Sunday, April 22, 2007

Publishers Still Supporting High Circ Levels

Publishers Still Supporting High Circ Levels
By Baird Davis prmMID=3023

The consumer magazine industry's high wire fascination with the precarious task of supporting lofty circulation levels continued in the second half of 2006. The industry's aggregate paid and verified circulation fell a minuscule .4 percent, from 283 to 282 million. Without TV Guide's 4 million circ decline, consumer magazine circulation would have risen one percent.

In the face of stiff Internet competition and an apparent decline in magazine readership, it seems irrational that publishers would persist in supporting lofty circ levels. A look at the influence of current market trends helps illuminate some of the reasons for this behavior.

The circulation of consumer magazines has been continually growing since old Ben Franklin first published the Saturday Evening Post. Until the mid 1980's, the industry's millenniums old circulation growth remained proportional with the rising number of readers-a nicely balanced media equation.

So what's behind the hyper growth of recent years? Like most abnormal market behavior, its origins can be traced to the pursuit of the all mighty dollar. Our review has revealed that there are six distinct market trends that have contributed to the industry's excessive circulation growth.

1. Rising Advertising Revenue Opportunities- Starting in the late 80's, and accelerating in the 90's, the race for the advertising pot of gold became more intense as the pool of available magazine advertising dollars grew. Publishing management focused on that pursuit. Advertising became cool and circulation was boring.

2. Advertising's Profit Contribution Increased- Rising advertising revenue changed the advertising/circulation profit contribution ratio. Several decades ago advertising and circulation contributed equally (50/50) to a publishing company's profit. Today the profit contribution ratio at most publishing companies is tipped heavily in favor of advertising. This change has altered the standards for determining circulation levels and helped modify circulation practices.

3. Changing Definition of Circulation Level Standards-Back in ancient times (the '80's) many publishers were guided in setting circ levels by the concept of managing to a "natural circulation" level. But since advertising revenue began its ascent, this quaint concept has become antiquated. However, I think it's still useful to be reminded of the inherent value of the "natural circulation" level ideal. It's broadly defined by the following parameters: properly balanced subscription-to-newsstand circ ratios (comparable to the leading publications in the category); subscription source mix that is heavily weighted (more than 75 percent) in favor of direct sold subscriptions; small circ representation (less than 5 percent) from agents whose orders are not direct sold; and subscription pricing for direct sold orders that is comparable, or greater than, the leading competitors in the category. Today, unfortunately, "natural circulation" principles are largely being ignored by publishers.

4. The Proliferation of Consumer Magazines- In the last two decades the rising number of new consumer magazines has greatly amplified niche/category competition. The increased category competition has exacerbated the difficulty of containing circ levels because advertisers still often view circulation growth as a sign of vitality and, conversely, stalled circ levels are seen as a sign of weakness.

5. The Rising Equity Value of Magazine Properties- Since the mid '80's consumer magazines have increasingly been viewed in the equity market as being valuable properties. This has led to more publicly held and /or leveraged ownership of magazine businesses. This, in turn, has contributed to management practices that are directed more toward short term objectives and less on the long range implications of circulation and circ level practices. The result is many of these short-sighted decisions have reduced circulation quality standards and helped support abnormally high circ levels.

6. "Legitimizing" New Sources of Circulation- In an attempt to sustain high circ levels, especially after the sudden demise of the stamp-sheet agent source in the mid '90's, publishers were forced to vigorously search for alternative sources of "paid" circulation. This precipitated the development, and expansion, of verified, paid sponsored, loyalty, combination and partnership circ. And it's contributed to selling subscriptions at vastly reduced prices. These "alternative" sources have helped publishers sustain high circ levels, but at the cost of reducing circulation profitability and compromising reader quality.
Final Thoughts

There are good reasons to explain publisher's fascination with high circ levels. But they don't justify the industry's bad behavior. Higher circ levels have partially compromised one of the most vital aspects of trust between publishers and advertisers-the quality of the reader. Publishers should recognize for their own good, and the well being of the industry, that they must start exercising greater circ level discipline. Let's hope they'll begin soon.

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