Sunday, May 4, 2008
Why Consumer Magazine Circulation Levels Are Still Too Bloated
By Baird Davis
Despite a stable newsstand-to-subscription ratio and declining paid-verified circ levels, a strict weight-loss plan is still in order.
[To view the accompanying charts to this article, please click here]
In the second half of 2007, the audited paid and verified circulation of consumer magazines fell 1.7 percent from 282.0 million to 277.2 million. The decline is fairly representative of a trend that began seven years ago, which has seen the industry's paid-verified circulation decline nearly 11 percent since its peak in 2000.
To examine why circ levels are too high it requires an in-depth look at several categories of information: The declining universe of audited publications; circ level increase/decrease trends; newsstand contribution to circ levels; and verified, sponsored and other paragraph 6 circ sources.
Number of Audited Titles Continues to Fall
The number of audited paid consumer magazines in the second half of 2007 declined 5 percent to 550-down from 579 a year ago, 590 two years previous and 653 in the second of half of 2000. In the last seven years, the number of audited paid consumer titles has fallen nearly 16 percent.
It should be noted, however, that 99 audited publications (reporting 130 million paid/verified circ) with primarily "association" and/or verified/sponsored circ have not been included in this analysis. (By the way, the number of audited titles in this category, as well as their aggregate circulation, has, unlike audited consumer magazines, remained stable for the last seven years.) Also not included in this review are publications with less than 5,000 paid/verified circ and those titles with primarily foreign circ.
During the second half of 2007 a record total of 50 titles discontinued publication or ceased being audited. There were six major casualties (more than 400,000 circ) in the group-they included: Teen People (1,545,000), Child (740,000), Jane (713,000), Success (667,000), Nick, Jr. (639,000) and Junior Scholastic (439,000). Those six titles accounted for a loss of 4.7 million circ, a little less than half of the total 10.3 million circ attributed to all 50 discontinued publications.
A total of 27 titles were added to the auditing ranks in the last year. The most notable was Taste of Home, a title published by Reader's Digest that was previously published by Rieman. This publication, with paid/verified circ of 3.2 million, is believed to have reported one of the largest ever paid circulations for an initially audited consumer magazine. In fact, it joined a very select group of thirteen publications that have more than 3 million paid/verified circ. In addition there were 7 publications that debuted with circ levels greater than 300,000. This group included All You (785,000), People Stylewatch (642,000), Cookie (435,000), Siempre Mujer (394,000), Men's Vogue (336,000), Quick & Simple (325,000) and Giant (314,000). Together these eight titles accounted for 6.4 million paid/verified circ a substantial portion of the 8.9 million circ accounted for by the 27 newly audited titles.
The circulation level contribution from the newly audited publications, although substantial, still fell 1.4 million short of the circulation attributed to departing titles.
Pace of Circ Level Adjustments Slows
In the second half of 2007, there were 101 publications whose circ decreased by 5 percent or more, compared to 123 a year ago and 131 two years prior. The pace of circ levels increases also slowed-84 titles, down from 91 a year ago, reported circ level increases of 5 percent or more.
There were 23 titles that reported circ level decreases of 50,000 or more. These included seven titles showing level reductions of 150,000 or more. Reader's Digest and Time headed this group with their massive decreases of 771,500 and 714,600 respectively. This group also included Playboy (301,400), Sunset (258,900), Ladies Home Journal (258,200), Home (207,400) and Star (176,400). In the aggregate, these 23 titles reported circ level reductions of 4.2 million.
On the increase side of the equation there were 27 titles that reported paid/verified circ levels that were up more than 50,000. Everyday with Rachael Ray reported a huge 670,100 increase in circ level. This is one the largest, year over year, circ level increases in recent memory. Another relatively new product, Woman's Health, also reported a big (258,800) circ rise. And OK! Weekly, reporting rising newsstand sales, was a major circ level increase contributor with an increase of 177,900. This group of 27 titles contributed a total circ level increase of 3.5 million. This, however, did not fully balance the 4.2 million level loses of the titles whose circ fell by more than 50,000.
Newsstand Contribution to Circ Level: Stable
The newsstand to subscription circ ratio is a good guide for measuring optimal circ levels and for deriving a general sense of the industry's relative degree of circulation balance.
In the second half of 2007, the newsstand circ contribution fell 1.6 percent from 50.8 million to 50.0 million. But the subscription circ level decline was also 1.6 percent. Therefore, the newsstand to subscription circ ratio remained at 18 percent. The stable ratio is an extraordinarily good indicator that the industry has begun to be more prudent in its circ level management practices.
Fluctuation in ABC Verified and Other Paragraph 6 Source Usage
The total amount of verified circ usage (which accounts for both ABC verified circ and BPA sponsored circ) decreased slightly in second half of last year from 12.4 million to 12.0 million-a decline of 3.2 percent.
In the first half of 2007, it became apparent that publishers were generally trying to temper their use of verified circulation, often choosing to substitute paid sponsored, partnership and combination circ sources in its place. In the second half of the year, this trend continued.
To help facilitate a better understanding of this source change trend, I've compiled ABC paragraph 6 data (data from BPA audited titles has not been used in this comparison) for the top 22 circulation companies (See chart on page 20). National Geographic and Smithsonian, which most industry observers consider consumer publications, are not included in this comparison because the vast majority of their subscription circulation is acquired using the "association" source. This data is a representative industry sample, accounting for 77 percent of the industry's total ABC paid/verified circ.
Since its reporting inception, in the first half of 2006, paragraph 6 source usage has fluctuated. This reflects the circ practice adjustments made by publishers to meet audit bureau rule changes. First was an ABC rule change regarding the definition of partnership non-deductible circ. This source was re-designated from partnership to verified. The other major ABC rule change regarding the reporting of paragraph 6 data will take effect in the first half of next year. This one is rather significant and it involves re-designating circ previously labeled as "sponsored paid-public place." Starting in 2008, circ in this category will be reported as verified circ. Many publishers, anticipating the effect of this change, have been revising their circ acquisition strategies to lessen the impact of having to report significant increases in verified circ. The result of those changes can be seen in the paragraph 6 source usage reported in the second half of last year.
The data reveals that five sources represent 98 percent of all reported paragraph 6 circ for the 237 ABC audited titles published by the 22 leading circ companies. The chart below demonstrates how the circ usage of these 5 sources has changed in the last year:
2nd H 2nd H %
Source 2006 2007 Change
Verified 10,247 8,838 -13.8
Partnership 3,876 5,595 +44.3
Loyalty 4,946 5,170 +4.5
Paid Sponsored 3,973 4,155 +4.6
Combination 2,907 3,476 +17.9
Total 25,899 27,189 +4.7
(Numbers in 000)
Note that the volume of verified circ declined (13.8 percent), but the use of the other 4 major paragraph 6 sources grew 18 percent. Loyalty and paid sponsored circ usage has remained relatively steady, but both the partnership and combination circ sources demonstrated strong growth. Overall, it should be noted that the amount of total paragraph 6 source circ grew about 5 percent in the last year.
The rising paragraph 6 circ use trend will continue. Publishers appear to be concentrating their efforts on expanding the partnership source. Combination circ use should also continue to grow because it's a very good source of subscriptions. But, for the most part, this source is limited to larger multi-title publishers. Note that its use is confined primarily to the eight publishers with multi-titles that are supporting at least one title with more than 1 million subscription circ.
Partnership circ, on the other hand, is broader based and more accessible to a larger range of publishing companies. Although partnership circ agreements can be difficult to obtain (and renew) I believe this circ source will continue to grow and eventually become the chief ingredient in the gradual expansion of paragraph 6 circ.
Eight Reasons Why Circ Levels Remain Too High
The good news is the consumer magazine paid/verified circ level declined in 2007 and the newsstand to subscription circ ratio appears to have stabilized. But there are other factors that indicate the industry circ level still remains precariously high. I believe the optimal industry paid/verified level is approximately 250 million, or 27 million (about 10 percent) lower than it is currently.
Below are some of the reasons why the consumer magazine industry's tubby circulation should remain on a strict weight loss plan:
1. Paragraph 6 Circ Usage Is High and Rising: Paragraph 6 circ usage in the second half of 2007 is estimated to be about 37 million, or 13 percent of the industry's total paid/verified circ. This is a clear indicator that the industry is continuing to push circ beyond what can reasonably be described as "natural circulation levels." Conversely it should be noted that some of the industry's most successful, and profitable, publications (i.e. People, Cosmopolitan, O the Oprah Magazine) maintain low (less than 5 percent) paragraph 6 circ ratios.
2. Direct to Publisher Subscription Source Usage Falls: The industry's subscription source mix continues to skew away from direct-to-publisher subscriptions toward agent sold subscriptions. The decline in direct-to-publisher subscription source volume is another sure sign the industry circ levels are too high.
3. Subscription Pricing Elasticity Is Eroding: Publishers have increasingly been forced to lower price to attract a sufficient number of subscribers to maintain circ levels. This is a sign that circ levels are too high in comparison to reader demand.
4. Newsstand Circ Continues to Fall: Newsstand circ has fallen continuously for many years (despite a stable newsstand to subscription circ ratio in 2007). It's conceivable that newsstand sales, for many publications, will continue to diminish at an even faster pace in the next few years. The number of titles distributed, especially to chain retail stores, is declining as both retailers and wholesalers become more rigorous in their title selection process.
5. Internet Influence: Greater exposure of edit material on the Web and the advent of more information alternatives on the Internet are having a slow but steady negative effect on reader demand for print products. This has also contributed to reducing subscription pricing elasticity (described earlier).
6. Smarter Advertising Buyers: Advertising buyers are more adept at evaluating circ "quality" and more alert to determining when publications may be "over-circulated". This trend will only continue to accelerate.
7. Tightening Audit Bureau Regulations: The audit bureaus (ABC, BPA) will, more than likely, continue to modify their rules and regulations in favor of greater circ source transparency.
8. Impact of Super-Circ Publications: The super-circ publications (over 2 million paid/verified circ), despite major recent reductions by titles like Reader's Digest and Time, are still major culprits in supporting the industry's bloated circ levels. There are 28 titles in this category and they represent over one third (34 percent) of the industry's circ. There are many titles in this group that have paragraph 6 circ ratios that are greater than the industry average of 13 percent. A 10 percent reduction in circ levels among this group of titles could go a long way toward helping ease the industry's bloated circ level condition.
Five Things You Can Do
When it comes to the circ levels of mature publications, less is more. This is cliché, but in this case, less (but higher quality) circ levels could be good for the consumer magazine industry.
1. Closely Evaluate the Use of Paragraph 6 Circ: Consider reducing paragraph 6 circ usage by 15 percent if circ from these sources exceeds 8 percent of total paid/verified circ.
2. Increase Percentage of Direct Sold Subscriptions: Improve the subscription source mix by increasing the amount of direct-to-publisher sold subscriptions.
3. Work with Advertising Buyers in Developing Better Ways to Evaluate Circ Quality and Engagement: Demonstrate to advertising buyers the value of subscription files that have a large percentage of direct sold subscriptions.
4. Faster Decisions on Sub-Profitable Publications: Publishers often extend the life of sub-profitable publications beyond the point of economic reasonableness. Faster decisions regarding the publishing status of sub-profitable publications could help ease the industry's circ glut.
5. Improve Newsstand Sales Performance: Publishers, by concentrating greater effort on improving newsstand sales, will not only improve "reader quality," but put themselves in better position to reduce circ levels.
Reducing paragraph 6 circ usage by 10 percent, increasing the number of direct-to-publisher sold subscriptions by 10 percent, improving newsstand sales performance by 2 percent and making faster decisions on sub-profitable publications are the key ingredients for lowering the industry's circ level by 10 percent. An industry with a leaner, meaner, higher quality circ level will be able to more effectively compete for readers and advertisers in an environment with a growing number of media alternatives.