A Newsstand Fable: The Fox and the Jackal

A Newsstand Fable: The Fox and the Jackal
The latest Anderson broadside, no matter how crude, has left publishers in a very uneasy defensive position.
By Baird Davis
http://www.audiencedevelopment.com/2009


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 unpleasant reality. If truth be known, many of Anderson's wounds are self-inflicted. In the 1990's the Anderson family 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.

Anderson's actions have always been defined by a strange naiveté about both the magazine and retail industries which they serve. Their latest initiative is no exception. In it they "mandated" 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 don't acquiesce.

This latest Anderson broadside, no matter how crude, has left publishers in a very uneasy defensive position with only Hobsonian choices. Yes, there does seem to be some sentiment among national distributors/publishers to call Anderson'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 chain retail stores, 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 about it, 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. It's almost as if publishers were in a time warp-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. However, 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 past-one that'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 Aesop's fable, "The Lion's Share," captures the essence of this conflict. In it the lion (retailer), the fox (wholesaler) and the jackal (publisher) go hunting and successfully 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.

That's the Aesop question-can wholesalers and publishers, like the fox and the Jackal, find a way to do what's prudent and equably divide the remaining quarter? If they can't they'll soon find that life outside the forest is less appetizing.

Single Copy Sales Are Likely to Come Back

Single Copy Sales Are Likely to Come Back
But The Newsstand Will Feel the Impact of a Broadly Challenged Magazine Business for a Longer Time
By John Harrington
www.nscopy.com

Business trends have a cyclical quality to them. Most economists expect the troubled national and international financial system to rebound, although they may argue on how rapidly the recovery will take place. That is also likely to be the case with the currently distressed newsstand. Retail conditions will improve, soon we hope, and impulse item retail sales will rise with them. However, magazine newsstand sales are one facet of a more complicated publishing economic model; and some fundamental constructs of that model may be shifting. The eventual form of a refitted magazine business will impact the newsstand marketplace in ways very difficult to predict.

Newsstand 2008: At times it may seem we have reported on it endlessly: "it" being the troubled state of the mass market magazine distribution channel. The first half of 2008 was the worst for newsstand sales in at least five years, after a period of relative stable performance. Sell-through figures, which had been the focus of retailers, publishers and national distributors, and most emphatically wholesalers, slipped, after several years of improvement. The losses were particularly frightening for an already financially stressed wholesaler level of the channel, especially since there were indications it had been adopting some more rational strategies.

It has not gotten any better since then. Virtually at every level of the distribution system, leaders have acknowledged that the third quarter was, if anything, even more discouraging. Magazine Information Network (MagNet), the wholesaler data base of magazine and book retail sales, provided The New Single Copy with figures estimating a year-to-date double-digit decline in units and more than 5.0% in retail dollars. It may be some solace, that almost universally, the dire numbers are attributed to the national, and even international, economy that is clearly recessionary, and, in some ways, bordering on a depression.

The situation is more serious than a business struggling through a sluggish economy. The economic model of magazine wholesaling has been broken for more than a dozen years. Some band-aids have relieved conditions, but not in a structural fashion. Of the four large, surviving wholesalers accounting for over 90% of the business, only the smallest one with an estimated 15% market share, was even marginally profitable going into 2008. What does anyone think the catastrophic numbers cited above have done to these companies' bottom lines?

On top of that, only within the last month, the market for magazine waste paper, which has been for some time a key source of income for wholesalers, has virtually collapsed. Most waste paper was being sold through brokers to the China market, where it was used to manufacture construction materials. In a constricting world economy, there is not a lot of construction going on. Some wholesalers thought they had a level of protection on this issue through price-protection contracts they had with paper brokers. Sorry, however, last week, one of the largest brokers notified its customers it was exercising a force majeure clause in its contracts and cancelling them.

The Good News: Still, even after this dreary recitation of bad news, it is worth recalling Mark Twain's comment about Wagnerian opera, "It's not as bad as it sounds." Really? How so? To start with, there are some national distributor initiatives moving forward designed to deal with some of channel's structural liabilities. Both have been previously reported on here, but each are getting closer to the operational stage. Comag Marketing Group's Impact II program, which will establish primary distributors in most markets, will be, according to the company's management, signing contracts with wholesalers in the next few weeks. Early this fall, Time/Warner Retail announced a plan to implement pass-through pricing for all Time Inc. publications, eliminating the cumbersome display allowance collection process. TWR management confirmed its plan will be implemented in January, even where it is meeting resistance from retailers, service providers, and even wholesalers. Although both plans have critics, many others, including most wholesalers, think the programs will lend some rationality to a troubled distribution network.

In terms of sales, the celebrity category, which had lost some of the buzz of the past five years, was looking at phenomenal sales for current issues with covers featuring the United States President-elect, Barack Obama. People may end up with its best issue ever, outside of those covering the death of iconic figures, such as Princess Diana and John Kennedy, Jr. Us Weekly is expected to top one million on the newsstand, a figure it has exceeded on only a few occasions. Additionally, the newsweeklies are looking at 500,000-plus copy sales of not only their regular issues, but also for specials about the first African-American elected President. Across the publishing spectrum, there is a sense, and certainly a hope, that the Obama effect will boost newsstand sales for several months, at least through his historic inauguration in mid-January. Always optimists, channel members are hopeful that the excitement over these publications will improve the entire category. It is not an unrealistic thought.

Additionally, magazines generally remain friendly to price increases. Although some checkout titles have recently experienced substantial losses following large price hikes, the results may have been exaggerated because the cover prices had been kept artificially low for too long. On the other hand, The Economist recently jumped its cover a dollar to $6.99, less than two years after going to $5.99, also a dollar raise. Sales continued to grow for the newsweekly, which is priced two dollars higher than its primary competitors.

Some executives have expressed concern that depressed magazine sales are driving retailers to squeeze the category, perhaps reducing space, even at checkout. A skeptical view from here is "What will they replace publications with?" Consumers are not, perhaps slightly hyperbolically, buying anything right now. Sales of all discretionary products are down, most by significantly higher numbers than magazines. The public is going to the supermarket less often, and with a parsimonious mindset. If it's not on the shopping list, it doesn't go in the basket. That attitude doesn't just hurt publications, it hurts most of the products magazines and books compete with equally. Perhaps cold comfort, but some comfort.

The Publishing Background: Publishing revenues have often been described as a three-legged stool: advertising, subscriptions, and single copies, or newsstand. The latter has always been the smallest leg, on a broad scale, estimated at 16% or a sixth, with subscriptions at around a third, and a little more than 50% coming from ads. However, our analysis of some of the largest titles puts ad income considerably higher, and newsstand around 10%*. Even before 2008, The New Single Copy has stated that newsstand, even with all its well documented struggles, was probably the most reliable leg of the stool. Advertising pages were down and had been for most of the decade. Subscriptions were about even, but that was deceiving, because the cost of obtaining them had grown dramatically ever since the late 1990's collapse of the subscription clearing houses. In contrast to newsstand, which has been friendly to cover price increases, the average subscription price today is lower than it was 10 years ago.

As 2008 draws to a close, newsstand is not only the most reliable source of publisher income, it may be the only reliable one. The problem is it is also the smallest, and is not easy to expand. Advertising sales, the engine that drives American publishing, may not have collapsed, but some publishers likely think it has. The CEO of the largest magazine company recently said, "It was looking like 1931." For non-historians, 1931 was not a good year for anything. One of the most famous former magazine editors, Tina Brown, was quoted on Portfolio.com (11/1/08) saying "I'd hate to be a magazine editor now." The most recent figures from Publishers Information Bureau (PIB) showed ad pages down so far this year by nearly 10% and revenues by half that. MIN Media Industry Newsletter (11/17/08) reported third-quarter pages off by 10% and estimated the fourth-quarter number would be minus 14%. Since much advertising is discounted, the revenue figures are generally acknowledged to be much worse than reported.

Unlike newsstand declines, advertising malaise is caused by much more than the sorry economy. That just makes it even worse. All media advertising is in turmoil, as it adjusts to the impact of the internet and expanding media outlets in general. For publishers, that means there is a pervasive fear that much of the lost advertising will not come back when the broader economy does. In a general publishing economic model where the function of circulation, both newsstand and subscriptions, is to support advertising rate base guarantees, low ad sales downgrade the role of circulation.

A few weeks ago, Hearst Magazines announced that, because of poor ad sales, it was closing CosmoGirl! Certainly a sound publishing decision. Yet, CosmoGirl! sold over 300,000 single copies every issue. In 2007, it generated $11.3 million at retail, ranking it 44th among audited titles. That's out of more than 5,000 titles. For wholesalers and retailers, those sales will not be replaced, and there are no meaningful cost savings for either of them by not delivering, merchandising, and accounting for the title. Many magazine industry analysts think that, even after the worst of the present ad condition is past, more than a few magazines will close, and not be replaced. The impact on wholesalers and retailers is clear. Large mainstay titles of the newsstand are likely to recover, but the total pie will, quite likely, be considerably smaller. And there are not commensurate cost savings.

The prospect of an already severely damaged wholesaler level of the channel being rendered even more financially distressed has to be troubling to publishing senior management. Unfortunately, at the moment, it is not as demanding of their attention as the catastrophic ad business. When they have tweaked their business plans and adjusted to the new realities of advertising, the internet, and some other things as well, hopefully they will still have a newsstand distribution channel to make better.
* These figures represent total moneys generated, calculated on published ad rates, subscription and newsstand cover prices. They do not represent publisher income.

Publishers Claiming Digital Circ on Rise

Publishers Claiming Digital Circ on Rise
By Dylan Stableford

Driven by environmental concerns and the high cost of international distribution, publishers are claiming digital circulation is on the rise.
The number of publishers claiming qualified electronic editions-i.e. digital copies-on their most recent BPA circulation statements increased 28 percent, according to the company. There were 286 in June, up from 224 in December. (The jump, in part, can be attributed to a rule amendment requiring just a single pre-audit per publisher, BPA CEO Glenn Hansen said.)

Cimarron Buser, SVP, marketing and business development at Texterity, added that "the increased use of laptops in a paperless world" has also helped spur on the increase of digital.\

Despite the increase, digital still accounts for a small percentage of the overall circulation mix. On average, electronic editions made up 13 percent of total circulation for all BPA members. In fact, of the top 20 magazines in terms of digital circulation tracked by BPA, just one-Renewable Energy Focus-claims a majority of its circulation digital-only.Oracle claimed a digital distribution of 146,545-a 19 percent increase-during the first half of the year, topping all BPA titles in digital circulation. Electronic editions now comprise almost 30 percent of Oracle's total subscriber base.
BPA's Top 20 Titles in Digital Circ First Half 2008

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Magazines Wrestle with Future Business Model
By Tony Silber
http://www.circman.com/viewmedia.asp?prmMID=4214&prmID=1#
SAN FRANCISCO-The magazine industry can't afford to have a "protectionist" strategy about businesses that are not growing, and instead should manage them for profit and apply resources to growing areas of the business, IDG CEO Bob Carrigan told attendees at the American Magazine Conference here Monday. In a wide-ranging conversation under the banner "Reshaping the Model for Magazines," Carrigan-who unlike fellow panelists Amex Publishing CEO Ed Kelly and Meredith EVP Andy Sareyan is an executive in b-to-b and in the tech sector-seemed to be more e-centric than either Kelly or Sareyan. Asked what the ideal revenue mix would be in the next few years, Kelly and Sareyan both said they want to reach a 40 or 50 percent mix between e-media and print. Carrigan said IDG is already there. "We're already in a space, in digital, where the advertising is bigger than print ever was," he said. "We're seeing an expansion in digital. We'll manage print as best we can." "We'd like 50 percent," Sareyan said. "But ad pages remain very important and they often lead an integrated buy." But how do you build a business when you're putting in more money than you're getting out? Carrigan said it's about creating programs that drive leads, rather than sell eyeballs. "There's no reason why worldwide magazine brands shouldn't drive very high CPMs," he said. And a strong database is critical for that, he added. "Marketers are willing to pay dearly for qualified leads." Kelly pointed out that Amex Publishing is owned by American Express-which has one of the largest databases in the world-and is partnered with Time Inc. "I spend a lot of my time trying to tap into that database, and tying into all the things we can do for marketers," he said. "The whole 360-degree approach is an area where we've had a lot of success." Social networks remain a distinct challenge for publishers. "There are things to generate revenue directly and there is indirect revenue," Carrigan said. "We try to get people to do one more thing on our Web sites and then sell against that." "We're only dipping toes in the water," Sareyan admitted. Kelly said: "I'm letting American Express figure it out and share their learnings with us."

Deciphering a Conundrum: First-Half 2008 Newsstand Sales

Deciphering a Conundrum: First-Half 2008 Newsstand Sales
By Baird Davis
Record price increases unleashed a precipitous unit sales drop while overall revenues managed to climb.

The conundrum, which is the newsstand, was never more apparent than the first half of this year. The unit sales of audited publications dropped a staggering 5.9 percent, undoubtedly the largest year-over-year decline in history. Yet revenue grew by a record 3.0 percent to over $1.6 billion.

This apparent contradiction was caused by record price increases. The average price of newsstand-sold publications rose by 9.6 percent-from $3.42 to $3.75. To understand the magnitude of this historic price escalation consider that during the preceding four-year period newsstand prices only rose 2.6 percent, an annual average of a little over a half of one percent.
Pricing alone can't explain what transpired at the newsstand in the first six months of this year. But it's fundamental, I believe, to understanding the depth of the changes that have occurred.

The End of the Low Cover Price

The sound you just heard was the end of the low cover price checkout title era tumbling off a wholesaler's conveyer belt. It was an era personified, and dominated, by the gigantic sales of digest-sized TV Guide, selling for decades at prices less than a dollar, and the price-friendly tabloids. Now TV Guide is a sales laggard, cover-priced over $3, and the major tabloids are priced at $3.40 and selling at a fraction of the level they achieved just a decade ago. In the last few years Bauer titles In Touch and Life & Style (priced at $1.99) temporarily filled the low price niche vacated by TV Guide and the tabs. But in October of 2007 the low price era, effectively, came to an abrupt end when market leader Bauer not only raised the prices on the aforementioned celebrity titles to $2.99 (a 50 percent increase), but also increased the cover price of their other seven audited titles, including a 19 percent increase for unit sales market leader Woman's World. By all accounts the Bauer price increases were precipitated by strong pressure from wholesalers who argued that the economics of distributing super low priced publications (less than $2) were no longer economically feasible. Yes, there are still a few holdouts. They include Family Circle, All You and Woman's World, which despite a 19 percent price increase, is still priced below the $2 line. But the low cover price era has receded into history.

The Bauer Factor

Although Bauer operates outside the glare of Manhattan media attention, and is not an advertising sales behemoth, they have been the newsstand unit sales leader for most of this decade. Prior to this year, they accounted for over 20 percent of all unit sales of audited publications, outselling Time Inc., the number two newsstand sales company, by nearly two to one. To some great extent the newsstand market dances to the beat of the Bauer drum. As previously mentioned, Bauer raised prices on all their publications-up an average of 35 percent. Sales losses were certainly to be expected given the magnitude of the price increases. In the first half of this year, the price sensitive market weighed in with its decision. Bauer's sales declined nearly 19 percent. However, their sales revenue rose 8 percent. Does this represent a reasonable trade-off for Bauer? I'm not sure, but I suspect the unit sales decline was greater than they anticipated. In the aggregate, Bauer unit sales decreased 20.6 million copies in the first half of this year. To put the scale of this decline in market perspective it should be noted that their unit sales decline was only a little less than Conde Nast's 23.6 million unit sales during this period.

The Market Effect of Bauer Price Increases

When the sales of 20 million copies are sucked out of the market it's bound to have an effect on the sales of other publications.

Celebrity Titles

The six major celebrity titles (People, Us, In Touch, Star, Life & Style, OK!) experienced unit sales losses of 10.3 percent and offsetting revenue gains-to $459.3 million-of 9.9 percent. The unit sales decline in this category can largely be attributed to Bauer's two celebrity titles (In Touch and Life & Style). But a funny thing happened to the other four publications in this category-two gained unit sales (People and OK!) and the other two (Us, Star) lost sales ground. Interestingly People's unit sales rose in the face of an 11 percent price increase. OK!, on the other hand, was the only title in this group that did not raise cover price. People's sales increase can be partially attributed to several very successful covers (several of which involved payment to the cover subjects), but it also appears as if People may have benefited by the sharp decline in In Touch and Life & Style sales. OK!'s unit sales increase appears to be a result of holding steady on price (relatively low $2.99) and, perhaps, because of a perceived market quality distinction. Overall the celebrity category suffered some serious unit sales price shock, but they added to their sizable share (30 percent) of the newsstand revenue market.

Top 25 Checkout Titles

In this period they accounted for more than 75 percent of the checkout unit sales and revenue. They represent 60 percent of total magazine unit sales and 52 percent of the revenue pie. There are 535 audited publications that reported newsstand sales in the first half of 2008, but it's the sales of the top 25 publications that really define the newsstand market. During this period their unit sales declined by 24.9 million, which accounted for nearly all of the 26.7 million unit sales losses for the entire audited publication market. To understand the newsstand market it's seldom necessary to look very far beyond the sales performance of the top 25 publications.

The Bauer price increases appear to have had a broad market affect. The unit sales decline of Bauer titles not only accounted for a large percentage of the total market fall, but its pricing changes, particularly for their two celebrity titles, appears to have altered title preferences-note the sales increases for People and OK! and the market declines for Us, Star, the tabs, Cosmopolitan and O, The Oprah Magazine.

Checkout Sales are Mixed, Mainline Sales Continue to Fall

The sales of checkout titles were scrambled in the wake of the Bauer price increases. Overall the unit sales of checkout sales declined 6.3 percent, but revenue rose a robust 4.7 percent. Mainline unit sales also declined (4.6 percent), but the 4.2 percent increase in average cover price was not enough to lift revenue above last year's level.

The six-year trend reveals checkout unit sales annually declining 1 percent and revenues rising about 2 percent. This contrasts with the mainline whose unit sales have been declining steadily-an average of 4.4 percent and revenue falling about 2 percent annually. The spread between checkout and mainline sales continues to expand-an indication, I believe, that a growing proportion of industry sales are being made in the mass merchandiser, supermarket and drugstore channels of trade-where checkout sales predominate. This trend has been accentuated by the growing reluctance of wholesalers to distribute low-efficiency publications.

Newly Audited Publications

A total of 23 publications with newsstand sales were added to the auditing ranks in the last year. They contributed substantially to overall sales-adding 13 million unit sales and $40 million in revenue. Five of these titles contributed more than $2 million in sales for the period. They included People StyleWatch, which continued its strong performance first reported in the second half of 2007. All You reported average sales of 406,000 per issue, which is very impressive considering that it's distributed only in Wal-Mart stores. Quick and Simple, published by Hearst, reported seemingly high average per-issue newsstand sales of 321,000. However, their sales might be a little disappointing considering that the cover price was a super-low $1.63. O at Home (also published by Hearst) reported sales for the first time-nearly a 300,000 average for their two published issues. The fifth title reporting more than $2 million sales was American Curves, published by newcomer Canusa. Its 77,000 average sales per issue is good considering its high $6.99 cover price. This title joins Oxygen - Women's Fitness, also published by Canusa, which made its audit debut in the first half of 2007.

The relatively strong performance of these titles demonstrated the continuing importance of new publications in sustaining a viable newsstand industry.

Sales of the Top 10 Newsstand Publishing Companies

The top 10 publishing companies dominate the newsstand-combined they account for 79 percent of unit sales and 75 percent of revenue. The top six newsstand companies (Time Inc., Bauer, American Media, Hearst, Conde Nast and Wenner) further separated themselves from the pack. They accounted for over $1 billion in revenue in the first half of this year. These are the companies that have, by far, the most significant effect on newsstand sales.

Time Inc.

In a difficult market Time Inc. sales leaped dramatically. Unit sales were up nearly 12 percent and revenue increased more than $40 million-a lift of almost 19 percent. Contributing to this strong sales performance were two titles new to the auditing ranks (People Style Watch and All You). Even if the sales of those new publications are excluded, their revenues would have been up 12 percent. The sales revenue of People (up 19 percent) and Sports Illustrated (up 34 percent) were the major sales increase contributors. However, nearly all titles, except Southern Living (down 12 percent) and Money (down 15 percent), displayed steady sales performance. As a result they extended their revenue sales lead and made big inroads on Bauer's unit sales lead.

Bauer

As previously discussed Bauer performance was decidedly mixed. They surrendered a major portion of their unit sales lead, but they also expanded their revenue, advancing their share of revenue above all their primary competitors, except Time Inc.

American Media, Hearst, Conde Nast, Wenner

The newsstand revenue of these four companies remained relatively flat in the first half of this year, although three of them (American Media, Conde Nast, Wenner) suffered unit sales falls. American Media was hurt by the continuing sales slide of their two tabloid publications, which accounted for the bulk of their unit sales decline (8 percent). Hearst posted unit sales and revenue increases primarily because of the addition of two newly audited titles (Quick & Simple, O at Home). However, Hearst unit sales would have been off 11.5 percent and revenue down 7.5 percent without the benefit of those two titles. Disappointing sales from O, The Oprah Magazine (units down 17 percent and revenue off 6 percent) and sales drops of 18 and 23 percent respectively from Cosmo Girl and Seventeen contributed to a surprisingly weak six-month period for Hearst.

Conde Nast's performance was more stable than Hearst, but still far short of satisfying. They had some sales difficulties with Glamour (down 9 percent) and Vogue (down 13 percent), but they were helped by Vanity Fair's 6 percent sales rise. Wenner raised the price on Us and experienced an 11 percent unit sales decline. This accounted for nearly all of their unit sales losses, but they still eked out a 1 percent revenue increase on the strength of Us' cover price increase.

Source Interlink Media

It was a very rough six-month period for Source Interlink Media at the newsstand-unit sales down 19 percent and revenue off 12 percent. The major culprit was the sales fall of their two soap opera titles (Soap Opera Digest and Soap Opera Weekly). Combined the two soap titles lost 22 percent in unit sales and dropped nearly 16 percent in revenue. Their other 43 titles (all special interest publications) didn't fare too much better. They were down 16 percent in units and 10 percent in revenue. This company is rapidly losing newsstand sales. They appear to be a victim of the large cover price increases they have imposed over the last few years, as well as the downturn in the automotive industry, which has adversely affected most of their large cadre of auto-oriented publications.

Meredith

On the surface it appears as if Meredith bucked the sales decline trend that's plagued the industry. They reported increases in unit sales and a 6 percent revenue gain. However, their sales were artificially helped by distribution to Dollar Tree stores, where publications are presumably sold for a dollar or less. Meredith has rescinded the Dollar Tree agreement, but the remnants of this agreement are reflected in the sales they reported in the first half of this year. It's believed that both BH&G and Ladies Home Journal were particularly helped by the inclusion of Dollar Tree sales. Without the Dollar Tree benefits it's assumed that Meredith's sales for the period would have been flat or down a little.

Northern & Shell

The sales of OK! continue to surprise. Their unit sales and revenue jumped nearly 20 percent. They were one of only five publications among the top 25 newsstand publications not to suffer a unit sales decline. It's now obvious this title is going to remain a formidable entry in the highly competitive celebrity title category.

Rodale

Another strong period for Rodale. Increased sales from Men's Health and rapidly rising Women's Health more than offset Prevention's nearly 10 percent sales decline. Runner's World also impressively increased sales even though its cover price was raised.


Assessing Reasons for the Sales Decline

Conventional wisdom would seem to indicate that the hefty first half sales declines are attributable to higher gas prices, less supermarket visits and a declining economy. I have no doubt those factors have contributed, but I don't believe they're the major contributors. My sense, after reviewing the data, is that the major contributor was the record price increases, particularly those initiated by Bauer. To a lesser extent, but still a more significant contributor than a weak economy, are the wholesaler initiated draw reductions.

Pricing

The newsstand market has always been very price sensitive. Publication pricing that got too far ahead of the reader demand curve was nearly always punished. That's why cover price increases have traditionally been very conservatively employed. However, in the last year many publishers have thrown pricing caution to the wind. The Bauer price increases, which we've discussed, have had a particularly large sales impact. The Bauer titles were joined in the price increase parade by a host of other checkout titles (11 of the top 15 titles increased price in the last period and all 15 titles increased price in the last two years). Price sensitivity is most acute for checkout titles, those publications trying to appeal to a broad audience. Special interest publications and those sold primarily on the mainline, I believe, are slightly less price sensitive because they are less of an impulse purchase.

Price increases, if they are in the extreme, are also likely to change buying behavior and product preference patterns. In this period we witnessed this phenomenon as the mega-price increases employed by Bauer for their two celebrity titles appeared to affect the sales pattern of all celebrity publications.

Wholesaler-Initiated Draw Reductions

The wholesaler-initiated draw reductions, started in earnest more than a year ago, are also having an adverse effect on sales (although they have helped produce the first industry efficiency rise in many decades). The rapid spread of scan-based trading (SBT) applications and the reduction in wholesaler distribution centers have accentuated the impact of these arbitrarily initiated draw reductions. It's difficult to hazard a guess as to its magnitude, but if efficiencies have improved, as reported, by 3 or even 4 percentage points it's a good bet that sales have been adversely affected by at least 1 percentage point.

Final Thoughts
The newsstand is not one-dimensional. It's driven by a set of interactive factors that conspire to make it one of the most confounding segments of our business. In the first half of 2008 the influence of pricing-especially the mega-price increases, which have had such an impact on sales-has been well demonstrated and so has the crucial market impact of wholesaler operations. The market affect of the economy, often used as a scapegoat, is less well understood.

For publishers it seems the lessons are clear-to maximize newsstand sales, pay careful attention to pricing strategy and develop a sound understanding of wholesaler operations, including their expanding SBT initiatives.

Where Publishers Are Thriving

Where Publishers Are Thriving
Germany's papers are doing fine despite the ad flight to the Web. What's their secret?
by Jack Ewing
http://www.businessweek.com/magazine/content/08_34/b4097094901129.htm
Here's a scene you don't see at many U.S. papers these days. The publisher settles into his office sofa, glances over his shoulder at the bustling metropolis below, and says casually: "We're doing good!"
True, there are definitely some aspects of the business model at Bild, a Berlin daily with 12 million readers, that might not fly in the U.S. (the photos of nude women on page 1, for example). Still, it's worth asking publisher Kai Diekmann how, when U.S. newspaper revenue is going off a cliff, Europe's largest paper managed to have its most profitable year ever in 2007.

It's not as if Bild hasn't been hit by the same problems as U.S. papers, including advertisers lost to the Web. So it's tempting to credit Bild's double-digit profit margin solely to sensationalism. The day I met Diekmann, Bild's lead story concerned managers of public health-insurance funds helping themselves to free Viagra. One of the top online stories asked: "Which female celebrity has the nicest breasts?"

But Germany's prestige papers are doing reasonably well, too. National-affairs daily Die Welt, a chronic money-loser that, like Bild, is part of the Axel Springer empire, made the first profit in its 60-year history last year. "I wouldn't say we don't have challenges, but we are not nearly as hard-hit by the advertising crisis as the U.S.," says publisher Peter Wurtenberger.

PRE-WEB MAKEOVER
Even accounting for the quirks of the local market, Bild and other German papers are doing something right. For an American print guy like me, it was a bracing experience to visit a newsroom where the journalists don't look like they're ready to jump out the window. The lesson seems to be that there are ways for papers to survive the shift to digital if they're willing to take risks.

Germany's newspaper industry had its own existential crisis in 2001 when that country's economy tanked. Ad revenue slumped, and papers did all the painful things their U.S. counterparts are doing now, such as cutting staff and getting used to new owners. In retrospect, the crisis had its upside.

It forced German papers to take a hard look at their businesses before the Web started to hurt big time. Staunchly gray Frankfurter Allgemeine Zeitung risked alienating readers by printing color photos on the front page and launched a sassy Sunday edition. The measures helped stop a slide in readership. Die Welt created a tabloid edition that helped lure younger readers. And the papers dared to raise prices. Even Bild, aimed at a working-class audience, in July boosted its newsstand price by 20%, to about 90 cents in most markets. The hikes, along with digital revenue, helped offset the loss in ads.

German papers also took advantage of how slowly Europeans embraced the Web, which gave editors a chance to learn from U.S. mistakes. Bild used a partnership with Deutsche Telekom, Germany's biggest Internet provider, to gain a foothold online at minimal cost. Now most of Bild's Web readers go straight to the site rather than via a search engine or portal. Diekmann says YouTube is sufficiently impressed to mull working together.

I'm impressed by the way Bild is staking out the mobile Web. Via a partnership with Vodafone Group , Bild became a mobile-phone provider, selling prepaid airtime at the same newsstands that sell the paper. Bild Mobile gives customers unlimited surfing and downloads as long as they stay tuned to bild.de. That's a compelling way to keep users glued to your site, and it has made Bild Germany's No. 1 mobile Web news destination.

I suspect the real reason German papers still thrive is their embrace of competition. Unlike so many U.S. papers, Bild was never part of a quasi-monopoly that allowed complacency. It's telling that Bild doesn't deliver -it depends on newsstand sales. "Bild has to prove itself at the kiosk every day," says Deputy Editor-in-Chief Michael Paustian.

That pressure helped Bild maintain its focus on original content. It uses almost no wire copy and brags that every story is an exclusive. Even during the crisis years, Bild kept its 800-strong editorial staff intact. What advice does Diekmann have for American newspapers? "It's too late."

Striving for Zero Returns on the Newsstand

Master Manufacturer:
Striving for Zero Returns on the Newsstand

By Steven W. Frye
Publishing Executive Magazine
http://www.pubexec.com/story/story.bsp?sid=107631&var=story

In today's electronic age, it's becoming harder and harder to justify our magazine business model anymore. We can longer claim that we are a cheap source of dispensing information.

We cut down trees, transport them to be ground into pulp, use energy and water to create paper, transport the stock to printing plants, print with inks (which go through a similar process in a petroleum-based market), mail magazines in an increasingly more expensive "snail mail" system, and/or ship them in a series of delivery trucks to every newsstand in America.

These magazines have a self-imposed average expiration date of 30 days (with the month of "relevance" printed right there on the cover), and thereafter are destroyed. We then rate their success on how many we sell, which currently averages around only 30 percent to 35 percent.

This is a huge waste of resources. And it always bothers me that once the next issue comes out, the current one is perceived as worthless. In most cases, however, that editorial and advertising is still relevant and has value. With sold copies it's called "pass-along" readership. Yet, unsold copies are deemed worthless and destroyed.

China's Model
It's different in China though. They have zero returns on newsstands. That's right-zero returns. Almost every magazine placed on the newsstands in China has a 100-percent sell-through. So if they can do it, can we?

There are obvious differences between our two systems, one being China's censorship of all media, but mainly, they do not have national distribution of any kind. Also, readers have a much smaller choice of publications than we do, but more importantly, they perceive magazines as a luxury item-not a cheap source of information.

Historically, many U.S. magazine publishers have thought they needed to keep the cover price as low as possible, believing that with every increase, they lost a proportional amount of subscribers.

But this conventional wisdom, like so many parts of our business model, doesn't seem to be working anymore. When I look around, the most successful magazines seem to be breaking all the rules.

While, with every postal and paper increase, many magazines got smaller with lighter paper, others grew in size and used very heavy stock. While some fretted over the inefficiencies of the postal, newsstand and advertising sales systems, as well as required auditing, others are distributing small, unaudited, but highly targeted, quantities and have no trouble selling ads.

So, I ask: Do we need to continue further wasting resources with our current newsstand distribution system or can we, too, sell nearly 100 percent of our newsstand copies?

How do the Chinese sell every magazine placed on their racks? It is simple, really. When the January issue (for example) expires and the February issue comes out, any unsold January copies are discounted in price. If, by chance, there are still January copies in March, they are further reduced until every copy is gone.

The Chinese understand that even though the issue is one day, one week or even one month old, it still has value. Magazines are a luxury item in China and are sold as such. Maybe it's time we think of magazines as a luxury item, too.

The Industry's Shift
If you think about it, our related industries may already be moving us toward that model by demanding high material costs. The paper mills shut plants and equipment to create a supply shortage with premium prices. Ink, packaging materials and energy are all on the rise.

Those titles that are successfully breaking the rules get it. They understand that their readers will pay $15 or more per issue, and advertisers are clamoring to get in. They make their book different, valuable and desirable.

Printed magazines cannot compete with cheap electronic media. We have become a luxury item whether we like it or not, and I suggest we grasp that concept and start remarketing ourselves as such. I believe our readers already see us as luxury item, or they wouldn't have bought the magazine in the first place. Our readers also use the Internet, yet they purchased our printed product for whatever reason . . . other than a source of timely information.

It's common knowledge that publishers lose money with every issue they place on the newsstand. And now newsstand racks are shrinking because retailers aren't getting the revenue they earn with other products. Wal-Mart announced earlier this year it was eliminating 1,100 "nonperforming" titles. Grocery stores rather sell canned peas than magazines. Yet, except for mailed subscriber copies, newsstands are still the only place one can buy most magazines.

Potential in Dollar Stores?
Do we need to change our current system to survive? Can we learn from the Chinese?

In China, publishers, both Chinese and foreign-leased, produce for a regional market. Beijing publishers distribute within the northeast part of China, and Shanghai and Hong Kong publishers distribute within their respective regions. Publishers individually work out distribution with newsstand vendors to sell their products.

Readers in China are not used to mass amounts of printed media at their disposal, and all magazines are in great demand. Sales are expected to continue at an unprecedented rate.

Changing the perception of a magazine as a luxury item is one thing, but it is quite obvious we do not have the rack space available to put outdated copies on sale. The management of those issues would be complicated, time-consuming and expensive for a relatively small return.

I wondered if the series of "dollar" stores, which are in every town in America, could become our new newsstands. We could place magazines in the stores, and all expired copies could be sold for a dollar. It would save waste, allow a longer life for the magazine's advertisers, and allow more titles to be made available.

What I found was that selling magazines in dollar stores is not a new concept. As a matter of fact, the Wal-Mart cuts have been reportedly linked to a successful program in which Meredith Corp. (though Meredith denies any link to the Wal-Mart cuts) was selling magazines and annuals through Dollar Tree stores at a lower rate than at Wal-Mart. A spokesman at Dollar Tree declined to elaborate on that deal, but stated that details were widely available on the Internet. He also said that Dollar Tree's partnership with Meredith was highly successful for both companies, and the company would be interested in discussing deals with other interested publishers. In an April 16 article in the New York Post, however, Andy Sareyan, president of Better Homes and Gardens and a corporate executive vice president for Meredith, is cited as saying the Dollar Tree program will be shut down at some point in the first half of the year. "It was a testing program," Sareyan told the Post.

The Chinese system of selling "old" copies at a discount until they were gone didn't seem to be attractive to Dollar Tree. They have the same issues with rack space as everyone else. But, they can offer a means for publishers to put out affordable magazines. Ad sales will benefit from these newsstand numbers.

Then maybe we can turn our current conventional newsstand racks into a premium source of purchasing luxury items. Travelers buy magazines in the airport because it is convenient-where and when they want it. I propose we price our conventional newsstand copies at a premium. Consumers already accept the fact that milk is more expensive at a 7-Eleven than at a larger grocer, but they'll pay the difference for the convenience.

Being in this industry for 30 years has allowed me to see the industry from many different perspectives. One that I didn't like, as a production manager, was the constant belief that the magazine had to do whatever it needed to get an advertiser in. We'd hold up deadlines just to accommodate late advertisers, and salespeople would promise the world to them. I tried to point out that it was the advertisers who needed us, because if they weren't in the issue, their competitors were. In other words, our magazine had value.

It's time we all realize that our magazines have value for what they are. We have to stop trying to be something we no longer are. Our readers see us as a luxury item, and our suppliers are selling at the highest historical rates.

We need to cut the waste that is inherent in our newsstand system. We need to charge a premium for the luxury of having the magazine delivered to the home, we need to charge a premium for the convenience of newsstand offerings, and we need to open new avenues of distribution.

If you are not already doing so, it is time to think outside the box. Challenge old methods. Dare to try new ones. Make a statement for the environment and minimize our old acceptance of material waste. The magazine market is changing. The question is, are you progressive enough to change, too?

Steven W. Frye is owner of Frye Publication Consulting in Hailey, Idaho. He is an expert in production processes, and has negotiated printing, paper and distribution contracts for dozens of publishers. He can be reached at Steve@SteveFrye.com.

At the Newsstand: Cloudy Sales Results and Growing Tensions

At the Newsstand: Cloudy Sales Results and Growing Tensions
By Baird Davis
Circulation Management Magazine
http://www.circman.com/viewmedia.asp?prmMID=3875
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.

In Circulation: Timeliness, transparency help circ measurement keep pace with other media

In Circulation: Timeliness, transparency help circ measurement keep pace with other media
By Lauren Bell
Audit rules approved by the Audit Bureau of Circulations board last week seem to mark a trend in circulation measurement: faster, more precise reports that bring print audits closer to the sort of metrics used by other media. The ABC's new rules were intended to simplify current audit rules and make audit reports more useful to advertisers and publishers.

Key to this new push for usefulness was the change ABC made to its Rapid Report guidelines. Publishers using Rapid Report - an online tool for recording audience numbers issue-by-issue - are now being asked to post initial post-issue readership projections within three weeks of a weekly title's on-sale date. Monthly publishers should post within seven weeks.

"It's a much more on-demand world today," said Kammi Altig, manager of communications at ABC. "People in the Internet age do expect information more quickly, and it certainly makes the print industry more competitive and more comparable with other media industries."

By speeding up the process, ABC is making print audience reports more comparable to the more regularly-posted numbers provided by TV, Web sites and other media. Such information is expected to raise print's standing in a marketplace where ad buyers consider and compare multiple media platforms. It is important to note, however, that Rapid Report measures circulation, while other media measure audience - a difference that makes comparisons between the two an apples-to-oranges exercise.

Robin Steinberg, SVP, director, print investment and activation for MediaVest USA, added, "The simple answer is yes, it does make print more competitive, that's why we developed these reporting guidelines. As a medium we need more timely data and we need to understand the data earlier rather than later. It's really about transparency, and I think publishers will benefit by being more transparent on a timely basis."

A new MPA initiative unveiled by president/CEO Nina Link two weeks ago sought similar effects. MPA proposed new audience-based metrics that measure different audience demographics and engagement with ads.

"A key item was to become faster in our measurement and more comparable to the way other media are measured and more accountable," Link said.

A tangential, but no less important, effect of the MPA changes is that better consumer metrics may allow circ marketers to deploy more targeted campaigns. And with numbers coming in on a timelier basis, marketers will be better able to judge how audiences respond to a magazine on an issue-by-issue basis.

Like ABC, the Magazine Publisher's Association is making improved online survey techniques a major focus in its reworking of the audience reporting process.

Second-Half 2007 Newsstand Sales Delight and Confound

CIRCULATOR: Second-Half 2007 Newsstand Sales Delight and Confound
By Baird Davis
http://www.circman.com/viewmedia.asp?prmMID=3759
ABC's twice-annual FAS-FAX report detailing analyzed paid and non-paid circulation for just over 700 U.S. consumer magazines was released earlier this week, and the numbers tell an interesting story.

Newsstand revenues rose in the 2nd half of 2007 by 2.8 percent to nearly $1.7 billion. This, of course, is good news for the industry. However, the bad news is unit sales declined 1.8 percent, to slightly less than 472 million (this data is subject to revision when the final audit bureau data is provided later this month).

The spread between unit sales and revenue performance is one of the largest in recent years. It apparently reflects the beginnings of a strong cover price trend. Besides pricing there were also other factors that contributed to the mixed sales story in the second half of 2007.

Cover Price Effect
The estimated average industry price rose from $3.36 to $3.52 in the second half of last year. This is probably the largest average price increase in industry history. The price increases were led by Bauer, who last fall announced price increases on their nine audited titles of approximately 30 percent. However, their price increases only affected sales the last two months of the period. Even so, Bauer's aggregate revenue increased 11.3 percent on flat unit sales. It's much too early to proclaim their price increases a success, but it is an impressive start.

Bauer wasn't the only publisher pushing prices higher. The average price of titles sold at checkout increased from $2.96 to $3.14 (up 6.1 percent) and mainline titles (primarily male oriented) increased their average price from $4.67 to $4.79 (up 2.6%). But newsstand pricing is far from being fully elastic. The sales performance of Ok! (price $1.96 to $2.99, unit sales down 22 percent), TV Guide (price $2.16 to $2.66, unit sales down 26 percent), Newsweek (price $4.50 to $4.95, unit sales down 12.7 percent), and Time (price $4.22 to $4.95 unit sales down 16.5 percent) helps demonstrate the market resistance to price increases. On the other side of the coin In Touch increased price from $1.99 to $2.29 and unit sales increased 4 percent. The lesson here is that cover price increase decisions should always be approached with caution.

Impact of Wholesaler Distribution Reductions
Much has been written recently about wholesaler mandated distribution reductions. It's difficult to assess its impact from audit bureau data. But there are some indications they might be having a slightly adverse impact on unit sales-estimated to be about a half of one percentage point. If the industry efficiency level has been raised from 33 percent to 38 percent, as some wholesalers have indicated, a half point sales reduction would represent a big win for publishers, as well as wholesalers.

Celebrity Title Performance
In the second half of last year the celebrity titles continued to set the sales standard for the industry. These five titles-People, US, In Touch, Star, Life & Style and Ok! (which represent 27 percent of industry sales revenue)-experienced a unit sales decline of 3.6 percent, but revenue gained 6.4 percent. In Touch was the only one of the five publications to show both unit and revenue gains.

The Dollar Tree Phenomenon
Meredith reported in the second half of 2007 that the sales of their four leading newsstand titles-BH&G, Fitness, Ladies Home Journal and Family Circle-had a staggering combined 31 percent increase in sales revenue. This was a highly unusual sales lift for mature titles. As it turned out it appears that nearly all of the increase ($8.6 million) from these four Meredith publications can be accounted for by sales through Dollar Tree stores. But there was a backlash from major chain retailers about selling product at deeply discounted prices. Meredith in the last few days has indicated they have discontinued their Dollar Tree distributions. It seems as if Meridith's Dollar Tree sales lift will be a non repeating anomaly that can best serve as a cautionary tale concerning the risk of the selling leading titles at deeply discounted rates.

Newly Audited Publications
There were three major titles added to the auditing ranks in the second half of last year. Two published by Time, Inc.-People Stylewatch and All You (both monthly frequency). The other, Quick & Simple, is a weekly title published by Hearst. People Stylewatch and Quick & Simple reported revenue of nearly $11 million and All You a little less than $6 million. Of the three, perhaps, the sales of People Stylewatch is the most impressive. It reported average sales of 549,000 per issue. Its sales revenue exceeded those of Vanity Fair, Vogue and Good Housekeeping. It is believed to be the largest revenue achieved, at launch, by a monthly title since the super sized debut of O, the Oprah Magazine in 2000. Quick & Simple, with an average price of only $1.63, and All You (cover price $1.97) reported good sales, but the sales of these titles might be compromised in the future if the industry continues to shift away from super low cover priced products.


Mixed Messages
The mixed sales performance in the second half of 2007 mirror the complexity of the market conditions. Price, we're reminded, is a double-edged sword. It appears as if price increases will be accepted in certain circumstances, especially when increases involve titles previously priced below $2.99, but meet resistance in others. The wholesaler initiated distribution reductions are still a work in progress, but the initial results appear to be promising. Finally, we learned that the market can be self policing when it comes to selling magazines at deeply discounted prices. As always, the newsstand retains its mysterious aura to both delight and confound.

Wholesalers and Retailers Draw the Line, and an Industry Lurches Toward Efficiency

Wholesalers and Retailers Draw the Line, and an Industry Lurches Toward Efficiency
Circulation expert says big magazines are the problem.
by Tony Silber
www.FolioMag.com
Wholesalers and retailers that attempt to increase efficiency by reducing the numbers of titles they carry, especially the smaller ones, are fighting the wrong battle, a leading newsstand expert said this week.

What's more, says Dennis Porti, executive vice president of the national distribution company Curtis Circulation, any attempt to bring the newsstand sell-through to 50 percent overnight would result in "a catastrophic loss of sales."

Porti was reacting to a flurry of news in recent weeks detailing moves by Wal-Mart [0] and other retailers to delist large numbers of magazines, and by several of the leading wholesalers to reduce by tens of millions of units the numbers of copies they distribute.

According to Mediaweek [1], Source Interlink is cutting distribution by 40 million copies over the next few months, while Anderson News Corp. and the News Group are making cuts of undisclosed numbers. Source is aiming for an overall efficiency-that is, number of copies distributed compared to number of copies sold-of 50 percent by the summer, up from the current efficiency of 38 percent. Last spring, Source cut 57 million copies.
The wholesalers said they thought the reductions could be made without any loss of sales, and some publishers and industry observers have agreed.

But Porti argues that the newsstand isn't inefficient because of the numbers of titles on the racks, he says it's because of the big magazines. "Here's the problem: 50 magazines generate nearly 70 percent of the industry's returns," he says. "The big magazines have the best positions and they have a very, very high draw per outlet. Hypothetically, if they go into a store with 100 copies, they sell 40. That's 60 returns per magazine."

Porti says the magazines themselves are in a tough spot, as are wholesalers, because many retailers may have upwards of 30 checkout racks. "If you go in with too few copies, all in the channel, including retailers, become concerned about empty wire," says Porti. "But when you fill the wire, you become inefficient."

Ultimately, he says, the industry improves efficiency if the larger-circulation magazines manage their draw better. Thankfully, Porti says, the industry has become much more sophisticated about managing draw.

And that's why the industry has picked up four to five points of efficiency in the last few years, he says. "There isn't a publisher in this business that doesn't want to operate more efficiently, and the aforementioned gains are an excellent start."

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
http://www.nscopy.com/

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."