Are Free Magazines the Future of Publishing?

Are Free Magazines the Future of Publishing?
Will consumer go controlled?
By Chandra Johnson-Greene
http://www.foliomag.com/2008/are-free-magazines-future-publishing
CHICAGO-During a session at this week's CM Show, Jennifer Armor, audit manager at Verified Audit Circulation, argued that free magazines are the future of the business.

She riffed off a quote from Wired editor-in-chief Chris Anderson: "From the consumer's perspective there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you're already in an entirely different business."

Armour thinks this idea can, and will, eventually extend to the magazine industry. (Broadcast radio and TV have been offering it since their inception, after all, and the music industry is moving in the same direction, she noted.)

Because of the increasing price of paper and postage, Armour said, the cost of acquiring and keeping paid circ is becoming too high compared to the revenue it generates, and therefore, consumer publications will eventually move to a controlled circ model. Only magazines with premium content that can't be found elsewhere will be able charge their readers.

True, other types of media are free or becoming free, and it is becoming quite expensive to run a paid title. But the idea that consumer magazines will be corralled into a free model due to spiraling costs is unlikely.

Advertisers are still grappling with accepting that public-place copies of paid titles are valuable because the publishing industry's audience measurement system isn't as finite as TV or radio. To them, there's no real way to measure how many eyes have viewed the copies. Circulators know differently, of course, but the debate rages on. And until that issue-and a few others-have been hashed out, Armour's view of the future is out of reach.

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Maghound offers magazines a la carte
By Lauren Bell
http://www.dmnews.com/Maghound-offers-magazines-a-la-carte/article/111962/

Time Inc. will launch Maghound.com
- a membership-based magazine purchasing site - in September.

Maghound users pay a monthly members' fee, depending on the number of titles they would like to receive. The program currently has 280 titles from a variety of publishers, and members can order different titles every month.

"The goal, simply, is to expand print circulation, and we feel, based on testing, that we can bring incremental readers to each brand," said Dave Ventresca, president of Maghound Enterprises Inc. "In addition, Maghound can bring in the right types of readers; we feel confident that it will deliver younger readers, who are more likely to be married, more likely to have children, have higher levels of education and higher household income levels than the general US population."

Though Maghound is a Time Inc. venture, other publishers have been invited to join the service, with the rationale that more choice makes more loyal consumers. Time titles will, however, benefit from merchandising and special promotions on the site - as will other high-performing titles. Ventresca said he expects to have 300 magazines signed up for Maghound by the end of September and 400 by the end of the year.

Marketing for the September Maghounds launch will be largely through online channels, such as banners and e-mails. Once the brand gets better established, marketing efforts will expand to print, events, search, viral and gift programs. Time Inc. lists and outside lists are being used to target direct efforts.

"The key metrics that we're looking at are: costs per acquiring new members, how many magazines people are buying, how much they're paying and how long they're going to stay with the service," said Ventresca. "We think people will stay Maghound readers longer because if you are subscribing to three titles [in the traditional way] and get bored with title C, you just cancel or let it lapse. If you're paying for three titles on Maghound and get bored of the third one, you're more likely to switch to another title since you're already paying for three."

Three titles from Maghound cost $3.95 a month, five titles $7.95, and seven are $9.95. For more than seven titles, members pay an additional dollar per title. Around 10% of the titles on Maghound have been designated "premium," based on their higher-than-average subscription pricing; premium titles charge an extra fee.

Magazines purchased through Maghound will be classified as single-copy sales in ABC and BPA audits.

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.

Magazines: Ad Pages Slip First 4 Months Of '08

Magazines: Ad Pages Slip First 4 Months Of '08
by Erik Sass
http://publications.mediapost.com/index.cfm?fuseaction=Articles.san&s=82433&Nid=42743&p=204904

Most big magazine publishers saw total ad pages decline in the first four months of 2008 compared to the same period last year, according to the most recent Group Publisher's Report from TNS Media Intelligence. While some losses can be attributed to the closing of various titles since last year, the broad nature of the declines, cutting across a number of categories, looks ominous for the magazine industry.


(None of the magazines named in this article are necessarily the sources of declines at their respective publishing groups; they are simply some of the leading titles published by those companies.)


Among the "big three" publishers, Time Inc. is definitely faring the worst, with ad pages down 8.2% in the first four months of 2008 to 8,467. Conde Nast and Hearst experienced more modest declines. Conde Nast--which publishes Vogue, Vanity Fair, Glamour, GQ, Details and Portfolio--saw ad pages fall 2.9% to 11,961. Hearst--publisher of Good Housekeeping, Harper's Bazaar, Cosmopolitan and Esquire--saw ad pages slip 0.6% to 5,614.

Enthusiast and lifestyle publishers were not spared. Bonnier Magazine Group--which purchased a number of enthusiast titles from Time Inc. in 2007, including Field & Stream, Popular Science and Parenting--saw ad pages fall 9% to 4,759 in the first four months of 2008.

Hachette Filipacchi Magazines (publisher of Elle, Woman's Day, Home, Car and Driver, and American Photo, among others) fell 7% to 4,083. Hachette closed the print version of Premiere, an entertainment news title, in favor of online-only publication in March 2007; the decline in ad pages may reflect this move, at least in part.

Meredith Corporation--publisher of women's interest titles, including Better Homes and Gardens, Ladies' Home Journal and Family Circle, saw ad pages tumble 13.4% to 3,359.

American Express Publishing Corp., which publishes Travel + Leisure and Food & Wine, is down 5% to 1,280 ad pages. Source Interlink, which publishes Motor Trend, Automobile, Hot Rod and Soap Opera Digest, is down 17.1% to 1,828. Finally, Wenner Media, publisher of Rolling Stone, Men's Journal and Us Weekly, is down 9.1% to 1,186.
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Rodale Builds Muscle with Men's Health
By Amy Wicks
http://www.wwd.com/memopad/article/124925?page=0

LIFTING THE VEIL - SORT OF: On Wednesday, Rodale Inc. gave a glimpse into its performance so far this year, which included an increase in print advertising revenues of 8.8 percent, although ad pages declined slightly by 0.6 percent. There's a limit to its openness, however - the company doesn't actually provide profits and sales, or dollar figures of any kind.

Men's Health recorded a 12.1 percent jump in revenues compared with the first quarter of last year; however, ad revenue decreased by 5.6 percent and ad pages were down 11.4 percent, according to the Publishers Information Bureau. The January/February issue of the magazine sold a record 750,560 copies on the newsstand, coinciding with a cover price increase to $4.99 from $4.50. Men's Health editor in chief David Zinczenko's book, "Eat This Not That!" has sold more than 400,000 copies since December and is currently the best-selling health and fitness title in the U.S., according to a spokeswoman.

Meanwhile, Women's Health continues to build on its early success, up 50.8 percent in ad pages and 133 percent in ad revenue. On Tuesday night, the magazine held its first major event in New York, hosted by Chloë Sevigny, and Jessica Stam was one of the DJs. The event showcased a new partnership between the magazine and the Environmental Media Association.

Over at Best Life, ad revenues and pages were both up, at 25.6 percent and 8 percent, respectively. Runner's World Media Group had mixed results, with a 6.1 percent revenue increase but Runner's World magazine had a 2.3 percent dip in ad revenue and pages were down 6.7 percent. And Bicycling magazine's ad revenue was up 2.4 percent, while pages fell 3.5 percent.

Why Consumer Magazine Circulation Levels Are Still Too Bloated

Why Consumer Magazine Circulation Levels Are Still Too Bloated
By Baird Davis
http://www.circman.com/viewmedia.asp?prmMID=3943


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.

Postal Debate: Time Inc. vs. The NationMagazines on opposite sides of the shape-based postal rate structure.
BY Jill Ambroz http://www.foliomag.com/2008/postal-point-counterpoint-time-inc-vs-nation
FOLIO: asked two magazine executives-each with vastly different publishing backgrounds-about the impact of last July's shape-based postal rate structure. While mega magazine publisher Time Inc. was perhaps the foremost proponent of the new structure, it could be argued that The Nation was among those hit the hardest, having to absorb a half-million dollar increase in postage costs. The political weekly, with a circulation of 181,070, had to turn to subscriber donations to stay afloat.

So, ten months into the new rate structure, here's a look at their different approaches and different experiences.
FOLIO:: Do you feel the new shape-based postal rate structure implemented last July is a better system than previous rate structures?
Jim O'Brien, director of distribution and postal affairs, Time Inc.: The new rate structure is definitely a step in the right direction. When the rates begin to match the costs, mailers will work toward the lowest-cost method of preparing their mail, which is why you're seeing new growth in co-mailing and co-palletization right now. The new rates aren't perfect, but they're necessary if we want to keep Periodicals Class rate increases at or below CPI.

Teresa Stack, president, The Nation: I think it is a bad system. Instead of the preference that periodicals were entitled to since the founding of the postal service, the new rate plan imposes the most burdensome requirements for magazine retailers. What these new rates do is favor the large volume magazines (that by definition can better fill containers and perform other worksharing) and shift the costs onto the small magazines, including those that specialize in political content.

Our rates went up between 18 to 20 percent; some other small political magazines saw even larger increases, while the average rate increase was around 12 percent.

FOLIO:: Are the new periodical rates fair to everyone, small publishers and larger publishers?
O'Brien: If you surveyed the industry today, you would probably find that many small mailers think that the rates are unfair because they incurred higher increases than large mailers, and large mailers think that the rates are unfair because they pass through only 40 percent of the bundle and container costs and therefore perpetuate the cross-subsidy to small mailers. Our industry needs to get to the point where the rates reflect the costs and mailers pay for the resources that they consume within the Postal Service.

Stack: Clearly they are not. The largest publishers spent a lot of money lobbying for this new rate structure because it benefits their interests, unfortunately at the expense of small magazines. And while they can correctly argue that the new rates more accurately reflect costs to the postal system of individual titles, we have to remember that the entire class of periodicals has been subsidized for hundreds of years, with the goal of supporting a thriving multitude of opinions and content.

FOLIO:: What would you change in the postal structure?
O'Brien: I would like to see each rate element cover the Postal Service's cost to process and deliver that product and make a contribution to the overhead of the Postal Service. In other words, each mailer should pay for what they use. Last year, Periodicals mail covered only 83 percent of its postal costs. We need to get to 100 percent cost coverage or we may be at risk of an exigent increase.

Stack: In order for small magazines to survive, they cannot be subject to the radical restructuring imposed by the new rates. If we believe in our postal system, we may have to carve out different treatment for small titles in order to preserve the health of the class.

FOLIO:: The first quarter saw a significant decline in both First Class and Standard Mail, which pay for most fixed costs. If this trend continues, what will the repercussions be for the USPS and potentially, for publishers?

O'Brien: If Periodicals Class mail does not make progress toward 100 percent cost coverage then the Postal Service will file for an exigent rate increase to bring us to 100 percent. The average Periodicals contribution to institutional costs last year was negative 5¢ per piece. A 5¢ increase would be devastating for both large and small publishers, which is why Time Inc is pushing for mailers to change their behavior and prepare mail more efficiently.

As far as the Postal Service is concerned, volume losses put additional pressure on their cost reduction efforts. Postal Service management has done an excellent job of removing costs from the system but at some point they will hit the wall on cost reductions. When that happens, if volume does not rise, the USPS will be faced with either an exigent rate increase above the CPI cap or a bail-out from Congress.

Stack: Two things could happen: prices could go up even more (and if the large magazines have their way, those increases will be much higher for small magazines than for large ones). And then volume will go down. At that point, the USPS could be in real trouble. It may then take a congressional subsidy to preserve the universal service that our leaders believed was essential to our form of self government.

Time to Make the Case for Magazines and Books

Time to Make the Case for Magazines and Books
By John Harrington
http://www.nscopy.com/

At The Retail Conference, which wrapped up two weeks ago, several of the presentations focused on information that demonstrated the unique values that magazines and books bring to the retail environment. Additionally, another argued that these findings need to be consolidated into an aggressive and coordinated retail marketing approach that will benefit the entire category, and all of the members of the magazine distribution channel. Frankly, such a concept was employed, successfully and cooperatively, nearly two decades ago (see page 2). And for the last 10 years or so, it has been talked about constantly. Now, as the first decade of the 21st century is drawing to a close, and competitive product lines are clearly aiming at publications' space in large chain stores, and the tensions in the channel are reaching a crisis point, all members of the business should be doing whatever they can to see that publishers, national distributors, and wholesalers begin speaking loudly and with "one voice" to retailers.

Some of the good news from The Retail Conference about magazines began with Wendy Liebman's "How America Shops." A few points:

Women who buy magazines are cautious, take charge shoppers, but magazine buyers are also less price sensitive, enjoy browsing more, and are willing to pay to get in and out quickly.

Women who buy magazines shop in more retail channels than those who do not, by 12.5 to 8.6 in a three month period.

Magazines are #1 on the list as an affordable, under $10, treat for women; and,
Magazines are the #1 checkout favorite for women.

In "Improving Store Performance in the Grocery Channel," Tom Griffith of Willard Bishop Consulting, noted that while the so-called "Center Store," essentially general merchandise, is under siege, magazines and books are the most profitable products there. Among the numbers:

Within general merchandise, magazines generate 6.4% of sales, but 16.3% of profits.
Books and news represent 2.6% of sales, but 7.2% of profits.

Magazines profit-per-item sold of $0.58 is higher, by considerable margins, than snacks, gum, candy, and carbonated beverages.

These findings and more were a key part of a third presentation, "A Case for Magazines at Retail: One Voice." Three national distributor executives - Jay Felts, Comag Marketing Group; Drew Wintemberg, Time/Warner Retail Sales and Marketing; and Jay Wysong, Distribution Services, Inc. - laid out the beginnings of a plan to build a true "industry" presentation. The work is being done by a committee of the International Periodical Distributors Association (IPDA). No timetable was announced, but the message was that it has a high priority.

The History: Late in the 1980's, initially under the auspices of the Magazine Publishers of America (MPA), research about magazine and book supermarket profitability was begun, using the direct product profit (DPP) measurement. A major consulting firm substantiated that magazines were the most profitable general merchandise item, and that books were among the leaders as well. The wholesalers' trade organization of that time, the Council for Periodical Distributors Associations (CPDA) soon joined the project. The program's budget, in 1988, was nearly $1 million. Additional hundreds of thousands were budgeted over the next few years to bring the findings to top executives at the largest supermarket chains. Publishers, national distributors, wholesalers, association executives, and the consultant were part of those presentations. Beyond those joint sales calls, DPP materials, monographs and video tapes, developed by MPA and CPDA, were key parts of retailer visits by individual publishers, national distributors, and wholesalers.

The DPP program of the late 1980's and early 1990's was very successful, as supermarket publications' footage increased by double-digit percentages. As a follow-up, MPA and CPDA engaged the consulting firm to study DPP figures for discount stores. The resulting study was presented to a then-emerging discounter located in a remote town in Arkansas named Wal-Mart, which was only beginning to display magazines in its growing chain.

Remember as well, in those years, magazines were strictly a 20%-off cover price item, with display allowances bringing their gross margins up to around 27%. Today, and for the last decade, as a result of increased channel competitiveness, gross margins are estimated, modestly, to be over 30%.

The key to the success of the DPP marketing program of 20 years ago was its cooperative nature. For a new program to succeed, it will also have to be inclusive, and it will have to take place as soon as possible

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.