former channel partner that apparently would rather sue than try to find a reasonable solution. Equally culpable are the publishers and their National Distributor representatives that have allowed, largely for competitive considerations, channel conditions to reach these devastating proportions.
However, the second half sales data shows there are other considerations besides a crumbling infrastructure that are troubling the newsstand industry. Prior to the recent distribution system meltdown, the sales declines reached epic scale in the second half of last year. In the last decade unit sales have fallen an average of about 3 percent per year while revenue decreased only about 0.3 percent annually. In the first half of last year the pace of unit sales decline began to accelerate at a slightly faster rate. This deterioration can be traced to record cover price increases, especially those initiated by Bauer, the industry’s unit sales leader. But in the second half of last year the relatively minor sales erosion trend turned into an avalanche. There is no doubt that poor economic conditions have acerbated the situation But dramatic cover price increases, which grew by a record 9.7 percent (from an average of $3.52 to $3.86), have accelerated the sales decay. Publishers who are keenly aware of the inelasticity of subscription pricing seem to have ignored that principle in regard to cover pricing. The lack of cover pricing discipline has come back to bit publishers in the behind.
Checkout Titles Get the Worst
The sales slide in the second half of last year affected nearly every publisher and every magazine category. However, the adverse effect was most pronounced among checkout titles. Checkout sales, which account for about 70 percent of the newsstand revenue of audited publications, drive the newsstand market. Within the checkout sector, the sales of celebrity titles have the greatest influence.
Over the last five or six years, celebrity titles have lead a newsstand sales surge. But the celebrity sales bubble may be ready to burst. In the second half of last year the unit sales of the six major celebrity titles (People, US, In Touch, Star, OK!, and Life & Style) declined 20.3 percent, and experienced its first ever revenue fall—6.9 percent. Among the celebrity titles People sales were the anomaly. Its unit sales were relatively stable (declined only 0.8 percent), but the sales of the other five titles in the celebrity category fell a combined 27 percent. This decline appears to be a result of the 2007 mega-price increases (50 percent) for the two Bauer celebrity publications In Touch and Life & Style.
These pricing changes have been a market catalyst for reducing the number of multiple title purchases and concentrating sales on People to the detriment of the other celebrity publications. This, in turn, appears to have had an adverse impact on the sales of non-celebrity checkout titles, whose unit sales fell a steep 15.9 percent. Among the 68 checkout titles only 6 reported unit sales gains—In Style, Time, Newsweek, Vanity Fair, Vogue and the beleaguered Entertainment Weekly. The newsweeklies, which have struggled for the last few years at the newsstand, were helped in the second half of last year by the intense interest in the Presidential campaign and the Obama-effect (Economist was also one of a handful of titles whose unit sales rose).
The sales of publications sold on the mainline, however, declined only a relatively modest 5.3 percent in units and 2.9 percent in revenue. This performance, although not robust, was inline with recent mainline sales results. Mainline sales were helped by the fact that its publications only increased average cover price by 2.5 percent in the second half of last year. This compares to the massive 11.5 percent cover price increase for checkout titles.
Sales Erosion Wide-Spread Among Publishing Companies
The sales decrease was greatest among checkout titles, but nearly all publishing companies suffered sales difficulties. Among the top 50 newsstand companies only three—Newsweek, Economist and Lindy’s—reported unit sales increases. In many instances the sales declines were huge. For example, among the top 10 companies everyone experienced a unit sales decline. Six of the top 10 companies reported declines of more than 20 percent—#2 Bauer 22.9 percent, #4 Hearst 25.5 percent, #5 Wenner 22.4 percent, #7 Source Interlink 22.8 percent, #8 Meredith 21.5 percent and #9 Northern & Shell (OK!) 20.8 percent. The units sales of #3 American Media were off 14.3 percent and #6 Conde Nast reported a 10.0 percent decline. Only #1 Time, Inc. and #10 Rodale came through relatively unscathed with modest declines of 2.4 and 4.5 percent respectively. These results clearly show that size alone does not provide protection against the ravages of a volatile market.
Put Differences Aside
Cavalier cover price increases and harsh economic conditions lead to record sale declines in the 2nd half of 2008. But those declines will look small in comparison to the havoc that is likely to ensue as a result of a partially collapsed newsstand distribution channel. The distribution system is precariously close to imploding. It’s now up to National Distributors to put petty differences aside and demonstrate the leadership to find a more permanent solution for stabilizing the magazine newsstand distribution channel. There’s a lot at stake here – the time for rescuing the toxic newsstand channel assets, without government intervention, is now.