The Four Years that Changed the Magazine Newsstand: 2008 to 2011
BY BAIRD DAVIS
http://www.audiencedevelopment.com
In 2007, newsstand sales found their groove. But then the recession hit and the economy, coupled with rapid and dramatic changes in content distribution, sent the newsstand channel into a tailspin. As a result, Paragraph 6 and Replica circulation are on the rise.
The American economy is beginning to recover from the devastating effects of the great recession. But people are recognizing that things will not exactly return to "normal." Significant changes have occurred during the last four years that have fundamentally altered business practices and consumer habits. Perhaps no industry has been more profoundly affected than the consumer magazine business.
Here, we're going to review how the changes of the last four years have greatly altered publishing practices and in particular how they've adversely affected newsstand sales performance. Finally we'll look at what publishers and other newsstand channel participants can do to mitigate the effects of these epic changes.
2007: The Benchmark Year
In 2007 consumer magazine advertising revenues were at a record high and circulation levels, although down from their 2000 peak, were still robust. Newsstand sales in 2007 were in a stable groove-retail revenue having increased 2.2 percent during that year. There were no iPads (not until April 2010) and the iPhone, introduced in July 2007, was only just signaling the start of the smart-phone revolution. Magazine publishers were still myopically following an ad-centric philosophy and profits were at a record high. Things never seemed better.
But oh boy, the great recession of 2008, coupled with the pervasive effect of technology advances, upended the insular consumer magazine business. It shook this business to its core. It has radically altered magazine publishing practices and, as we'll show, has severely hampered prospects for a newsstand sales recovery.
Circ Data Mirrors the Change
Audited consumer magazine data (this study does not include publications with primarily association and sponsored circulation sources) in two accompanying charts provides context for evaluating the effect of these changes. One compares subscription and newsstand circulation levels of audited publications in the second half of 2007 with comparable data in the second half of 2011 [p. 28]. It also compares circ data from the second half of 2010 to data from the second half of 2011. The other chart shows so-called "paragraph 6" circulation and replica circulation use for the top 25 circulation companies.
Data Observations
This data reflects some of the fundamental changes that have transpired during this tumultuous four-year period.
1.) Total Audited Consumer Magazine Circulation Levels Stabilized in 2011: The industry's circ levels (surprisingly) stabilized-at about 240 million paid/verified circulation in 2011-after tumbling rather rapidly during the proceeding three-year period.
2.) Subscription Levels Rose in 2011: Subscription levels actually rose last year, albeit by only 800,000.
3.) Newsstand Circulation Fell: Down 7.5 percent (2.5 million) in the second half of 2011.
4.) Newsstand Circulation as a Percentage of Total Circulation: Declined from 13.8 percent in 2010 to 12.9 percent in 2011 and, most significantly, it was down from 17.6 percent in 2007.
5.) Paragraph 6 Circulation Use: Increased an estimated 7 percent (based on projecting use by the top 25 circulation companies)-from 34 million to about 36.5 million, a 2.5 million gain. Paragraph 6 circulation represented a robust 15.4 percent of total paid/verified circ in the second half of 2011. Note: The increased paragraph 6 usage was an amount equal to or possibly greater than the "lost" newsstand circulation during the second half of 2011.
6.) Replica Circ Use: Rose swiftly (67 percent) in the previous six-month period to an estimated (based on projecting use by the top 25 companies) 3 million, or 1.2 percent of total paid/verified circulation.
This data helps to reflect what amounts to a fundamental shift in how publishers build and sustain their circulation levels. Publishers, after discontinuing marginal publications and reducing circulation levels on many titles during the 2008-2010 period, have, apparently, reached a point where they believe circulation levels are economically sustainable. This, by the way, is being done despite the fact that newsstand circulation levels continue to precipitously decline.
Understanding the Critical Impact of Paragraph 6 and Replica Circ Use
It's now obvious what publishers are up to. They're "replacing" lost newsstand circulation with Paragraph 6 circulation and to a lesser extent with replica circulation. The change is so significant that in 2011, for the first time, the use of Paragraph 6 circulation (37 million) astonishingly exceeded the amount of newsstand circulation (31 million).
Paragraph 6 includes verified circulation as well as partnership, paid sponsored, award (mostly airline miles redemptions), combination (selling two or more publications at reduced prices, usually below half the basic price) and several other lesser used sources. These sources are generally considered of "lesser quality" than individually sold circulation sources. That's why they are categorized separately on ABC statements. Paragraph 6 sources have become a powerful and steady influence in economically sustaining circulation levels.
Replica Circulation
It's not to be confused with Paragraph 6 circulation, although about 40 percent of replica circulation in the last half of 2011 was reported as being sold using Paragraph 6 sources (primarily paid sponsored). Therefore, there is some overlap when trying to assess the combined circulation level impact of Paragraph 6 and replica. Presently this is not much of problem because replica circ only represents a little over one percent of total industry paid/verified circulation. But, unlike Paragraph 6, whose prospective usage is fairly easy to determine, replica is the wildcard in terms of trying to estimate its future usage and its potential impact on newsstand sales.
What we know, however, is that replica circulation use is growing rapidly and it's expected to grow dynamically in the years ahead. Currently its use is largely confined to some, not all, major publishers. Only nine companies, among the top 25 circulation companies, reported using replica circulation that exceeded 1.5 percent of their total paid/verified circulation: Alpha Media/Maxim (6.9 percent), Bonnier (3.7 percent), AIM (2.3 percent), Dow Jones (2.2 percent) Disney/ESPN Mag (1.9 percent) and Hearst (1.8 percent). But this is about to change. Revisions in ABC replica reporting rules, implicitly endorsed by advertisers, along with a growing consumer comfort with electronic magazine editions and continuing advances in technology will undoubtedly spur significant replica circulation growth starting in 2012. Some major companies have indicated that they can envision the day, not too distantly, when replica circulation represents up to 15 percent of total circulation. This is not going to happen tomorrow, but it seems reasonable to expect a doubling of replica in 2012 and another doubling in 2013. This means replica circulation use could grow to 8 or 9 million by the second half of 2013 and become a real factor in circulation level considerations.
Justification for Paragraph 6 and Replica Circulation Use
circulation level considerations.
Publishers discovered that the circulation economics of using Paragraph 6 to replace newsstand circulation are favorable. Plus they've learned it could be done without affecting syndicated research results. For example, a 2011 MRI study revealed that magazine readership among women aged 18-34 is essentially unchanged since 2007. Advertisers, as a result, appear to be less concerned about declining newsstand circulation. This has caused publishers to husband more of their dollars for digital application development and correspondingly less for their newsstand pursuits. The bottom line is publishers have found ways to economically offset lost newsstand circulation without any serious readership ramifications.
Replica circulation justification is a slightly different matter. The acquisition of replica circulation and the development of its delivery methods remain costly. But most publishers recognize the importance of having replica options in their product arsenal and are getting comfortable with the necessary investment required to sustain this effort. Replica growth will ultimately be a matter of balancing the print and replica circulation objectives for each individual publication. Currently the replica volume is low, but as it grows it will undoubtedly become a challenging task for publishers to strike the most strategic balance. But one thing seems sure-replica will have an increasingly large effect on meeting circulation level requirements and probably a dampening affect on newsstand sales.
Other Publisher Changes Affecting Newsstand Sales
Magazine publishing has become an incredibly more complex business. The emphasis has switched to include delivering content on multiple platforms. It's now, as they say, a matter of brand, rather than publication, management. Publishers have many more moving parts to consider and their attention has been partially diverted from the magazine product itself.
The change in editorial responsibilities and the lack of new publication starts are examples of this behavior.
Editorial Responsibility Changes
An editor's job has dramatically changed. In the new media age they're now responsible for not only magazine content and design, but also for full-fledged websites, creating books, selling related products and, for some, making TV appearances and even developing TV shows. Editors are now expected to be constantly searching for new platforms to deliver magazine content. At some publishing companies they are now called "brand officers." These additional duties have resulted in time management tradeoffs-less time devoted to agonizing over cover development and a greater temptation to compromise the magazine editorial space with pictures, rather than words.
Lack of New Publication Starts
Publishers are investing in expansion of the brand, but not so much on the launch of new titles. Despite recent reports that seem to indicate that new title launches are picking up, it's worth noting that there have been only four audited publications launched in the last four years that presently have more than 150,000 circulation-Food Network, People StyleWatch, All You and Women's Health. The industry has drastically curtailed the launch of regular frequency consumer magazines that have both a subscription and a newsstand component.
Future Newsstand Sales Impact of These Changes
The consumer magazine circulation level trend lines seem clear-a reasonably stable paid circulation level with increased contributions from replica circulation, steady (possibly rising) contributions from Paragraph 6 sources, diminishing circulation level contributions from the newsstand and very little new publication support.
The question: What's the trend impact on newsstand sales?
Currently newsstand circulation represents 12.9 percent of total paid circulation. It seems likely that newsstand's contribution to total circulation will continue to decline.
Worst Case Scenario: Assuming stable circ levels, the growth of replica circ to 9 million in 2013 and a steady Paragraph 6 circulation contribution, the newsstand circ contribution, given current trends, could drop from 12.9 percent to 11.5 percent of total paid/verified circulation in 2013. This would represent a decline of 3.6 million (11 percent) newsstand circulation by 2013, which roughly translates to an annual newsstand sales loss of 68 million units and $220 million in revenue.
Best Case Scenario: Newsstand sales sustain their current sales levels-delivering about 30 million newsstand circulation.
Which will it be-best case or worst case?
A lot depends on the capability of the newsstand channel to improve efficiencies and deliver sales more cost effectively. To the extent that newsstand efficiencies don't improve publishers will continue to opt for the path of least economic resistance and substitute more Paragraph 6 and replica circulation to replace the newsstand shortfall.
Publishers Took Their Eye Off the Newsstand Ball
Make no mistake about it, publishers (and advertisers) want to preserve the newsstand as a significant ingredient in the circulation mix. But publishers, unfortunately, took their eye off the newsstand ball. In the last few years they have diverted, to the detriment of newsstand sales, more of their attention to developing digital content delivery capabilities. In the interim the other newsstand channel participants (primarily wholesalers) have made adjustments to adapt the new lower sales volume environment. Wholesalers are buying national distributors (Pattison/CMG), wholesalers are joining forces in the national distributor business (Pattison/Hudson News/CMG) and wholesalers are reducing services to conserve cash, but in the process jeopardizing sales. Looming on the horizon is the possibility of a revised channel landscape with less wholesaler organizations and altered wholesaler and national distributor relationships. Everything in the newsstand channel seems like it's up for grabs.
What Should Publishers Do to Protect Their Vital Newsstand Interests?
There is, of course, no silver bullet. However, I believe that publishers must get off the sidelines and join the fray in a united and impactful manner. Individual publishing companies, even those as powerful as Time, Inc., can not appreciably move the publishing industry needle by themselves. Only by speaking as one can publishers help reshape and protect the newsstand channel in a manner that's most beneficial to themselves as well as all other channel participants.
The problem with this utopian dream has always been that the wildly diverse publishing industry has made it difficult (impossible) to come together in a meaningful manner. The MPA has tried and, largely, failed at this in the past. But considering recent industry developments and the devastating effect of the four-year sales slide, the time might finally be right to forge a coalition of publishers to address newsstand issues.
I believe, despite past failures, that the MPA represents the best hope for getting publishers to act in concert to address the myriad newsstand problems. I would encourage publishers, especially the top six newsstand sales companies (see chart on page 29) to try, through the auspices of the MPA, to come together. Time is running out. If publishers don't act now the channel will be defined by others and probably not to the liking of the publishing industry.
