Sunday, April 13, 2008

At the Newsstand: Cloudy Sales Results and Growing Tensions

At the Newsstand: Cloudy Sales Results and Growing Tensions
By Baird Davis
Circulation Management Magazine
Newsstand sales performance of audited publications in the second half of last year appears to be reasonably good in spite of a few extenuating reporting contingencies. Unit sales of 477 million were only down .7 percent and revenue rose to nearly $1.7 billion, a lift of 4 percent.

But things are not exactly as they appear. There were several conditions that clouded the process of interpreting newsstand sales performance in the last half of 2007. First, industry sales were inflated by an "extra" 1.8 percent by a timing situation that made it possible for weekly publications to report 27 issues for the audit period instead of the previous year's 26 issues. Plus, Meredith reportedly boosted its numbers by counting sales sold at deeply discounted prices at Dollar Tree stores. This inflated industry sales another .8 percent. These factors have partially compromised the viability of year-over-year sales comparisons. If these factors were excluded from the sales calculations the industry's unit sales would have been down 3.2 percent and revenue up 1.9 percent-still a fairly good period, but not nearly as good as it first appears.

Celebrity Titles Still Set the Industry Sales Agenda

Once again, the celebrity category kicked butt. The aggregate sales of the six celebrity titles (People, Us Weekly, Star, In Touch, Life & Style, OK!) grew in the second half of 2007. Unit sales were only up .8 percent, but revenue rose $49 million, up 11.4 percent. The average cover price for the group increased from $2.86 to $3.16. However, it should be noted that the sales of these publications (all weekly frequency) were helped by an anomaly in the audit bureau reporting period that allowed an additional issue to be reported for the period. This, in turn, skewed the year- over-year comparison, giving it the false appearance of lifting their unit and revenue 3.8 percent. But even without the frequency factor, the revenue increase would still have been nearly 8 percent.

Sales of the two audited tabloid publications (National Enquirer and Globe), which in essence are also celebrity titles, continued to fall in the face of the strong sales performance of their regular sized competitors. Their unit sales were down a combined 10.6 percent, but their revenue, helped by aggressive price increases, only fell 1.7 percent. The combined sales revenue of the celebrity and tabloid titles totaled nearly $570 million, up over 9 percent. Like it or not, these eight publications continue to set the magazine newsstand agenda, accounting for one-third (34 percent) of the industry's revenue for audited publications.

In the past, the sales success of the celebrity titles precluded strong sales performance from many of the other checkout publications. But in this reporting period, the sales performance of the non-celebrity checkout sold titles (nearly all women-oriented) was generally good. There were a meaningful number of titles with revenue increases of 10 percent or more. This group included Rolling Stone (23.3 percent), Sports Illustrated (20.5 percent), Self (18.0 percent) Redbook (17.8 percent), Everyday with Rachael Ray (17.0 percent), First (16.6 percent), Prevention (14.6 percent), Soap Opera ABC (12.1 percent) and O, the Oprah Magazine (10.0 percent). However, there were some major checkout title sales casualties-Good Housekeeping (-20.7 percent), Marie Claire (-14.3 percent), Glamour (-13.2 percent), Soap Opera Weekly (-13.1 percent), Vanity Fair (-12.8 percent), Woman's Day (-11.0 percent) and Allure (-10.6 percent). But the winners exceeded the losers and revenue for the non-celebrity checkout publications rose a healthy 5.4 percent.

Largest Cover Price Increases in Three Years Confined to Weekly Publications

The average cover price of audited publications sold in the second half of last year increased 4.8 percent-from $3.36 to $3.52. This is the largest percentage price increase in recent years. It represents a major change from the last three years, during which average price remained flat.

The price increases, however, were not broad based. They were primarily confined to weekly frequency publications. Fourteen of the top 17 selling weekly publications increased cover price in the last year. The combined effect of the price increases on weekly publications produced an aggregate average increase of 10.0 percent for this group. The average price increase for all other publications was a miniscule .5 percent.

Most of the weekly publication price increases were not, in the traditional sense, market driven. Publishers of low priced (less than $2.99) weeklies were influenced, to a large extent, in their price increase decisions by wholesalers who "persuaded" them that pricing below $2.99 was not financially healthy for the industry. Even though some publishers of weekly titles have been inching up their cover prices in the last few years, it was Bauer's decision to increase cover prices approximately 35 percent in the fourth quarter of 2007 for all their audited publications, including their three major weeklies (Woman's World, In Touch, Life & Style), that has had the most dramatic industry pricing impact.

It's too early to definitively determine the effect of the price increases for weekly publications. But the initial results appear to show that it's not necessary to employ super-low pricing to maintain volume sales. The apparent success of raising the low prices for weeklies, however, does not necessarily translate to elastic pricing for other publications. The market pricing elasticity restraints that have slowed subscription pricing are likely to remain in play at the newsstand for most other publications.

Deeply Discounted Sales

While the industry appears to be moving away from super-low pricing practices some publishers experimented by selling their titles at Dollar Tree stores, where the publications are presumably sold at a dollar or less. The largest proponent of this practice in the second half of last year was Meredith. The sales of their five leading newsstand titles-Better Homes & Gardens, Fitness, Ladies Home Journal, Family Circle and More reported a combined sales revenue increase of $9 million, nearly 29 percent. It's now estimated that all, or nearly all, of the sales increases for these titles can be attributed to Dollar Tree. However, Meredith, to their credit, has announced that they have discontinued sales of their products at Dollar Tree. Many industry observers believe that it was important for Meredith to rescind their Dollar Tree agreements. There's a sense that it will help preserve the industry's long record for selling publications at full (or nearly full) cover price. There is also a belief that maintaining full cover price integrity helps to demonstrate product vitality and "wantedness" for the newsstand source of circulation, which is very important to advertising buyers.

Checkout and Mainline Sales Heading in Different Directions

The unit sales of checkout titles grew .9 percent and revenue increased 7.2 percent. In contrast, mainline unit sales declined 6.1 percent and revenue fell 2.4 percent. These divergent trends began taking shape in 2004, when the sales of celebrity titles began their growth spurt and the sales of "laddie" titles started to abate. In the intervening three-year period, checkout unit sales have increased about 1 percent and revenue 2 percent per annum. Mainline unit and revenue sales, on the other hand, for the same period have annually fallen 5 percent and 3 percent respectively. The spread between checkout and mainline sales is expanding. This trend probably indicates that a greater proportion of industry sales are being made in the mass merchandiser, supermarket and drugstore channels of trade, where checkout sales predominate. If this trend continues, it doesn't bode well for mainline publications.

Newly Audited Publications

A total of 27 titles with newsstand sales were added to the auditing ranks in the last year. The performance of four of those titles stand out-People Stylewatch and All You (Time, Inc.), Quick & Simple (Hearst) and Taste of Home (Reader's Digest). Together these publications accounted for over $30 million in revenue in the second half of 2007.

People Stylewatch is probably the most noteworthy. It reported average sales of 549,000 per issue. This is the best performance achieved at launch by a monthly title since the debut of O, The Oprah Magazine in 2000. A Taste of Home, although newly audited, is not a recently launched publication, having previously been published by Rieman. It has a massive paid subscription base of nearly 3 million, but it still reported newsstand sales of 162,000 per issue. The other two-All You and Quick & Simple-although newly audited have been sold at the newsstand for two years or more. They both carry cover prices below $2 and are frequently referred to as "Bauer Beaters". Although they posted relatively strong sales, their market position could be compromised in the future if the industry continues to shift away from super low cover pricing practices.

Sales of the Top 10 Companies at Newsstand Time, Inc. and Bauer

Time, Inc. continues as the newsstand revenue leader with sales of $258 million. But Bauer is closing the revenue gap.

Sales revenue grew to nearly $235 million, up 11 percent in the last half of 2007. Bauer's sales were helped by large cover price increases in the fourth quarter of 2007. Their sales in this reporting period, however, only reflect the effect of price increases on several issues. In the first half of 2008, the full effect of Bauer's aggressive price increase strategy (average 35 percent) will be revealed. If the Bauer titles don't suffer significant unit sales fall-off as a result of their price increases it's entirely possible their newsstand sales revenue will exceed Time, Inc.'s in 2008.

American Media, Hearst, Wenner, Condé Nast, Meredith and Hachette

American Media's sales slipped, hurt by the continuing sales slide of their two tabloid publications, but their sales still leave them in third place among all publishing companies. Wenner's revenue, on the other hand, grew a robust 14 percent, helped by the sales growth of Us and Rolling Stone. Hearst's sales revenue was up nearly 8 percent, but if the sales of their newly audited title, Quick & Simple, is excluded the revenue of their previously audited titles was flat. Their performance, however, was better than Condé Nast and Hachette whose sales revenue slid five and six percent respectively. Meredith's revenue was up 18 percent, but as previously discussed, their sales lift was almost solely a result of Dollar Tree sales.

Enthusiasts Media

Enthusiasts Media's newsstand performance is important because their sales, more than any other company, are a proxy for special interest publications. They publish 47 audited publications and all, except two soap opera titles, are male-oriented special interest publications sold on the mainline. In the aggregate, their sales revenue declined about six percent. But if the sales of their two soap opera titles are excluded, the revenue of their 45 special interest titles were down less than 1 percent, good performance in a down market for special interest titles.

Northern & Shell

The biggest surprise among the top ten newsstand sales companies was Northern & Shell, publisher of OK! Weekly. They raised the cover price of OK! from $1.99 to $2.99, yet unit sales rose 11 percent and revenue grew 70 percent to over $44 million. Their sales increase moved them ahead of Hachette on the newsstand sales leader board. After a rocky start OK!, with its British heritage, is demonstrating that it may have real staying power in America.

Shattering Any Illusion of Market Stability

For the last few years, wholesalers, in the absence of industry leadership from publishers and national distributors, have been more assertive in their actions and in voicing their industry concerns. In doing so they are sending shivers through the newsstand industry.

Wholesalers continue to ratchet up the intensity of their rhetoric. They have threatened to hold back payments to national distributors and tried, unilaterally, to raise publisher's discount rates. However, it should also be noted that their actions, some made in desperation, have produced some very constructive results. They have reduced the number of titles handled and significantly restricted distribution allotments. These actions have helped improve the industry's sales efficiency level from 36.2 percent to 39.6 percent (as reported in The New Single Copy). This has apparently been accomplished without any significant reduction in industry sales. The financial implications of improving efficiency by 3.4 percentage points is to annually save more than 100 million copies from being printed and distributed-a truly staggering number. Still it's the stridency in which wholesaler objections are being put forth that is causing legitimate concern across the entire newsstand supply chain.

It's been more than a decade since retailer initiatives irrevocably changed channel operations. During the ensuing period the surviving wholesalers have found efficient ways to accommodate many of the operational and financial mandates imposed by retailers. But most wholesalers have now exhausted their cost saving opportunities. Further exacerbating the situation has been the recent rapid expansion of scan-based trading (SBT) as a newsstand trading option. This has placed an additional financial burden on wholesalers.

It's now evident that wholesalers have been pushed to the financial brink. Financially wounded wholesalers are severely endangering the well-being of the entire newsstand supply chain.

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