Sunday, December 09, 2007

The Cover Price Conundrum

The Cover Price Conundrum
By Jason Fell

Increased production costs and pressures from distributors have publishers weighing the option of raising their cover prices. But, will a price spike bolster their bottom line or make their readers revolt?

Publishers have no shortage of pressures to raise their cover prices. Wholesalers and distributors argue that lower cover prices don't generate enough revenue to cover handling costs. Spikes in paper prices and increased postal delivery rates don't help either. Publishers of all sizes and demographics this year have considered raising their cover prices and some have taken the plunge-many with positive results.

As reported by John Harrington, publisher of The New Single Copy newsletter, more than 100 magazines raised their cover prices in the first half of this year-up about 30 percent over the same period in 2006. Of those, a third managed to increase their newsstand sales per-issue and more than 60 percent experienced better-than-inflation growth in retail dollar sales. "The market has been relatively friendly to a reasonable level of cover price increase," Harrington tells FOLIO:. "More than 30 percent see their units increase, and others see the dollars increase more than their units decline. They are generating more revenue and are making themselves more valuable to wholesalers an retailers."

What's a Dollar, Anyway?

One example Harrington highlights is OK! which upped its cover price from $1.99 to $2.99. The global celebrity gossip magazine saw its newsstand sales skyrocket 25.3 percent to 419,000 units per issue. That jump, Harrington says, may have been one reason why competing celebrity magazine giant Bauer Publishing-the company that pioneered low newsstand cover pricing-announced in August plans to modify its cover pricing strategy.

Another prime example of a successful cover price hike this year, Harrington says, is The Economist, which increased to $5.99 at the beginning of the year from $4.99. It was the first newsweekly to take its cover price over the $5 mark. Newsstand sales were up more than 10 percent during the first half of the year.

"It gets back to the editorial mission of the magazine, and we position ourselves as a premium product," explains Paul Rossi, publisher of The Economist North America. "If you have a very strong connection with the reader then you can charge more. For magazines with strong readerships, there's not much difference in a reader's mind between spending [a dollar more per issue]. It's not about gouging the customer. It's about understanding the value that people put on your product and pricing accordingly. Those people who love you will pay." At $129 per year, The Economist also has one of the highest subscription rates in its segment, Rossi says.

But, The Economist's spike in sales isn't attributable only to its increased cover price, but has been related in part to a ramped up marketing campaign, says Rossi.

Enthusiast publisher Active Interest Media increased cover prices on two of its titles. It set the price on Backpacker at $4.50 (Rodale used two prices: $4.50 in the specialty market and $3.99 elsewhere). It also raised the cover price on Timber Home Living from $4.99 to $5.99.

"There was revenue upside and not much risk for lowered sales," says Patricia Fox, Active Interest Media's senior vice president for operations and general manager of its Healthy Living Group. "Our magazines are priced at least at $4.99 and are very competitive in their markets."

Fox, like Rossi, believes that publishers will see positive results from raising cover prices if their editorial content is strong. "We don't particularly want to be the newsstand price leader, but will raise our prices when it makes competitive and financial sense." Next year, Active Interest Media plans also to raise cover prices on BlackBelt, from $4.99 to $5.99.

The New Single Copy's Harrington says he doesn't expect a surge in publishers raising cover prices next year. "Generally, the results this year have been good," he says. "If you look at most of the magazines that declined in units after increasing their cover prices you'll see that they were already in a trend of losing units. What I think will be interesting to watch are publishers like Bauer, which used to heavily advertise their low cover prices, and how they make out over the next few months."

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