Wholesalers Pressure Magazine Publishers to Up Cover Prices, Cut Draw

Wholesalers Pressure Magazine Publishers to Up Cover Prices, Cut Draw
by Lucia Moses
http://www.mediaweek.com/mw/news/recent_display.jsp?vnu_content_id=1003614930

Prompted by rising delivery costs and pressure to grow profits, leading magazine wholesalers are making unprecedented steep distribution cuts across all magazines, with a sharp focus on their least-profitable ones, those with a $2.50-and-under cover price. The News Group and Source Interlink Cos. have made significant cuts since May 1, following a similar move by Anderson News Corp., which sources said cut 140 million copies in a six-month test begun last fall (about 17.5 percent of the estimated 800 million Anderson distributes annually). Source Interlink cut 57 million copies (5.7 percent of the 1 billion copies a year it distributes) as part of an effort to get its sell-through rate to 48 percent from 34 percent. At The News Group, president John Seebach said unspecified cuts were aimed at increasing sell-through to more than 40 percent from 37 percent this year.

In particular, wholesalers are zoning in on proliferating low-priced magazines, like Meredith Corp.'s Family Circle ($1.99), Hearst Magazines' Quick & Simple ($1.59) and all of Bauer Publishing's titles, which include In Touch and Woman's World.

The number of low-cost titles has grown in recent years; titles costing under $2 represent more than 19 percent of all retail units up from 15 percent in 2005, according to a recent report by Harrington Associates. Bauer, the king of the low-priced titles, is arguably the biggest reason for that increase. In the second half of '06, its 1.3 million-circ In Touch and 752,936-circ Life & Style celebrity weeklies contributed nearly 2 million in newsstand sales.

Bauer already pays The News Group an incentive to distribute its titles, and the wholesaler is negotiating for more compensation from the publisher, Seebach said. Sources agree wholesaler pressure was a major reason Bauer scrapped plans to launch Cocktail Weekly, a women's lifestyle title that would have been priced at $2.49. (Bauer wouldn't comment for this story.) "Definitely, there has to be a change in the compensation wholesalers get from Bauer," Seebach said. "The Bauer line has been growing and has become a bigger part of wholesalers' economics. We just can't ignore it any longer."

Wholesalers are eyeing another lever: cover price. Hearst's Quick & Simple already raised its price to $1.59 from $1.49 in the fourth quarter of 2006, and is considering a price increase for the near future, although a representative said the increase wasn't done to appease wholesalers. "While we are sensitive to wholesaler needs, our cover price increases are based solely on consumer demand," the rep said. Another, Northern & Shell celeb weekly OK!, raised its cover price to $2.99 from $1.99 this year. And Bauer has tested a $2.19 cover price for In Touch in New England, sources said.

Some publishers have been accepting of the draw cuts by Anderson. David Ball, vp, Meredith consumer marketing, said sales of Family Circle fell off by a "small amount" following the cut, but praised the process. "We were concerned it would be an across-the-board cut, but it was done pretty strategically," he said.

David Leckey, executive vp, consumer marketing, American Media Inc., and an Audit Bureau of Circulations board member, said the ongoing draw cuts will hurt newsstand sales, while accelerating postal rate increases will make it more costly to grow subscriptions, forcing publishers to reevaluate their rate bases. "These are two things that will come to a head next year," he said.

As for the low-cost, newsstand-focused titles introduced in recent years, several have already folded, including Hachette Filipacchi Media's For Me and Gemstar-TV Guide's Inside TV. The remainder may have to make costly changes to survive. Newsstand analyst John Harrington, publisher of The New Single-Copy Newsletter, predicted as much in his report, which concluded that the titles threaten the financial health of the distribution channel and especially the wholesalers. They can't make a profit on magazines under $2.49 (wholesalers get a percent of the cover price of each magazine they sell, a disincentive for them to carry low-priced magazines). For the low cover price model to be viable, publishers will have to offer wholesalers higher discounts or handling fees or face limits in the range of distribution wholesalers provide, Harrington found.

For Bauer, whose business is built on the low-priced model, the stakes are especially high. A $2.19 cover price isn't high enough for Source, which is leaning on the company to test a $2.25 price in Los Angeles. "They do have the volume and they do have efficiency," said James Gillis, co-CEO, Source. "If we could get them to $2.25, $2.50, we would get over the $3.00 threshhold. And they've been receptive to that." A price hike will likely cause at least some sales falloff, although at $2.50, the Bauer celebrity titles would still be a bargain compared with Us Weekly and Star at $3.49 and People at $3.99. "Bauer has made that low price a marketing ploy," Harrington said. "If people are used to seeing a starburst that says $1.99 and the next week you don't see it or it says $2.99, it's going to impact it. Their alternative is either to sell subscriptions or get more advertising."


Wholesalers cutting draws for low-priced newsstand titles
http://canadianmags.blogspot.com/

Wholesalers in Canada and the U.S. are cutting back draws for the proliferating number of low-priced magazines, according to a story in MediaWeek. The goal is to increase sell-through and therefore profitability on the titles, which tend to be found at grocery store checkouts and are priced at less than US$2.50.

The News Group and Source Interlink Cos. have made significant cuts since May 1, following a similar move by Anderson News Corp., which sources said cut 140 million copies in a six-month test begun last fall (about 17.5 percent of the estimated 800 million Anderson distributes annually). Source Interlink cut 57 million copies (5.7 percent of the 1 billion copies a year it distributes) as part of an effort to get its sell-through rate to 48 percent from 34 percent. At The News Group, president John Seebach said unspecified cuts were aimed at increasing sell-through to more than 40 percent from 37 percent this year.

In particular, wholesalers are zoning in on proliferating low-priced magazines, like Meredith Corp.'s Family Circle ($1.99), Hearst Magazines' Quick & Simple ($1.59) and all of Bauer Publishing's titles, which include In Touch and Woman's World.
Bauer wouldn't comment, but rumour has it that it scratched the launch of Cocktail Weekly, which was to sell for US$2.49, because of the cutbacks. The publisher -- which has built its business on cut-price titles -- had already been paying a premium to wholesalers to handle its magazines.