Saturday, September 22, 2007

Battle at Top of the Newsstand Sales Pyramid

Battle at Top of the Newsstand Sales Pyramid
By Baird Davis

Six publishers-Time Inc, Bauer, American Media, Hearst, Wenner, and Conde Nast-dominate the newsstand scene. Their combined sales represent 60 percent of the audited consumer magazine market. These six publishing companies are fiercely contesting with one another for newsstand buyers.

But at the top of the sales pyramid it's not simply a publisher-centric contest. It's become a battle that pits, to some degree, the National Distributors against one another. Time Warner Retail, Comag (owned by Hearst and Conde Nast), Curtis, Kable and marketing and merchandising service provider Distribution Services, Inc (owned by American Media) are all actively involved in helping shape the industry to their own needs.

Each has a slightly different vision of how the newsstand should operate. Their divergent interests often make it difficult for them to agree on reform strategy. Unfortunately among national distributors, self interest typically rules.

Wholesaler Initiated Change

Wholesalers, lacking industry leadership from publishers and national distributors, have started taking matters into their own hands. The wholesaler community has begun to fill the market reform vacuum with much more aggressive (albeit self motivated) action.

Let's review what wholesalers have done in the last year or so.

1. Unilaterally Reduced The Number of Copies Distributed-Two of the largest wholesaler groups, Anderson News and News Group, have made unilateral decisions that have taken as many as 140 million copies out of distribution. Wholesalers have reported (confirmed by most national distributors) a four to five percentage point improvement in efficiency without any appreciable loss in sales.

2. Combined Distribution Operations-Anderson News and the News Group have formed a separate company, Prologix, to handle distribution for both companies in selected high traffic locations. By most accounts the results, after a shaky start, indicate that performance at these distribution centers has greatly improved. This has reduced operational costs, without seriously impairing the level of service.

3. Formed Wholesaler Industry Group-Anderson News, News Group and Hudson News formed a group (Magnet) to share information and other things of mutual interest. Their combined influence, especially as a purveyor of information, is now being felt across the industry.

4. Influenced Publisher Cover Pricing Decisions-Wholesalers, reportedly, helped persuade Bauer to increase the cover prices on all its titles. These changes will take effect in the fourth quarter of this year and undoubtedly will have a profound industry effect on future product pricing and revenue.

5. Increased the Number of Scan Based Trading (SBT) Agreements-Wholesalers, in an attempt to satisfy retailer requirements, have recently been aggressive in expanding the scale of their SBT agreements. It's believed that SBT agreements currently represent about 25 percent of wholesaler sales. The percentage is expected to go much higher in the next few years.

6. Tightening Their Relations with Retailers-Wholesalers, by offering - SBT, more in-store merchandising service, more tightly controlling "authorized" lists and managing more promotion programs - are forming tighter bonds with their retailers. This, in turn, has made it more difficult for publishers and national distributors to exert influence with retailers.

Balancing the Newsstand Playing Field

In the "post-consolidation" period, the surviving wholesalers were forced to the financial brink. But in the absence of unified publisher and national distributor effort they are now fighting back. Many of their initiatives appear to have improved industry services. However, for publishers and national distributors there is a real danger in allowing wholesalers, often in conjunction with retailers, to act in such an independent manner.

In order to balance the newsstand playing field, national distributors and publishers must step up to the plate, not individually, but in a unified manner. If they don't, they risk not playing a significant role in what now appears to be a burgeoning wholesaler led industry reform movement.

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