Monday, August 06, 2007

Wholesalers are not Dying, They are Committing Suicide . . .Take 3

Wholesalers are not Dying, They are Committing Suicide . . .Take 3

By Samir Hisni
This is week three after my blog on the future of wholesalers and magazine distribution in general was published. The reactions and comments did not stop yet and the complete lack of interest in trying to find a real solution for a major problem in our industry still amazes me. The publishers are only willing to talk "off the record" and in e-mails "not for publications." The wholesalers are in a defend mode, big times; those who were "stunned" by my blog did not expect those opinions from me, and those who questioned my knowledge "with all due respect" such as the president of a wholesaler company who wrote Bob Sacks on stating,

"I am a wholesaler and through my family has been since 1917. I take huge exception to the comments on our learned title counter Dr Husni. With all due respect what does he know of wholesale economics. I am sure that since 1995 every publisher worth his salt has looked at better ways to get to market. The long and the short of it is that the current method is the best."

(On a side note, I love the fact that I am referred to as the "learned title counter." All my research and studies have been boiled down to title counting . . .)

The other two major silent watchers in this major debate that sooner or later will affect the entire magazine business (especially when wholesalers start owning magazines as in the case of the Source Interlink, one of the four major wholesalers in the country now), are the National Distributors (whose future role is being highly questioned by both magazine publishers and wholesalers) and the magazine industry leading associations who do not seem to see the impact of the major changes taking place in the single copy sales today.

As for the reactions to my comments, John Harrington, published the following in this week's edition of The New Single Copy.

"For the last few weeks, the issue of magazine retail pricing has been a subject of The New Single Copy. Last week, University of Mississippi journalism professor Samir Husni was quoted as saying, "They [magazine wholesalers] need to force other publishers to lower the single copy prices of other magazines to be equal or close to that of [their] subscription prices." That inspired the following response from Brian O'Leary, a principal of Magellan Media Consulting Partners: "I say this pointedly, Husni's argument that wholesalers should pressure publishers to price newsstand copies at subscription rates is both naïve and economically disastrous. It's naive because publishers have shown very little willingness to use anything other than the 'publisher next door' as a benchmark for price. Whether or not the source could be helpful, wholesalers are the last place publishers would go for advice on pricing. "It's economically disastrous because subs already lose money at prevailing prices. Capell's survey data in [The New Single Copy, 7/30/07] tells the tale: on average, direct-mail subs lose $10.28 an order. This reflects both the poor economics of obtaining new subs from this source as well as the miserably low per-copy prices most publishers charge to gain a subscription. There is virtually no way that monthly subscriptions sold for $1 a copy can make money for a publisher in any way other than advertising. Pushing single-copy prices to that price isn't going to help, even at an unobtainable 100% sell-through. At $1 a copy, the expenses associated with printing, distribution, marketing and selling these copies eat all of the margin, and more."

With all due respect to Mr. O'Leary, I know at $1 a copy the magazine publisher cannot make any money, thus when I argue that magazines should reduce their newsstand prices to that of subscriptions, it does not mean to sell it at $1 a copy. But rather if you are willing to charge $2.95 for the single copy price, then charge $2.50 for the subscription price per issue. No 90% discount from the cover price, but 20% at most. Mr. O'Leary is right, publishers lose money selling subscriptions at $1, $.50 and .$35 a copy. Yet, if you look at magazines like People and The Economist, I doubt that they are losing money selling subscriptions at almost $2.00 a copy (and that's much more than my 20% discount from the single copy price I am advocating).

In short, I feel that if wholesalers have the right to tell the low priced magazines that they are not going to distribute them anymore unless they change their prices to over $2.49, they should practice that same right by telling publishers who sell their subscription copies for $.50 and their newsstand copies for $4.95 that they are not going to distribute their magazines too. In addition, what about the publishers who use the newsstands to showcase (mainly for advertisers' sake) their 5% or less from their total circulation on the newsstands, while spending all their efforts on the 95% subscription copies. I know that we need to stop the single copy magazine sales abuse, but I also continue to believe that the approach the wholesalers are taking now is still not the right one.

I am sure there will more to come on this subject matter and I, once again, encourage you to comment on line, in public and without starting your e-mail with "Samir, you are right, but this respond is not for publication." Please get engaged in the conversation. Hit that comment link below and let me know what you think?

1 comment:

Luke Visconti said...

Cost based pricing is meaningless to the consumer. If you consider the cost of a "unit" of entertainment, $2 for a magazine is about right.

Prices for magazines have gone up or remained the same as prices for almost all other portable entertainment have gone down and become far more sophisticated.