For the last five years publishers have been digging ever deeper in the newsstand coal mine, seemingly blind to the dangers that lie below. The canary hasnâ€™t croaked, but itâ€™s clearly breathing harder.
Publishers, naively waiting for good news from the top of the mineshaft, keep bemoaning the reasons for this calamitous bit of bad sales luck.
The recent newsstand sales figures for the second half of last year from AAM were indeed grim. It has been reported that the decline in unit sales was 8.2 percent from the year previous. But a more measured review, one that includes the sales of titles that reported sales a year ago but are no longer being published, shows that performance was measurably worse.
See Also: AAM: Newsstand a Drag On Circ as Digital Rises It reveals that unit sales were down 9.3 percent and revenue off 8.2 percent. But even these numbers donâ€™t fully demonstrate the level of performance.
Because of a reporting date anomaly nearly all the weekly frequency publications reported sales for 27 issues. However, they are being compared to 26 issues from the previous period. If the extra issue for the top 11 weekly publications is excluded from the calculations the unit sales decline would have been 10.2 percent. This, perhaps, represents a truer picture of newsstand sales performance in the second half of last year.
Well, as they say, stuff happens. If that were only the case an isolated ten percent decline wouldnâ€™t be so worrisome. But letâ€™s not forget this performance closely mirrors what has been happening on the newsstand for the last five years:
Unit Sales: Down 44.9 percent, 11.2 percent annuallyRevenue: Down 38.0 percent, 9.1 percent annuallyTotal Paid Circ: Down 14.9 percent from 277.6 to 236.1 million Single Copy Circ: Down 44.7 percent from 48.8 million to 27.0 million Single Copy Circ as a Percent of Total Circ: Down from 17.7 to 11.8 percent
Has it ever been clearer that the newsstand canary is in extreme danger of croaking?
Whatâ€™s my point in stretching this analogy? I believe publishers, to some great extent, remain in denial concerning the depth and seriousness of this precipitous decline. Letâ€™s be realistic here. In the last five years there has been a sea change in technology and how people consume media. As New York Times columnist Thomas Friedman indicated, in speaking about all businesses, 9/11 and the Great Recession have disguised the effect of these changes.
The business of magazine publishing is being seriously altered. Management emphasis has shifted to cope with the changes of an increasingly digital world. One manifestation of these changes is the rapid ascendency of replica circ. Its use nearly tripled in the last yearâ€”from 2.8 million circ to about 7.6 million circ, an increase of about 4.8 million. This increase, interestingly enough, compares pretty closely to the 3.6 million decrease in newsstand circ for the same period. Itâ€™s now a good bet that replica circ is cannibalizing newsstand sales.
Nothing can be done to halt the advance of these technological and consumer involvement changes to the magazine business. But what publishers can do, if they really want to preserve the newsstand channel, is to concentrate their efforts on cooperatively working with its wholesaling and retailing partners to fix the inherent inefficiencies of channel operations.
But time is of the essence. The canaryâ€™s breath is running short.
Baird Davis is a senior consultant with Circulation Specialists.
To paraphrase Senator John McCainâ€”letâ€™s have some straight talk. The newsstand as we know it is nearing endangered species status. How much further do newsstand sales have to decline before publishers take corrective action? Â Itâ€™s well known that newsstand sales are in the dumper, but the depth of the audited publication sales slide in the first half of this year is even greater than has recently been reported by the media. A 9.6 percent sales decline (reported by the media) is huge, but the extent of the actual slide is more than 20 percent greater.The reason for the difference is that the numbers reported by the media only represent the sales status of titles that were audited in both the first half of this year and the first half of last year. It doesnâ€™t, however, include titles audited a year go, but have either ceased being audited and/or have discontinued being published. Examples include; Soap Opera Weekly, Soap Opera ABC, Soap Opera CBS, Cooking with Paula Deen and Spin. If sales data from discontinued/no longer audited titles are included in the calculation, the overall unit sales decline is estimated (based on preliminary ABC reports) to be a breath-taking 12.8 percent and a corresponding 12.2 percent fall in revenue.The Newsstand Channel Is Being Hollowed OutThe devastating first-half sales are, as weâ€™re all aware, not an anomaly. The steep decline began in the first half of 2008 and has essentially continued unabated since then. A brief recap illustrates the accumulative depth of the sales slide:
The unit sales of audited publications have declined nearly 45 percent in the last four and a half years. Since 2007 itâ€™s estimated that by the end of 2012 the annual unit sales of audited publications will have fallen from about 930 million to 510 millionâ€”a staggering annual sales loss of 420 million copies. The revenue will have declined from $3.2 billion to approximately $2.4 billion.Whatâ€™s Gone Wrong?There are many explanations for this declineâ€”the great recession, fewer store visits and a more cost conscious consumer. But the most significant has been the impact of technological change that has increased the proclivity of consumers to acquire news and information on a range of mobile devices that are offering better and better user experiences. Together all of these things have contributed to the decline.Should the Decline Have Been So Steep?In this 4-year period of unprecedented change a substantial sales decline would certainly have been expected. But should it have been so severe? I would argue the decline has been exacerbated by a timid publishing community and the restraints of an antiquated newsstand channel distribution system. The channel has, in effect, been held hostage by a costly, inefficient system loaded with duplication of effort. This is largely a product of its two-middlemen (wholesalers and national distributors) configuration.Years ago the channel probably required a two-middlemen check and balance approach in order to meet the needs of accommodating a vast distribution network with over 500 independent wholesalers. Today just three wholesalers control the majority of all magazine newsstand distributions and the two-middlemen configuration seems seriously out of date. However, the corrosive often adversarial nature of this configuration continues to persist, which has seriously thwarted the prospect for channel reform.As I indicated in a February story (after the audit bureaus reported last yearâ€™s second-half sales) the magazine newsstand had reached viral conditions and it was clear that the desperately persistent decline was now feeding on itself. Six months later the first half results (the steepest sales decline in recent history) only confirms the viral nature of channel conditions.Publishers and Wholesalers: Coping in the Age of Newsstand AusterityPublishersFor years publisherâ€™s newsstand actions were dictated primarily by competitive self-interest. They largely ignored the health of the supply chain and the financial sustainability of its wholesaling â€śpartners.â€ť These actions, although seemingly counter productive, were precipitated by the huge diversity of the publishing community (like herding cats) and by the knowledge that they had a range of other alternatives (not just newsstand circ) for delivering readers to meet their circ level requirements.The trend to less single copy circ has been continuing for many decades, but the recent 4-year newsstand sales decline, coupled by the advent of digital (replica) circ, has intensified the effect of the newsstand sales decline.Let me give you a current example of how this works. People Magazine, the undisputed newsstand sales leader, experienced a nearly 19 percent decline in newsstand sales in the first half of this year. This translated to a 214,000 drop in newsstand circ. But Peopleâ€™s total paid circulation (nearly 3.6 million) remained virtually the same as it was in the year previous period (actually it was up about 6,000). To compensate for the â€ślostâ€ť newsstand circ, the subscription circ was increased by 220,000â€”this included a 77,000 increase in verified circ. Additionally People reported (for the first time) 37,000 replica circ.The point here is publishers have alternatives for compensating for â€ślostâ€ť newsstand circ. But it comes with some serious tradeoffs. Adding subscribers to meet circ level requirements generally increases reader acquisition costs and, of course, the added subscribers remove potential newsstand buyers from the market, which has a subtle, but real, impact on future newsstand sales.WholesalersOn the other hand wholesalers have far fewer alternatives for compensating for declining newsstand sales. Essentially those alternatives come down to reducing costs and increasing scale (growing market share). Thatâ€™s exactly whatâ€™s happened. Wholesalers have lowered costs by reducing staff, consolidating distribution management at central locations and curtailing much needed system improvement investments.Although itâ€™s difficult to measure the sales effect of these cost-saving initiatives, by all accounts the cost containment strategy of wholesalers has definitely contributed to the sales slide. In the process the three remaining wholesaler groups continue to battle for market share. The News Group, one of three major wholesaling groups, has recently taken the Kroger account (a major seller of magazines) from another super-wholesaler, The Source. The News Group and Hudson News teamed to buy CMG, a large national distributor, from Hearst and CondĂ© Nast. Itâ€™s still too early to read the results of this precedent-setting move, but I suspect itâ€™s quietly resonating in the market. All of this appears to be setting up the inevitable battle for wholesaler survival among the three remaining wholesaling giants. This battle may come to nothing, but in the interim itâ€™s helping keep the fragile newsstand channel in an unsettled condition.In a declining newsstand market publishers have options, albeit theyâ€™re often costly. Wholesalers have a lesser number of viable options for coping in a down market. They are desperately trying to keep their financial ships afloat, while fighting a market share battle, which could eventually reshape the newsstand channel.Itâ€™s Up to Publishers to Save the Newsstand ChannelPublishers have alternatives for replacing â€ślostâ€ť newsstand circ. This, however, has provided a false sense of security that has partially blinded them to the perils of a newsstand channel with greatly diminished capabilities. Yes, the prospect of more digital circ is in publisherâ€™s future, but letâ€™s be clear about the realities of consumer magazine publishingâ€”for many years to come publishing survival will continue to be based on producing quality print products, attracting a cadre of advertisers, cost effectively acquiring print readers and protecting prime sources of circ (reader) acquisition.None of the many circulation sources is more important than the newsstand. Without a viable newsstand sales market the prospect for the survival of consumer magazines will be seriously diminished.Wholesalers and publishers, whether they like it or not, are bound at the hip. Publishers desperately need a viable newsstand channel and wholesalers need publishers that are fully committed to producing product with retail sales appeal.What Can Be Done to Slow the Sales Slide?At this juncture itâ€™s not a matter of growing sales, but slowing the devastating 10 percent rate of annual decline. Itâ€™s no secret that channel efficiencies can be improved, duplicate effort eliminated and costs reduced. If that happened it could go a long ways towards stemming the severity of the sales fall.If publishers and wholesalers needs are mutually dependent why arenâ€™t these things being done?Resolve the Scan-Based Trading IssueThere is no simple answer. But if I were to pick the major sticking point it involves the publisher/national distributor/wholesaler battle over how to adjust to the effects of scan based trading. Scan based trading now dominates wholesaler relationships with their major retailing clients. However, publishers/national distributors have not fully accepted this reality. Itâ€™s too complicated an issue to fully discuss in this note, but the gist is it revolves around publishers accepting scanned sales data, shifting inventory control to publishers and coming to grips with the so called â€śshrinkâ€ť factor (the difference that may occur between scanned data and actual counts). There are also some audit bureau issues involved.Scanned-based trading is a thorny issue, but resolving it may hold the key to unleashing the prospect for improving efficiencies and reducing channel costs. Publishers and wholesalers should be encouraged to resolve the scanned-based trading differences, which, in turn, will enable them to get on with the task of working more cooperatively to address the more important issue of stemming the sales slide.I believe the ball is in the publisherâ€™s court. They must step up to bat and get this done. If not the future for the newsstand looks very gloomy.
The speed of the newsstand sales slide is intensifying. And that's very scary. In the first half of 2011 the unit sales of audited consumer magazines fell 10.7 percent to 329.7 million and retail revenue declined 10.6 percent to $1.272.0 million. Since 2001 unit sales have declined 47 percent and retail revenue has fallen 30 percent.
The decline is breath taking, but by now it's certainly not news. The newsstand channel is seriously troubled, but even in its darkest hour there's opportunity for publishers that are not faint of heart. There will be rewards for publishers that can read the tea leaves, properly interpret the trends and act decisively. Let's look at some recent developments as a means of achieving future insight.
Hearst and American Media Increase Their Newsstand CommitmentHearst buys the Hachette publications and increases its newsstand revenue market share by over 10 percent. American Media takes control of Source Interlink's two soap publications (Soap Opera Digest and Soap Opera Weekly) and acquires OK! Weekly from Northern & Shell and increases its revenue market share to 16 percent. These two market leaders have made major newsstand commitments-certainly positive signs for a troubled industry.
The Pace of Publisher Consolidation Continues to Rise The six major newsstand publishers (Time, Inc., American Media, Bauer, Hearst, Wenner, Conde Nast) now control 78 percent of all unit sales of audited consumer titles, up from 71 percent a year ago. The newsstand channel influence of these six companies will only increase in the years ahead. But other publishers can survive on the margins if the bigger players do the heavy lifting necessary to effect much needed newsstand channel reform.
Weekly Celebrity Titles Losing AppealThese titles previously helped sustain newsstand sales. But in the last year they have lost some of their appeal. Their combined unit sales were down 15.7 percent in the first half of this year. But their market influence is still big. They have a massive 30 percent share of the audited consumer magazine market so their recent sales decline has had a huge dampening effect on the market as a whole. However, in the newsstand's zero sum environment it's very possible they have left room for other titles to prosper.
Rise of Low Priced Women's TitlesThree low cover priced (less than $2.50) women's titles (Woman's World, First and All You) have prospered in this down market. They now represent a significant 15 percent of all audited publication unit sales. In the first half of the year their aggregate unit sales were flat and their retail revenue increased 1 percent. They are a model of how to prosper in this market and their low price appeal is an indicator of the price sensitivity of this market.
Checkout Versus Mainline SalesCheckout sales (68 titles) fell 10.5 percent, slightly below the market average, while mainline sales decreased a little more than 14 percent. As bad as things were at the checkout they were even worse on the mainline. Retail chains concentrate their efforts at checkout to the detriment of the mainline. More publisher effort in developing new retail outlets is required in order to reverse this trend.
Male Titles Suffer the MostMale oriented titles now represent only about 20 percent of total sales, down from 27 percent ten years ago. The decreasing demand for male titles has helped accentuate the decline of mainline sales. This is a stark reminder that the newsstand is primarily about selling women's titles.
Electronic Editions Beginning to Impact Newsstand SalesWired is, perhaps, the best example of this new phenomenon. It's believed that Wired per issue newsstand sales were about 67,000 to 68,000 in first half of this year. But they showed single copy sales of 82,000 on their ABC report. This might be an extreme example, but clearly replica edition sales are going to start eating away at the newsstand sales of many other titles.
Wholesalers in Cost Containment ModeWholesalers are concentrating on reducing costs to the detriment of sales. Publishers should be cognizant of how their actions affect sales.
Computer Assisted Distribution Systems Hold PromisePublishers are discovering new opportunities for improving efficiencies by using computer assisted distribution systems driven by MagNet and/or wholesaler direct data. These systems are available at all national distributors and in some instances used directly by publishers. Their use is in its infancy and it's expected that they will be much more effective over time. They hold out the real possibility of significantly increasing the industry efficiency levels, which would be a huge boost.
What Does It All Mean For Publishers?The newsstand market is shrinking and morphing in some unexpected ways. But publishers, like Hearst and American Media, that stay committed to the business and are able to adapt to changing conditions are likely to prosper at the newsstand in the years ahead.
Contrary to popular belief the sky is not falling on the consumer magazines business. It might not be all peaches and cream, but industry performance markers have fallen into a symmetrical pattern that describes a permanently smaller industry, one that is now properly sized and prepared to meet the competitive media challenges of a new era.Market Bellwethers ConvergeÂ A strange thing happened to the consumer magazine busidness near the end of 2009. The three major market bellwether performance indicators (circulation levels, newsstand sales, advertising sales), which had been sending mixed signals in recent years, simultaneously aligned.Â Circulation Levels: In the year 2000 the circulation of audited consumer magazines peaked at 312 million. At first the circ level declines were gradual. But in the last few years the decreases have become much more acute. By the end of 2009 the circulation of audited consumer magazines had plunged to 251 million, a drop of 22 percent.Â Newsstand Sales: Newsstand unit sales have been steadily declining for decades, but revenue remained stable, at about $3.2 billion, for the 8 year period prior to 2008. But in the last two years industry newsstand revenue of audited consumer magazines fell to an annual level of approximately $2.7 billionâ€”off about 16 percent.Advertising Sales: Advertising revenue of audited consumer magazines also declined, by just over 20 percent in the last two years.Â Iâ€™ve used PIB data for this calculation. Although PIB revenue canâ€™t be taken at face value, the year over year percentage change data is a useful measuring tool. Additionally it should be noted that PIB does not report on all audited consumer magazines, but it remains a reasonably representative industry sample because the 188 continuously audited consumer magazine titles reported by PIB in 2009 accounted for 81 percent of the circ of all audited consumer magazines.The chart below (in 000s) compares 2008 and 2009 PIB advertising revenue for all the continuously* audited consumer magazines, including the â€śBig 4â€ťâ€”Time, Inc. Conde Nast, Meredith and Hearst.
(* â€śContinuouslyâ€ťrefers to publications that reported advertising sales to PIB in all four quarters of both 2008 and 2009. It excludes 21 titles that discontinued publishing and/or did not report ad sales in all four quarters of 2009. By excluding non-continuing PIB publications from this analysis it provides a more representative (less skewed) picture of the industryâ€™s true advertising sales performance.)Â In 2008 PIB revenue for continuously audited consumer titles fell an estimated 8 percent and in 2009 it dropped 13.8 percent. In the last two years the decline of PIB ad revenue for audited consumer magazines has been approximately 21 percent.
The pace of the advertising decline was slower to manifest itself, but by the end of 2009 its descent (21 percent) fell right in line with industry circulation level and newsstand revenue decrease rates.
Touching Bottom: Defining New Industry Parameters
The simultaneous convergence of the three major bellwether indicators, along with signs of a modest advertising recovery in 2010, flattening newsstand sales and the success of a major new publication (Food Network), provide persuasive evidence that the consumer magazine industry is no longer searching for the bottom. The industry appears to have weighed anchor on a smaller businessâ€”whose parameters are 20-25 percent smallerâ€”but one thatâ€™s ironically, perhaps, more vibrant than the bloated environment they have vacated.
New Directions for Consumer Magazines
As a result of its bruising descent the industry is battle scarred and less arrogant. But itâ€™s also leaner, wiser, a more effective consumer and audience development marketer, less advertising-centric and better prepared to cope with the demands of new media and the startling advances in technology.
These developments have conspired to change the consumer magazine publishing business in significant and subtle ways.
Industry Consolidation: The ravages of the last two recessionary years have not fully worked their way out of the system. This means that further industry consolidation can be expected.
Influence of the â€śBig 4â€ť: These four supersized companies control (end of 2009) 56 percent of consumer magazine advertising revenue (60 percent in the 4th quarter of 2009). Their circulation, newsstand and advertising dominance is likely to increase in the future. Because of their scale, strong product lines and abundant human and financial resources they are well advantaged to successfully transition to a publishing model that is less advertising driven. Still to be determined, however, is how responsibly theyâ€™ll act to protect the industryâ€™s open business environment and shared resources (i.e. the newsstand channel).
The Big Get Bigger, The Small Get Squeezed: The business climate has become increasingly unfriendly for smaller publishers. Theyâ€™ve enjoyed somewhat of a free ride in the past, but now theyâ€™re being squeezed harder than ever by most magazine service providersâ€”postal, fulfillment, national distributor, printing/paper and banking. Their operating expenses are rising and at the same time itâ€™s become more difficult for them to attract the skilled personnel necessary to provide the array of new consumer marketing services and information demanded by advertisers. Judging from advertising sales the last two years and the record number of small magazine closures it appears as if smaller titles (especially those that are male oriented) are increasingly vulnerable when competing with alternative electronic media sources for both readers and advertisers. Finally at the newsstand retailers are looking to reduce the number of â€śunderperforming" titles, which will definitely restrict the future newsstand distribution of smaller titles.
Publication Preference Change: The prospect of publication preference changes will probably be most dramatically illustrated by the growing divide between female and male oriented titles. Female publications generate two times more advertising revenue and circulation than male publications. In 2009 female oriented publications further distanced themselves. Itâ€™s estimated that the advertising revenue of the 69 continuing PIB male oriented titles declined 21 percent, while the PIB advertising revenue of female oriented titles declined at a much lowerâ€”11 percentâ€”rate.
In the womenâ€™s field the best advertising performance was reserved for those titles whose advertising featured products/services for the home, including food and health. The often disparaged traditional womenâ€™s titles (BH&G, Good Housekeeping, Family Circle, Womanâ€™s Day, Ladies Home Journal, Redbook) were the only significant sized consumer magazine category that was able to post positive advertising results in 2009â€”advertising revenue up 4.4 percent. The advertising shift toward â€śfor the homeâ€ť publications will probably be accompanied by a commensurate change in reader product preferences.
For most male categories the news was universally grim. Advertising revenue declines of 20 percent or more were the norm. There were 25 continuously audited consumer titles that registered PIB ad sales gains in 2009, but only two (Muscle & Fitness, Flex) were male oriented.
Ascendancy of Consumer Marketing: The advertising decline of the last two years has muffled the appeal of the advertising-centric management approach that pervaded most consumer magazine publishing companies for the last two decadesâ€”so much for conventional wisdom. Publishers now recognize that to more effectively compete with new media sources they must demonstrate greater consumer awareness. This has precipitated renewed emphasis on developing strong consumer and audience development marketing skills. This is a major change; one publishers are just now coming to grips with.
The consumer magazine business of the future will be; smaller, more â€śBig 4â€ť dominant, increasingly women focused, less kind to smaller publishers, multimedia sensitive and more consumer oriented.
After nearly a decade of trial and error, the industry now appears ready to confidently face the future. Nobody has articulated the essence of this remarkable change better than Mr. Charles Townsend in his recent address at the MPA/PBAA Retail Conference. And who better than the head of Conde Nast, a company that has, arguably, been the most chastened by the advertising turndown, to verbalize this dramatic change. Mr. Townsend spoke of the death of the advertising-centric publishing philosophy and the renewed emphasis on the consumer. Most importantly Mr. Townsend, using the iPad as metaphor, spoke of publishers finally getting beyond their fear of electronic media. He suggested that new technology, like the iPad, should be embraced, rather than feared by publishers. He described it as a means of attracting new readers, with very few adverse ramifications.My calculations, observations and beliefs confirm that Mr. Townsend probably has it right. The stars and the bellwethers have aligned and I believe history will show that 2010 marks the start of a new, and exhilarating, era for the consumer magazine business.
Many titles are sold on the newsstand, but itâ€™s the performance of 10 publicationsâ€”the top 10 checkout titlesâ€”that define the market.
Eight years ago, the top 10 titles accounted for nearly half (46.8
percent) of the unit sales of all audited publications. In the second
half of 2008 the top 10 titles still accounted for about half (46.3
percent) of unit sales for all audited publications.
The unit sales impact of the top 10 titles has remained stable, yet
the makeup, frequency and cover pricing of these publications has
A comparison of top the 10 titles from the second half of 2000 to
the second half of 2008 helps illuminate the effect of these changes.
Several distinct developments should be noted:
1. Cover Prices Increased DramaticallyIn 2000, eight of
the top 10 titles, were priced below $3. In 2008 only one title was
priced below $2.99 (Womanâ€™s World). The average price of the top 10
titles surged 67.3 percent from $2.02 to $3.38. This compares to more
modest price increase rates of 21.3 percent for other checkout
publications and 20.4 percent for all the other audited titles during
2. Publication Frequency IncreasesIn 2000, seven of the
top 10 titles were weekly and three were monthly frequency. Their
average annual frequency was 41 issues. In 2008 only one monthly title
(the mighty Cosmopolitan) remained in the top 10. During this eight
year period the average annual frequency of top 10 titles rose from
41.0 to 47.6 issuesâ€”a frequency increase of 16.1 percent.
3. Unit Sales of Top 10 Titles Decline in Equal Proportion to the MarketBetween
2000 and 2008, unit sales of the top 10 declined 28.9 percent,
approximately the same rate of sales decline experienced by all other
4. Revenue for Top 10 Titles Rises, All Others DeclineUnlike
unit sales, the revenue of the top 10 and all other titles diverged.
The revenue of the top 10 rose 18.8, but the revenue of all other
publications declined 12.4 percent.
Lessons Learned from Top 10 Title Sales Trends There is much to be learned from the changes occurring among the top 10 newsstand titles.
1. Weeklies Are PreferredAt the checkout, weekly
frequency publications now clearly dominate. Among other things the
shift to weeklies has adverse processing and handling ramifications for
wholesalers and retailers.
2. Higher Cover Prices Are the NormAlthough higher cover
prices have undoubtedly precipitated the unit sales decline, they have
become the new checkout sector norm.
3. Checkout Sector Is Zero-Revenue BasedHigh cover prices
have helped increase revenue for the top 10 publications. Conversely
this has translated into lower revenue for all other titles in the
checkout sector. This helps confirm the belief that the checkout sector
(indeed, probably the entire newsstand market) is zero-revenue based.
That is, individual title revenue can rise or fall, but the
sector/market revenues will remain unchanged.
4. Higher Cover Prices Mean Fewer Multiple Title PurchasesHigher
cover prices for the top 10 titles has meant less multiple title
purchases. This has contributed to the unit sales decline.
5. Strong Titles Benefit from Higher Competitive PricingStrong
titles (number one or number 2 in the category) will benefit from
higher pricing by their competitors. People magazine is a good example.
6. Monthly Frequency Titles Have Been Marginalized at CheckoutAs
the influence of weekly titles has grown, it has adversely affected the
sales of monthly publications, especially the more mature womenâ€™s
7. Publications with High Newsstand Circ Ratios AscendAll
the top 10 publications have newsstand to subscription circ ratios
greater than 40 percent and high subscription pricingâ€”this was not so
eight years ago. It now appears as if there is no longer room at the
upper echelons of the newsstand market for titles whose circ is
top-heavy with deeply discounted subscriptions.
Top 10 Checkout Titles: 2nd Half 20001. People2. TV Guide3. National Enquirer4. Star5. Woman's World6. Cosmopolitan7. Globe8. Soap Opera Digest9. Woman's Day10. Family Circle
Top 10 Checkout Titles: 2nd Half 20081. People2. US3. In Touch4. Star5. Woman's World6. National Enquirer7. Cosmopolitan8. OK! Weekly9. Life & Style10. Globe
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 wasnâ€™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. Â The story behind the dysfunctional newsstand distribution business is so convoluted that it makes Tim Geithnerâ€™s stimulus plan explanation seem clear by comparison. But regardless of its complexities one thing is sureâ€”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. Â 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 industryâ€™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 situationÂ 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. Â Checkout Titles Get the WorstThe 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 fallâ€”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 gainsâ€”In Style, Time, Newsweek, Vanity Fair, Vogue and the beleaguered Entertainment Weekly. The newsweeklies, which have struggled for the last few years at theÂ 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.Â Â Â Sales Erosion Wide-Spread Among Publishing CompaniesThe sales decrease was greatest among checkout titles, but nearly all publishing companies suffered sales difficulties. Among the top 50 newsstand companies only threeâ€”Newsweek, Economist and Lindyâ€™sâ€”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 percentâ€”#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 Â 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. Itâ€™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. Thereâ€™s a lot at stake here â€“ the time for rescuing the toxic newsstand channel assets, without government intervention, is now.
Thank goodness for the Anderson family. Their Anderson News Company can be counted on for keeping the fascinating newsstand fable alive with their periodic threats of Armageddon. What would the industry do without them?
Well, the magazine industry might soon have to face that realityâ€”and itâ€™s an unpleasant one.
Truth be known, many of Andersonâ€™s wounds are self-inflicted. In the 1990s, the Andersons saw the dramatic changes occurring in the magazine distribution landscape as an opportunity to greatly expand their successful regional wholesaling operations. They were banking on synergies of scale and a core belief in the superiority of their operating practices. Instead, they discovered that regional success does not necessarily translate on a larger scale and retailers, not wholesalers, dictate the channel rules. The grand Anderson strategy has been a big disappointment. They have since pulled back from their most far flung geographic excursions. Overall, it has been a humbling lesson in business hubris.
Andersonâ€™s actions have always been defined by a strange naivetĂ© about both the magazine and retail industries which they serve. Their latest initiative is no exception. In it, they â€śmandatedâ€ť an across-the-board price increase (with no publisher quid pro quo) and in classic Anderson fashion included an ominous threat about closing their magazine wholesaling doors if a significant number of publishers donâ€™t go along with it.
This latest Anderson broadside, no matter how crude, has left publishers in a very uneasy defensive position with a Hobsonian choice. Yes, there does seem to be some sentiment among national distributors and publishers to call Andersonâ€™s bluff.
However, an Anderson family departure from the magazine wholesaling business would leave a gaping hole in the distribution pie. Many of the major retail chains currently serviced by Anderson can probably be accommodated (over time) by other wholesaler organizations. News Group, Source Interlink and Hudson News are undoubtedly waiting anxiously in the wings for the chance. But make no mistake, an Anderson departure would be a traumatic blow for publishers.
While Anderson was struggling, the self-absorbed brotherhood of publishers (i.e. national distributors) failed to address the gravity of channel conditions. Itâ€™s almost as if publishers were in a time warpâ€”trapped by a nostalgic yearning for yesterday. They have been unable to adjust to the unalterable fact that magazine distribution ground rules have changed dramatically in the last decade. The major chain retailers now set most of the industry's operating and financial parameters. Wholesalers, for the most part, have agonizingly adjusted to the new channel order.
But national distributors have chosen to ignore the effect of change, often blaming wholesalers for their own woes. As a pragmatic negotiating ploy, this might be considered good strategy. But the tough-guy stance of national distributors now appears to be a relic of the pastâ€”one thatâ€™s caused publishers to miss a critical opportunity to direct much needed channel reform to their advantage.
The classic struggle between retailers, wholesalers and publishers is nearly as old as time. The Greek Aesopâ€™s fable, "The Lionâ€™s Share," captures the essence of this conflict. In it, the lion (in this case, the retailer), the fox (wholesaler) and the jackal (publisher) go hunting, kill a deer and divide it into 4 pieces. The lion (retailer) takes three quarters and leaves the fox (wholesaler) and jackal (publisher) to fight over the remaining quarter. The battle for the remaining quarter is a test for survival in the treacherous, yet nourishing, forest.
Thatâ€™s the Aesop questionâ€”can wholesalers and publishers, like the fox and the jackal, find a way to equally divide the remaining quarter? If they canâ€™t, theyâ€™ll soon find that life outside the forest is less appetizing.
RELATED: Newsweek Mulls Dramatic Drop in Circulation
As we all know by now U.S. magazine circulation has been greatly expanded over the last 20 years to meet rising advertising opportunities. This growth has been achieved largely by acquiring a much greater percentage of "non-renewable circ" than publishers had previously employed.Â The expansion of "non-renewable circ" combined with reduced reader demand (read: Internet) has lowered circulation profitability and reduced "reader quality" for nearly all U.S. magazines.Â However, the effects of these rather dramatic changes were partially camouflaged by a strong advertising climate. When the advertising bubble burst in '08â€”coupled with a steep increase in paper and postal expenseâ€”the industry's circ weaknesses were starkly exposed.The question now facing many publishers, including Newsweek, U.S. News and Time, is to find circ levels that are more commensurate with reader demand.Â Â Many publishers will be forced to reduce their circ levels and this will initially involve lowering their dependence on "non-renewable circ."Â Typically this could mean reducing subscription agent orders, whose prices per order range from $1 to $5/$6 and convert at 5 percent or less. In the first year this would enable most publishers to substantially lower levels. In succeeding years most publishers will then have to increase their percentage of direct sold/renewable subscriptions (direct mail, Internet, inserts, renewable agent orders) in order to create a more favorable subscription source mix. A possible benefit of lowering circ levels by decreasing dependence on "non-renewable" subscriptions would be a positive impact on newsstand sales.
By the NumbersA review (based on ABC first half '08 Publisher's Statements) of the Newsweek circ situation revealed some difficulties, especially when compared to Time.Â Newsweek has employed a high percentage of so called "paragraph 6" (loyalty, partnership, sponsored, verified) circulation.Â This excludes the combination source, which is also reported in paragraph 6.Â In the first half of the year, Newsweek reported 452,000 in circulation from these sources (16.5 percent) of their total paid/verified circ level.Â This heavy paragraph 6 usage compares to Time's relatively modest 225,000 (6.6 percent) of their paid/verified level.
Another concern is Newsweek's newsstand circâ€”a good barometer of reader demandâ€”which has fallen to 83,000, down from 147,000 four years ago. Time's newsstand circ has also fallen to 96,000, down from 163,000 four years ago. Another possible sign of Newsweek circ distress is their very high estimated average subscription termâ€”22 monthsâ€”compared to 14 months for Time.
In this case Newsweek's emphasis on long term subs is probably an indicator, compared to Time, of greater dependence of "non-renewable" circ. It should also be noted that Time is advantaged by being part of larger publishing group than Newsweek.Â This provides Time a natural advantage because of such company assets as ownership of subscription agencies (Synapse, Quality School Plan) and the scale provided by a large cadre other titles. The advantage of scale has, among other things, partially enabled Time to attract 234,000 "combination" orders (which are generally considered "renewable" orders) during a period in which Newsweek reported no circ from this source.The comparison of Publisher's Statement data seems to indicate that Newsweek would have to reduce their circ at least 600k (maybe more) to achieve a subscription source mix ratio of "renewable" and "non-renewable" circ that is equal to what Time reported in the first half of 2008.