The Newsstand Cauldron Boils

The Newsstand Cauldron Boils
By Baird Davis
http://www.circman.com/viewmedia.asp?prmMID=3435



The cloak of pessimism hangs heavy in the magazine newsstand trade. As the newsstand business tries to confront the problems poised by its archaic infrastructure, it more and more takes on the appearance of an industry at odds with itself.

Despite its problems, industry sales remained stable in the first half of 2007, which is more a testament to the enduring appeal of magazines, than to enlightened marketing practices. Unit sales of 455 million were up marginally (.2 percent) and retail revenue grew to $1.561 billion-a modest rise of 1.5 percent.

Although the sales were stable, product preference changes continued to reshape the face of the business. But most interestingly, in the year 2007 the industry has been witness to a more aggressive wholesaler community. In this article we'll discuss the product preference changes and more fully dissect the significance of wholesaler initiated changes.


Celebrity Titles Dominate Product Preferences

The sales of People, the market bellwether, dipped 6.1 percent, but this did not impede the continuing sales rise in the celebrity category. The sales revenue of In Touch (+14.6 percent), Life & Style (+9.4 percent) and the British upstart, Ok! Weekly, more than made up for the relatively modest sales declines of People, US and Star.


Overall the sales in the six title category exhibited a dramatic increase-unit sales up 8.3 percent and revenue climbing 7.5 percent. The combined revenue of the six titles was $418 million-or, to put it another way, these six titles by themselves account for an astonishing 27 percent of all money spent on audited publications at the newsstand.

The dynamic performance of the celebrity titles doesn't leave much room for other titles to prosper. Therefore, it was not surprising that the unit sales of the other 545 audited publications sold at the newsstand dropped 3.1 percent and their revenue declined .5 percent. Particularly hard hit was Marie Claire (down 19.9 percent). The sales of this title have fallen steadily-down 41 percent from their peak three years ago.
Entertainment Weekly is another casualty of the celebrity onslaught. Its sales in the first half of 2007 were down 21 percent and off 56 percent from their 2002 peak. In the traditional women's field, Redbook (down 13 percent), Reader's Digest (down 12 percent) and Woman's Day (down 10 percent) also appear to be victims of the product preference changes.

The one women's category that wasn't tarnished in the first half of 2007 by the celebrity titles was the fashion group. The three major titles in this category (Vogue, Elle, Harper's Bazaar) all reported sales increases. As a group, their sales revenue was up a combined 14 percent, with Elle's 24 percent increase leading the way.

The Food, Teen and Laddie Categories


The food, teen and laddie categories do not seemingly have much in common. But their sales performance provides an object lesson in category sales dynamics and the significance of being a category sales leader.

Food-In the last year, the food category has been invigorated by the introduction of two well received new publications-Everyday with Rachael Ray and Cooking with Paula Deen. The Rachael Ray title, after a dramatic debut in the first half of last year, has continued to grow. A frequency increase and a higher cover price have not slowed its momentum: sales revenue grew a robust 42 percent in thefirst half of this year. Its newsstand revenue now exceeds Martha Stewart Living.

Cooking with Paula Deen has also shown dramatic results since its debut in the last half of 2006. Its sales revenue of $4.4 million placed it 51st among checkout titles (see attached chart). It appears as if these two titles have expanded the newsstand sales in the food category. But the sales success of titles new to a category nearly always carries some adverse effect for those publications presently populating the category. The titles most notably affected were Bon Appetite (down nearly 13 percent) and Cooking Light (down 12 percent).

Teen-The teen category provides a different lesson in intra-category dynamics. The sales of the seven major teen publications (Seventeen, Cosmo Girl, J-14, M, Twist, Teen Vogue, and a resurrected Teen) all experienced increased sales. In the aggregate, their sales were up over 14 percent in the first half of this year.

However as a category, their sales, compared to the year previous period, were down 3 percent. How could that be? The demise of Teen People (last published in first half 2006, with sales of over $5 million for the period) left a huge hole to fill. All the teen titles prospered as result of Teen People's demise, yet their large increase was not enough to fully offset the loss of this title.

Laddie-The magnificent "Laddie" era appears to be coming to an end. And what a brilliant run it was. Five years ago, in the first half of 2002, Maxim, Stuff and FHM accounted for over 10 million units sold and more than $42 million in revenue. During this period, Maxim's sales peaked at a nearly inconceivable 870,000 copies per issue.

At the time, these titles re-energized the dormant men's publication field and reshaped the look of many of its peripheral competitors-GQ, Esquire and Details. But the closing of FHM in the first half of the year and the apparent shuttering of Stuff leaves only the giant Maxim standing in this once proud category.

But Maxim remains a powerful brand. Its survival is a testament to the importance of "winning" (within category) at the newsstand. Usually within a category, no. 2 and no. 3 titles in newsstand sales can survive, but in this case only Maxim lives to fight another day.

Food, Teen or Laddie, it doesn't matter-publishing battles are fought on a category by category basis. The results of those newsstand battles usually determine the ultimate winners and losers.


Checkout Sales Up, Mainline Sales Down
Continuing a trend that began four years ago, checkout sales grew in the first half of 2007, with revenue up 3.6 percent; while mainline sales declined (2.4 percent). The overwhelming success of the celebrity titles has enabled checkout sales to grow, despite the declines of many women's service publications.

By way of contrast, mainline sales since 2004 have been declining at an annual revenue rate of about 3 percent. The mainline sales drop is largely a result of the sales decline of male oriented titles. We discussed the sales fall of laddie titles, but other leading male titles have also declined.

Particularity significant has been the sales reversal in the gaming category. Official Playstation Magazine, which was one of the top ten male oriented newsstand sales leaders a year ago, is no longer being published and the sales of the other leading game titles, including Official Xbox Magazine, have fallen rather sharply from their 2004 highs.


Pricing and Industry Revenue Could All Dramatically Change


The average price of copies sold in the first half of 2007 rose 1.5 percent to $3.43. This breaks a two year trend of flat average sales prices. But this modest increase will seem very shallow when compared to the potential pricing and revenue affect caused by Bauer's announced intent to raise the cover prices on all its audited publications in the fourth quarter of this year.


The affect, most notably for its women's service and celebrity titles-First for Women, Women's World, In Touch and Life & Style-could potentially raise Bauer's average sales price from $1.94 to $2.62, an increase of 35 percent. The prospective impact of these changes is far reaching, because of Bauer's enormous share of the newsstand market.

In the first half of this year Bauer sold 111 million units (see attached chart), producing retail revenue of $215 million. These changes (assuming a 15 percent unit sales decline and 35 percent average price increase) could, hypothetically, lower Bauer's six month unit sales to 94 million, but increase its revenue to about $247 million.

The net result of Bauer's cover price increases, further assuming Bauer's unit sales decline would be fully offset by sales of other publications, would be to increase industry revenue about 5 percent. This would amount to a very sizable annual industry revenue boost of $160 to $170 million.

The hypothetical unit sales and revenue scenario outlined above is probably a best case situation. However, it highlights the enormous potential industry significance of Bauer's unprecedented price increase decision.

Battle at Top of the Newsstand Sales Pyramid

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 battle. In essence, it's a battle that pits 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 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 produced 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.

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, 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.

Advertisers to Circulators: We Need to Understand Your Business Model

Advertisers to Circulators: We Need to Understand Your Business Model
By Chandra Johnson-Greene
http://www.circman.com/viewmedia.asp?prmMID=3414


What do advertisers really think about verified circulation? Attendees of the "Advertiser Expectations and Perspectives in Advertising" session at yesterday's 2007 FMA Day in New York City got an earful from both sides of the debate.

Nicole Bowman, president of Bowman Circulation Marketing, moderated a panel that consisted of Steve Greenberger, executive vice president and media director, SLG Advertising; Rebecca McPheters, president, McPheters & Company; Ralph Monti, president/CEO, Special Interest Media, Inc.; and Harlan Schwartz, SVP and group account director, TargetCast tcm.

The panel based their discussion on a comparison between June 2007's ABC Publisher's Statements (only 77 percent of statements have been completed), which shows that verified circ represents 3.7 percent of the total circ reported, to June 2006, where verified circ had a 3.5 percent total.

Greenberger said he anticipated a more dramatic increase, but that publishers have been forced to be more conservative because verified circ has been "thrown under a magnifying glass."

Schwartz admitted that advertisers do use verified circ as just a "leveraging tool" in order to get the lowest prices for their clients.


"We did our circulation analysis, ripping them apart-every paragraph, every line item-to find a loophole, so that we could negotiate a better rate," he said, referring to a previous client he handled.


"That was the charge and the measure of success in the media buying unit. 'Can I nickel and dime a magazine to get a lower CPM?'-end of story. And if we were able to beat last year's price, I was successful, the agency was successful and they were compensated accordingly."


Schwartz added that the way the data is being reported is not the problem. "In my perspective, he said, "we just need to understand how you model your business growth."


McPheters noted that, regardless of how advertisers feel about verified circ, publishers would be forced to increase the use of it.


"The business model for all media is changing," she said. "Look at newspapers like The New York Times, which is making all of its [online] content free. Consumers are increasingly getting access to media that they don't have to pay for. If print is going to change what is a highly viable way of reaching consumers, then it is imperative that we're allowed to do that effectively. Therefore, we still expect verified to grow because we have to change if the environment around us changes."

McPheters added that advertisers, should in fact, pay more for public-place copies because they can reach an estimated 30-50 readers per copy.

The discussion quickly turned to the circulation business model itself and whether the 30-year call for a revision, as Schwartz described, could be easily established. He expressed that he'd like to see print switch to a CPM model that fluctuated by issue in the same way that TV and radio does.

"I would be frightened if we moved too quickly in that direction because there's no audience data to back up your pricing model if you went that way," Schwartz said. "No one has engagement in an apples-to-apples fashion, and we've been screaming for that for 30 years and there's still no resolution

BoSacks Readers Speak Out: Wholesalers, Circ, Adobe, Playboy

BoSacks Readers Speak Out: Wholesalers, Circ, Adobe, Playboy
www.bosacks.com


Re: Wholesalers are not Dying, They are Committing Suicide . . . Take 3
Samir, Sorry cannot find the comment button at the bottom, so here goes. About a year ago I met, and spent the day with a retired Aramark General manager, who had 40 years in the industry. We spent the better part of the day together discussing the ills of wholesaler distribution.

His comment was right on the button, and a year later it still holds true. "The remaining large wholesalers are only looking to cut costs, they are not looking to increase sales"



As a 50+ year veteran of this industry he was(is0 so right. All we see is consolidation. Three of the big 4 don't want to let the ND reps work distributions, they just stifle growth. When they distribute a new title, many times the initial distribution is a disaster. Can you imagine putting an average of 18 copies per retailer in one particular agency, and two weeks later 50% of the allotment had been returned. This was that w/s own distribution.



The w/s have people making decisions who have sometimes less than two years experience in single copy sales, and have zero feel for the retailers who are receiving product. Over the past ten years have we seen any improvement with the overall sell thru? I don't think so, yet how many million(s) less copies are being distributed ion the newsstand.

(Submitted by a N/S Distributer)





RE: 7 Wonders of the Circulation World

#9 Why do people believe in rate base #'s they very well know include nearly as much chaff as wheat?

(Submitted by an Unknown)



RE: 7 Wonders of the Circulation World

Reminds me of the old adage from the 20th century regarding the three greatest myths of the time . . .



French resistance

Swiss neutrality

Qualified Circ



Plus, the answer to #8 is the internet . . . Why buy it when publishers give it away sooner via their web site

(Submitted by a Unknown)



RE: Saving the Magazine Business

Ink on paper - in all forms - will remain in peril as long as decisions are primarily driven by the quest to please the investment community first, the board room occupants second, the advertisers third and the customer a very, very distant last. I've long agreed with your mantra that content is KING. Unfortunately for our industry, the gang at the top is so intensely focused on profit that they've collectively lost sight of the foundation of their business - providing worthwhile content to their readers. People will still spend their hard earned money on worthwhile content and that will not likely change in the next 50 years - regardless of the medium.

(Submitted by a Paper Person)



Can't Blame Murdoch for Seizing on Media Shift

everyone thinks that murdoch is this conservative bastion but he's not. he finds niches and does things others won't. if nyc had 2 conservative papers, he would have had a liberal

paper. anyone who's seen what's on the fox network or on fx who is conservative would be shocked at some of the things there (on family guy there was a dance sequence of "prom date abortion babies" which even my son turned off)



one thing murdoch has is a real understanding of digital media, and he's not afraid to fail. he succeeds at driving the analysts and old guard crazy.



as for him buying the wsj, the dirty little secret is how good the online property is doing and how he will really globalize it and make it even more real-time. in 10 yrs the print

version may not exist anyway. he'll use it as a strong brand, and don't be shocked if he doesn't use it and the fox business channel, soon to start, to pry cnbc from ge or create a separate joint venture.



murdoch also knows he will die, something sumner redstone hasn't figured out yet, and his properties run independently with good management. he's been underestimated all his

career, and he's really good at playing along with the joke and counts on surprising everyone, which he will do, again.

(Submitted by an Industry Analyst)



Regarding "Playboy, Others Refuse to Learn from History" . . .



Al Ries's article on line extensions was very interesting. He says that line extensions are a trap that publishers should avoid. He criticizes Playboy for digitizing their archives, cautions the BBC that they might "rack up a big loss" pursuing online videos, and attributes the failure of Talk magazine to Tina Brown's interest in producing books and movies.



I believe that Ries is the fellow who predicted a few weeks ago that Apple's iPhone would fail miserably. Apple sold 270,000 phones in the first 30 hours after the product's introduction.



There's a difference between challenging conventional wisdom and being wrong consistently!
(Submitted by a Publisher)



RE: Playboy, Others Refuse to Learn From History
bob- the point is being missed here. it's apples and oranges. it's a great idea to digitize the playboy archives . . . it's a certain money majker, and what's the downside?

why is the writer lumping in everything else Hef has done? This should be standalone-
heck- I'd buy the 60's and 70's archives- the interviews alone are worth the bucks.
(Submitted by a Production Director)



RE: Wholesaler family since 1917.
Yikes a long time, but I have been on the other side for almost 57 years, and what changes. From 800 local distributors we now have less than 100 ownerships.

Anybody wonder why ? Maybe because those other 700 did not change with the times, and those that are left for the most part (not all) have not changed either. If they had we would not have had diminished n/s sales over the past 12 years, nor would we have lost about 100,000 retail outlets that used to sell periodicals.
(Submitted by an Unknown)


Re: Adobe Makes Decision, To Move Quickly to Resolve Printing Industry Concerns
Smart decision on the part of FedExKinko. The many thousands of smaller scale, working printers out there might have no acceptable alternative to doing business with Adobe but each and every one has the option of going with UPS instead of FedEx. The synergies of corporate marriage cut both ways.
(Submitted by a Printer)


Re: Adobe Makes Decision, To Move Quickly to Resolve Printing Industry Concerns
Bob, I think Adobe should leave the button, but give me the ability to program it to "print to the printer of my choice". I'll take the streamlined process workflow.

(Submitted by a Sr. Director of Production)

BoSacks Speaks Out: Marketers to Mags: Give Guarantees or We'll Walk

BoSacks Speaks Out: Marketers to Mags: Give Guarantees or We'll Walk

Some of the concepts delivered herein are filled with BS, hot air, fluff, smoke and mirrors. Large publishers just don't get it. There are two things that a magazine must have to survive and prosper. A passionate and devoted readership, sometimes known as great content, and really honest and accurate accountability. That is it!

As I read this article I see all this old style posturing by the publishers on record in this article. DUH!

You are truly finished if you keep that up. Who are you kidding? Or are you just waiting for retirement and intend on ducking out the back door? This is now somehow like global warming, or a gazillion dollar deficit . . . fix it now, don't leave it to your grandchildren.

It is time to stand up and deliver. Deliver the facts, not the bull. Have confidence in your titles and let the accountability drift to real levels, in real time, in a real world. Truth is I don't think you really have a choice. There is way too much competition in the advertising world today, and you will either join the solution revolution or be nothing more than a footnote of a past and forgotten problem..


"If you don't want to work you have to work to earn enough money so that you won't have to work"
Ogden Nash (American Writer of humorous poetry who won a large following for his audacious verse. 1902-1971)


Marketers to Mags: Give Guarantees or We'll Walk Exclusive: MediaVest Wields $900 Million to Land
Issue-By-Issue Circ Promises
By Nat Ives
http://adage.com/mediaworks/article? article_id=116544



NEW YORK (AdAge.com) -- Kraft, Wal-Mart and Coca- Cola are among the marketers that are prepared to stop spending in magazines if they don't get issue-by- issue circulation guarantees.

Media buyers long have been frustrated with many magazines' insistence on guaranteeing only average paid circulation -- instead of guaranteeing the paid circulation of specific issues in which ads actually appear. But now MediaVest USA has gathered support from heavyweight clients to make issue- specific guarantees a reality.

"Let me be clear that I am a print champion," said Robin Steinberg, senior VP-director of print investment and activation at MediaVest. "However, we believe that all publishers should make this guarantee, and we will walk away from business for those who don't." MediaVest spent about $900 million in consumer magazines on behalf of its clients last year.

New leverage
The new power play reflects the growing demand for precision metrics in the media business, a drive fueled by an internet model that seems to promise instant accountability. It is also, though, part of a broader regime change in the industry, one that has delivered dominance to advertisers from media owners. Marketers now have too many options and have found too many ways to sell themselves, beyond traditional advertising, for publishers or broadcasters to keep setting the agenda. There's a reason commercial ratings on TV have arrived at last: Advertisers seem to finally have enough leverage to force the issue.

"As somebody who's ultimately paying the bills, what I'm looking for is accountability and transparency," said Donna Campanella, executive director for global media at Avon, a MediaVest client. "We want to make sure that the impressions we were hoping to get for a particular issue have been delivered. Because what we advertise is coordinated with what's in our brochures, timeliness is important."

"In this age when there are so many choices out there, particularly in the digital arena, traditional media needs to step up and really prove their value, good or bad," Ms. Campanella added.

But change still doesn't come easily or instantly. Time Inc., the country's biggest magazine publisher, guarantees most advertisers an average paid circulation across the issues in which they buy space; if you buy into five issues, the company promises those five issues will achieve a certain average paid circulation.

Pressure
Anything else would only hike costs for everyone, said John Squires, senior exec VP at Time Inc., because publishers would pump up print runs to make sure not one issue falls even a percentage point shy of its rate base. "They want all guarantees and all protections at all times," he said of marketers and media buyers. "That just kind of forces a completely unrealistic expectation on our business. We do have to concentrate on some efficiencies."

Publishers don't get any reward when magazines sell more copies than guaranteed, Mr. Squires noted. And swings of 50,000 copies in newsstand sales at magazines that consistently sell millions can't be the top challenge in marketing right now. "In these times, in this world, with the kind of competitive pressure that there is on publishers already and the intense pressure on rates, is this really a big issue?" he asked.

Ms. Steinberg said advertisers need protection against tactics publishers can use to meet average guarantees. A few titles have made up for shortfalls early in the standard six-month reporting periods by drastically increasing their use of copies -- called "verified" by auditors -- that are distributed in hair salons, doctors' offices and so on. "Verified circulation was put forth with the notion that publishers would use and place these copies strategically and with transparency," she said. "However, we believe the proper use is not taking place, and the current use is to make up for rate base underdelivery from newsstand decline."

A challenge from Hachette
Hachette Filipacchi Media U.S., publisher of magazines such as Elle and Car and Driver, already has started selling its men's enthusiast titles against issue-specific guarantees and is considering doing the same across its portfolio next year. But if Jack Kliger, president-CEO, is going to meet the buyers' challenge, he has one of his own for them.

"Issue-specific circulation-based pricing, to me, is an interim step to issue-specific audience-circulation guarantees," he said. That is to say, once the industry can better measure how many people see an issue, whether they borrow it from a friend or read a public- place copy, media buyers should drop this obsession with refining paid-circulation metrics. "It's like trying to make the kerosene lamp produce more light because that's what we're familiar with," Mr. Kliger said, "and don't trust this newfangled electricity thing."