Analysis: Print Media’s Moment of Reckoning
How reckless circulation practices are accelerating the demise of consumer magazines.
A year ago I wrote a piece for Folio: called “Assessing the State of the Magazine Print Business.” In it, I posited that in the rush to the digital future, consumer magazine publishers had lost sight of protecting their print base. It painted a bleak picture of the circulation foundation of the consumer magazine business. A year later, the same problems exist, except that in many significant ways the situation is even worse.
In essence, the problem is that many publishers of audited consumer magazines are supporting circulation levels that are too high to economically sustain.
In this piece, I’m going to discuss the three areas that best define the circulation difficulties faced by the audited consumer magazine business: First, the troubled and now altered newsstand channel; second, the reckless expansion of non-revenue circulation sources; and third, the surprising slowdown in digital circulation. I will conclude with suggestions for mitigating the effect of these difficulties.
To help guide the discussion, reference the accompanying chart, which shows a set of critical circulation data comparisons for the top 20 publishers. The top 20 circulation publishers represent 85 percent of the 190 million total paid circulation of the audited consumer magazine market and, for purposes of this note, they are a good proxy for the entire audited publication universe. The second chart shows, perhaps for the first time, the estimated newsstand channel sales for both audited and non-audited publications.
Publishers, of course, are well aware of the newsstand sales decline that’s plagued the industry for the last nine years. Unit sales of audited publications have declined a staggering 71 percent during this period. However, recent reports seemed to imply that the sales decline was slowing. MagNet, for example, reported for the first half of this year an overall unit sales decline of 10.6 percent and a revenue fall of 6.2 percent. This is certainly not great performance, but it gave hope that the severity of the sales slide, especially on the revenue front, had lessened.
Unfortunately, MagNet’s numbers do not properly reflect the sales of audited publications. Only by digging down in the bowels of AAM report data (which I’ve done) was it possible to gauge the sales of audited titles. The result showed that the sales of audited publications in the first half declined 14.9 percent, with revenue off 15.4 percent, indicating that the rate of decline for audited titles, rather than slowing, is actually accelerating.
What’s going on here? It’s very simple — the newsstand channel, previously the mecca for audited titles (especially weekly celebrity titles), is fast becoming the province for high priced SIPs (some call them specials or bookazines, but in this column they’ll be referred to as SIPs).
A clear picture of the SIP impact can be determined by subtracting the sales of audited publications from MagNet’s industry totals. This calculation reveals that the unit sales decline for non–audited titles (SIPs accounted for a significant portion of non–audited publication sales) was a minuscule 1.3 percent — starkly different from the 14.9 percent unit sales decline for audited publications. But here’s the extra-kicker—the average sales price of audited publications actually declined during this period, from $4.30 to $4.27, while the average price of non-audited publications rose rather smartly from $7.52 to $8.06. Note that the average price of non-audited titles (mainly SIPs) is now nearly twice as high as audited titles. The net result is that revenue for non-audited titles actually rose 5.8 percent, compared to the steep 15.4 percent decline for audited titles.
For publishers of audited publications (and other regularly published titles) this has to be a frightening development. In the zero-sum newsstand market, it’s now clear that SIPs are cannibalizing the sales of audited titles. This might be good news for wholesalers. But for publishers of audited publications, its yet another brutal newsstand body blow.
Reports from the field confirm the seriousness of the situation. Retailers are jumping on board by eliminating regularly published titles from racks, and replacing them with SIPs. The effect is particularly acute for weeklies, but it’s now having an apparent effect on monthly publications, as well. Monthlies are being pushed down the rack in favor of SIPs that are now often commanding top rack positions. Plus, disappointedly for many publishers, national distributors appear to be fully supporting these changes.
The extensive proliferation of SIPs is a newsstand channel game changer. Publishers of regularly published titles should be working with wholesalers, national distributors, and other publishers to find a means for more equitably balancing the distribution of SIPs and regular frequency publications. If not, they risk an even more accelerated rate of sales decline for their publications.
Reckless expansion of non-revenue circ use
To be frank, non-rev circ sources (previously called paragraph 6 circ) — defined here as verified, partnership, paid sponsored, award, association and club circ — are generally considered the least desirable circ sources. Their use represents a kind of pact with the devil — a drag on both circulation profitability and reader quality in exchange for circulation level support. It’s a ticking time bomb. Every year, its extensive use continues to compound the adverse circulation economic impact.
The evidence of its danger is revealed when reviewing the circ sources of titles that have reduced circ levels. In nearly every instance, circ level reductions are accompanied by a commensurate reduction in non-rev circ usage. Reader’s Digest and TV Guide are good examples of this. These two publications employed a lot of non-rev circ a few years ago. But today, after major circ level reductions, their use of non-rev circ has dropped below two percent of total paid circ.
Major publishers are the big users of non-rev circ. Despite some recent circ level reductions by the top 20 publishers, the expansion of non-rev circ continues. Overall industry use of non-rev circ in the first half rose from 20.8 percent to 21.4 percent of total paid circ. Not all publishers are gorging on these circ sources. The really heavy use of non-rev circ is largely confined to the publishers with high circ level titles that are chasing national advertising. These include, shown with their percentage of non-rev circ use: Time Inc. (30.7 percent), Meredith (29.5 percent), Condé Nast (32.5 percent), Wenner (30.6 percent) and Rodale (23.3 percent). These publishers, particularly Time Inc., Meredith, and Condé Nast, have easier and more economical access to non-rev circ sources. They also appear to be using these sources, not only to support high circ levels, but also to sustain a competitive advantage over publishers who don’t have the resources to keep pace in what amounts to a high-level circulation battle of chicken.
Advertisers are aware. Advertisers are not blind to what’s happening. They are aware of publishers’ extensive appetite for non-rev circ. As I understand it, many are negotiating rates that discount the use of these sources. This is particularly true of partnership, the largest non-rev circ source, whose ballooning usage has now exceeded single copy circ for the first time.
Non-rev circ is not a cure. The use of non-rev circ can be intoxicating and addictive. But it’s not a cure. It’s more like a Band-Aid. These sources are finite. They should be used judiciously or publishers risk long-range economic impediments and the loss of credibility with advertisers.
The use of digital circ stalls
The new AAM reporting regulations, regarding opened and unopened qualification for multi-title digital circ (primarily from Texture), had the immediate effect of reducing the use of these circ sources for the top 20 publishers — from 2.0 to 1.7 million — a decline of 16 percent. AAM, rightfully, also shifted the categorization of this circ from single copy to subscription.
This is a harbinger of further multi-title digital circ declines in the future. During the first half of 2016 transition reporting period, publishers were allowed to count both opened and unopened circ as paid. Some publishers, anticipating the change, counted only opens in this period. However, many of the top 20 publishers counted as paid both opened and unopened in the current period. It’s estimated that 30 to 40 percent of the multi-title digital circ counted in the current period was unopened. This means that 500,000 to 700,000 multi-title digital circ from the top 20 publishers will likely vanish in the next AAM reporting period.
Digital circ use may have peaked in 2015. The total (both regular subscription and multi-title) use of digital circ for all audited publications declined slightly — from 5.6 percent to 5.5 percent of total paid circ. But if the outsized effect of Game Informer’s extensive use of digital circ is excluded the industry average in the first half of 2016 was 4.2 percent, down from 4.4 percent a year previous. Excluding Gamer Informer, it’s expected that the industry’s total use of digital circ in 2017 will fall to about 7.2 million, less than 4.0 percent of total paid circ.
In retrospect, it appears as if digital circ use may have peaked in 2015 at 4.4 percent of paid circ (excluding Game Informer). This is a far cry from the 10 percent figure that many publishers were forecasting just a few years ago.
Circ level difficulties require major publisher attention
The age of unfettered circulation levels for audited consumer magazines is fast coming to a close. The dramatic decline in newsstand circ, the proliferation of non–rev circ, the prospect of less than expected digital circ, along with reduced reader demand for print products have all conspired to place stringent new circulation level restraints on publishers.
Some publications, like Reader’s Digest and TV Guide, have responded to the market changes and reduced their circ levels. But even a casual review of single copy, digital, and non-rev circ use reveals that many publishers are still stubbornly clinging to circ levels that are no longer appropriate in today’s market.
Each publisher is responsible for making its own circulation level decisions. But like so many things in the consumer magazine business, the circ level difficulties can be partially traced to the industry's leaders, namely the Big Four — Time Inc., Hearst, Meredith and Condé Nast. Along with the rest of the industry the Big Four have suffered substantial newsstand circ and digital circ declines. They are also, with the exception of Hearst, among the leaders in non–rev circ usage. But what they haven’t been is leaders in reducing circ levels. They have eliminated publications in recent years, but they haven’t bitten the circ level bullet on continuing publications. By not doing this, they have made it much harder for their less well-financed competitors to follow suit.
The consumer magazine industry needs its reluctant major publishers to step forward and start making the hard decisions that will bring circulation levels into balance with revised market conditions. It will be good for the industry and help preserve vital market competition. If not, it’s entirely possible that advertisers will begin making those decisions for them — and, as we all know, that wouldn’t be a good thing.