Thursday, December 20, 2007

F+W Shutters Multiple Hobbyist Magazines

F+W Shutters Multiple Hobbyist Magazines
Publisher shuts down five titles, lays off as many as 40 employees.
by Jason Fell

F+W Publications has shuttered five magazines under its Wisconsin-based Krause Publications division, FOLIO: has learned. The titles to be closed include Antiques and Collectibles Journal, Comics & Games Retailer, Toy Cars & Models, Toy Shop and Vintage Motorcycles, the publisher confirmed.

The publisher made the announcement to employees earlier this month in an internal memo. As many as 40 employees have been laid off, the source tells FOLIO:, although another source put the number closer to 15. F+W declined to confirm the number of layoffs.

"We take into consideration the marketplace we serve and the opportunities available for each of our magazine titles. After much analysis and deliberation, we have determined to cease publication of these underperforming tittles," chairman and CEO David Steward stated in an e-mail to FOLIO:.

"We are working to realign our business model and structure to meet the changing demands of the marketplace," F+W magazine division president David Blansfield said in the e-mail. Krause will continue to publish its other hobbyist titles, including Antique Trader and Old Cars Weekly.

F+W purchased Krause Publications in June 2002 for $120 million.
CIRCULATOR: Newsday, Hoy Circ Case Settled
By Kristina Joukhadar

The federal fraud investigation of two of the Chicago Tribune Co.'s newspapers has finally (almost) come to an end. It was announced yesterday that the Chicago Tribune Co. will pay $15 million to settle the federal investigation into fraudulent circulation practices at Newsday and the New York edition of Spanish-language daily Hoy that occurred between 2001 and 2004.

The newspapers have accepted responsibility for the fraudulent conduct of their employees, have cooperated with the government in the investigation and have already paid about $83 million in restitution to their advertisers. In addition, they have implemented "remedial management and internal auditing reforms."

Newsday publisher, president and CEO Timothy Knight said, "Over the past few years, we have made comprehensive changes in controls, systems, customer relations, policies and our management team to prevent this from occurring again."

Nine people have pleaded guilty to participating in the scheme, according to the Associated Press, including employees ranging from vice presidents to home delivery and circulation managers. All are awaiting sentencing.

Tuesday, December 18, 2007

CIRCULATOR: Capell Celebrates 25 Years of CCR

CIRCULATOR: Capell Celebrates 25 Years of CCR
By Kristina Joukhadar

The December 2007 issue of Capell's Circulation Report is Vol. 26, No. 20, representing 500 issues and more than 6,000 pages published. Way to go, Dan!

As part of the 25th Anniversary Issue, Capell shares some highlights from the past:

"In 1982," writes Capell, Good Housekeeping (with an 80.8 percent newsstand sell-through rate), Family Circle (with 79.3 percent) and Woman's Day (at 75.7 percent) "were among the leaders in newsstand percent sale efficiency. Their efficiencies now hover in the 30 to 35 percent range."

"25 years ago, for magazines making a rate base claim, almost 60 percent missed their rate base. . . Now only about 20 percent miss their rate base, but more titles are not making a specific rate base claim (well over 50 percent of ABC membership)."

"Back in 1986," Capell writes, "Publishers Clearing House and American Family Publishers delivered over 25 percent of all industry new subscription sales." By 1995, their volumes were off 70 percent. Now, AFP is gone, along with other direct mail agents like Magazine Buyers Service, United Subscription Service, Magazine Marketplace, Great American Magazines. Worldwide and Perfect School Plan are also defunct.

And then the kicker: "In the very first issue of CCR, after analyzing the Seven Sister magazine category, we reached the following conclusion: 'The Seven Sisters represent a classic case history of the proverbial publishing treadmill. As ad pages increase, management pushes circulation well beyond its natural level.

'Then as ad page growth inevitably levels off, publishers are left with high circulation acquisition and maintenance costs no longer justified by ad revenues that are static at best. Magazine profits begin to slip. Circ directors are put in a no-win situation, as they are pressed to deliver inflated circ levels at ever increasing subscription and newsstand prices.'"
Adds Capell, "Twenty-five years later, the problem is still the same!"


CIRCULATOR: Postal Rates Affecting Volume
By Kristina Joukhadar

The Postal Service released volume data for the fourth fiscal quarter of 2007 (July through September), and the numbers represent the first quarter to reflect the rate increase. According to David Straus of Thompson Coburn, legal counsel to the ABM, "It is not a pretty picture."

Here are some of the main data points:

* Regular rate periodicals volume is down 2.5 percent from the same period last year, and within that category, classroom publications volume dropped 11.8 percent vs. the fourth quarter of last year;

* Standard mail flat volume is down 9.1 percent, with non-profit enhanced carrier route flat volume down by a staggering 21.5 percent.

* First-class flats are down 12.1 percent.

Straus reports that because the new Flats Sequencing System will soon be deployed, if flat volumes continue to decrease, the cost per piece for the Postal Service will go up. He adds, "I think that we will see such continuing declines, especially in Standard mail, as direct marketers modify their mail shape and programs in response to the significant change in rate design that adversely affects flats."

Sunday, December 16, 2007

As 2007 Draws to a Close: Where is the Business Heading?

As 2007 Draws to a Close: Where is the Business Heading?
By John Harrington

Editor's Note: Last week, I participated in a Newsstand Forum sponsored by the Magazine Publishers of America (MPA). The following is an overview of my remarks and some of the discussions that followed. The panel moderator was Jerry Lynch (IPDA), and the other members were Tom Masterson (Hachette Filipacchi Media U.S.), Lindsay Valk (Hearst Magazines), and Jeremy Koch (MPA).

2007 began with a continuation of trends that have characterized newsstand for several years; low levels of unit and dollar growth, and a small, but encouraging improvement in retail sell-through figures. A very preliminary look at results for the third quarter finds a continuation of both trends. Retail dollar sales appear to have improved 1.6%, compared to the same period in 2006, while units were up 1.3%. If this continues for the remainder of the year, it will mark three straight years of moderate unit and dollar growth for magazine newsstand sales. Following nearly a decade of declining unit sales, this level of performance is encouraging.

More notable is that the 1.3% unit sales increase in the third quarter was accompanied by a reduction in retail draw of 5.1%, which translates into a sales efficiency of nearly 42%. Although that figure needs to be viewed very cautiously (the first-half figure was 38.4%), it would appear to indicate that the efficiency initiatives of most wholesalers and several national distributors are beginning to pay off. According Harrington Associates' annual study, The Magazine Retail Sales Experience, the industry efficiency figure has not been above 40% since 1996. In any event, the magazine distribution channel's conventional wisdom of "Cut the draw, cut the sale," seems ready to become history.

Positives: So, entering 2008, newsstand sales are coming off three years of unit growth, accompanied by improving efficiencies, both trends that contrast sharply with the preceding decade. Added to that is a retail atmosphere that has been generally friendly to cover price increases (Harrington Associate's regular review finds nearly a third of price increases are accompanied by unit growth; and last week The New Single Copy reported that Bauer Publishing appeared to be doing well with its 50% price hikes on some of its high-volume celebrity titles). A recent history of unit growth, improving efficiencies, and an ability to raise prices! It's not the worst way to begin a new year.

Challenges: On the challenge side, the economics of the channel remain fragile. Three of the four large wholesaler groups that represent 90%-plus of the market claim to be losing money, and the fourth says its profit margins are slim. Publishers are competing in a soft advertising market, and the subscription side of circulation has been struggling since late in the 1990's.

Scan-based-trading (SBT), which has been on retailers' agendas for nearly a decade, is an issue that the magazine distribution channel will hear a lot about in 2008. For a variety of reasons, wholesalers are now involved SBT relationships with retail chains, who are estimated to represent more than 25% of magazine sales. Several other chains want to do the same; the number could expand significantly. To date, these programs have been developed strictly between wholesalers and retailers. Yet, the long-term impact will be felt, substantially if not equally, by publishers and national distributors. Most participants agree that for SBT to progress in a way that is beneficial to the channel, it must be an industry-wide initiative. The issues inherent in SBT - among them shrink and the responsibility for it, the impact of inventory costs shifts, and auditing - are profound. Negotiating them, and a host of peripheral matters, will strain a channel already characterized by tensions at every level. Moving forward will require accommodations by all of the trading partners: publishers, national distributors, wholesalers, and retailers.

Moving Forward: The recent positive history of unit growth, improving efficiencies, and a price-friendly market may help ease the resolution of the above challenges.

Publishers and national distributors acknowledge that the recent wholesaler efficiency drives are more productive and effective than previous efforts, and the suppliers are working more closely with them as a result. Still, they caution against moves that may not take into consideration unique publisher needs, particularly advertising rate base issues. As one publisher pointed out, the economic models of publishers, national distributors, wholesalers, and retailers do not always match. Granted, there will never be a full match of economic incentives, but it was also noted that the distribution channel's financial structure has only been marginally modified over the past dozen years. In 1995, there were around 300 wholesalers and they operated in limited markets, characterized by retail density. There were many fewer titles, some of which sold over two million copies per-issue, and their efficiencies were in the 60% range. No single title sell that many copies today and only one or two have that kind of sell-through. Discussion seemed to indicate there is more awareness of these disparities, and sympathy to the problems they create.

During the forum discussions, there was considerable reference to the "Sustainability" initiative of Wal-Mart, the largest retail chain. At its direction, publisher, national distributor, and wholesaler executives have met twice in the last month in the retailer's Arkansas headquarters to address a list of issues, selected by the chain. Overall, Wal-Mart said the main goals of "Sustainability" are 1) a sales increase of 5%; 2) improving efficiencies to 50%; and 3) achieving waste reductions throughout the channel. A national distributor executive said that other retailers can be expected to follow Wal-Mart's lead. The fact is, the "demands" of major retailers to focus attention on these issues may be the push that renders them achievable.

There seems to a broad sense that 2008 will be a year of significant change. If the entire channel, including retailers, operates as partners, the change has the potential to be positive and long lasting.

One possible impediment to that process was raised at the forum by Mike Sullivan, president and CEO of Comag Marketing Group (CMG). Responding to the topic of a lack of significant progress, despite much debate, Sullivan said, "'Ego-nomic' business decisions continue to prevail over 'eco-nomic' business decisions."