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America's Oldest e-newsletter est.1993
Gridlock is great. My motto is, 'Don't just do something. Stand there.'
William Safire

Dateline:  : 40,000 ft somewhere over the Atlantic between Paris and Dulles
In This Issue
Resolving Newsstand Gridlock
By: Baird Davis
Listen up - please - this piece is not meant to be a "catch and kill", but, rather to coin a phrase, it's more of a "snatch and share". I'm asking that you snatch this note out of mid air and, if it resonates with you, try to make a difference and share your thoughts and opinions with wholesalers, publishers and industry colleagues.
We all know, partially from reporting from John Harrington, Bob Sacks and me, that the magazine newsstand situation is not healthy. It's not only unhealthy, but the fever of this sick puppy is continuing to rise. In recent weeks a clearer picture of the channel's serious underlying maladies has emerged.
First there were the AAM reports, which revealed that there has been no change in the sales trajectory. It's still headed south at a blistering pace. Unit sales of audited publications in the first half declined 18.8% and revenue dropped 16.4%. This nearly mirrors performance in the disastrous 2nd half of last year.
Newsstand sales of audited titles are now officially declining on an annual basis of nearly 19%.
Ok - so lousy newsstand sales aren't exactly a fresh revelation, but its steep decline remains terribly troubling. What is new, however, is that the long simmering publisher and wholesaler differences, that have impeded processing reform for decades, have broken in to the open. The resulting flash fire was precipitated by The News Group (TNG), the channel's super dominant wholesaler, when they recently asked some (believed to be seven) of the major publishers for "an investment". From what I understand their requests were summarily dismissed, with words like - "solve your own crisis".

Single Copy Circ of Audited Publications Marginalized

We're going to more thoroughly discuss the corrosive differences that divide wholesalers and publishers later in this note. But first, in order to give the discussion more context, a chart (below) has been prepared which details, as of the 1 st half of 2018, audited publication circ data that is germane to this dialogue.

The chart data, although very dense (I apologize), helps provide a comprehensive picture, by major publication, of the industry's circ status. Mostly importantly, especially as it concerns a discussion of newsstand circ, it graphically reveals how dramatically the industry's single copy circ has been marginalized.

    Takeaways from Analysis of the Data

-            Single Copy Circ - As a percentage of total paid/verified circ it declined to 5.1% - down from 5.8% a year ago. If American Media and Bauer, the two publishers with the largest single copy circ commitment, are excluded the industry average is 3.9%.  Single copy circ is rapidly losing its circulation relevance.

-           Non-Revenue Circ (verified, partnership, award, sponsored). These "stop gap" circ sources are often used by publishers to offset "lost" single copy circ. They account for 19.4% of total paid/verified circ  (4 times greater than single copy circ).

-            Digital Circ - After stalling for a few years, its use increased in the 1 st half of this year to 6.2% of total paid/verified circ. When combined with non-revenue circ they account for over 25% of the industry's paid/verified circ.

-            Newsstand Impact of the Top 5 Newsstand Publishers - Meredith, Hearst, American Media, Bauer, Conde Nast account for a disproportionate share (75%) of the newsstand circ of audited publications.

-            Publishing Industry Consolidation - Time, Inc, Rodale and Wenner are gone. Meredith and Hearst now dominate the industry, controlling a staggering 52% of the industry's audited paid/verified circ. The industry has grown extraordinarily, and ominously, top heavy.

-            Total Paid/Verified Circ - In the 1 st half of '18 it declined by 12 million - 6.6%. It's down nearly 12% in the last two years and off more than 45% since its peak in 2000.  Publishers continue pulling in their audited print publication horns.
Publishers Prepare for a Market with Less Single Copy Circ
Note that publishers have adjusted to the effect of technological and media consumption changes by drastically modifying their circulation strategies.

Unfortunately, however, nearly all these strategic circulation changes have had a negative impact on newsstand sales. The most obvious (as shown in chart above) are the increased use of non-revenue and digital circ. Less obvious, perhaps, has been the steady reductions in publication frequency. It's estimated to have decreased distributed copies of existing publications by 15%-20% in the last five years. Another is the persistent discontinuance of audited titles (down 12% in just the last two years). Also there has been a sharp reduction in the circ levels of many titles, another means of offsetting lost newsstand circ. Then, of course, there is consolidation (i.e. Meredith/Time, Inc and Hearst/Rodale)- which historically has never translated in to greater newsstand sales, nearly always less. And by the way Bauer's recent sale of their three celebrity titles to American Media is not exactly a newsstand endorsement by the publisher that sells more newsstand units than any other.
Publishers, in adapting to a changed business environment, have developed varying circ strategies that have enabled them to be less dependent on single copy circ, while allowing them to economically meet overall circ level requirements. In doing so they are also protecting themselves against the possible collapse of the current distribution system and setting themselves up for the possibility of developing a more limited alternative distribution system that would primarily serve bookstores and airports.
At Odds Over How to Run a Complex Business
Changed newsstand market conditions and modified circ strategies have punished newsstand sales, at the same time they've severely tested the outdated newsstand channel operating system. It's at this juncture, modifying the newsstand system, where wholesalers and publishers vigorously divide.
A Complex Business - It's necessary here to understand, especially from a wholesaler perspective, that the task of distributing magazines to the newsstand is a surprisingly complex, yet confusingly imprecise, process. Accounting for sales and returns (in massive numbers) for thousands of publications, while serving an inhomogeneous labyrinth of thousands of dealers and hundreds of retailers is to say the least a challenging task. On top of that the system is dependent on a set of National Distributors. They, importantly, help publishers navigate the convoluted system and presumably provide a check on wholesaler veracity. On the other hand they increase operating costs and expand the duplication of effort.
It's essential to keep processing complexity in mind as we review system differences from both a wholesaler and publisher perspective. It's not easy stuff. However, the need to understand their differing points of view is critical if there is ever hope that wholesalers and publishers can reach the compromises necessary to enact meaningful system reform.

Differing Perspectives
Wholesaler Perspective
TNG (the super dominate wholesaler) is the survivor in a brutal wholesaler war of attrition. They, of course, expected to reap their survivor rewards. But those rewards have not materialized. As a result TNG is now saying (as they recently told major publishers when they asked for "an investment") that they're experiencing some serious financial operating difficulties and they might not be able to economically continue to operate a system, one with less than 25% sell-through, without making significant processing changes.
There's no doubt that TNG is experiencing financial operating difficulties, albeit some of their own making. Therefore, there is legitimacy to the request they recently made to major publishers. But in doing so they made a fundamental mistake. They neglected the quid pro quo - they offered nothing substantial in return. By not offering any specific improvement plans they inadvertently failed to acknowledge any of their own culpability and to some degree jeopardized their industry credibility.
TNG, to their credit, however, has been very clear in acknowledging the need, and the urgency, to "simplify" the process. They talk of "collapsing" the system, in a manner similar to what transpired in the book distribution business. They know that in order to return to profitability they must improve operating efficiency, eliminate duplication of effort and get better control of their costs.  
On the shipping front they favor much greater use of "3 rd Party" shippers, such as UPS, and more "one-way" shipping to decrease the oppressive expense of processing returns.
In regards to curtailing duplication of effort TNG believes that reducing the number of National Distributors from three (Curtis, TIR, CMG) to one would be a vital step in helping reduce redundancy and improving system efficiency. Specifically they feel it would streamline their marketing efforts, giving them the opportunity to deal more effectively with retailers by being able to speak to them with "one voice".  

Reducing the number of National Distributors is theoretically a good idea because it's well known that the interface between National Distributors and wholesalers is replete with duplications of effort. However, it's a little more complicated than that. 

First of all it should be understood that TNG's parent, The Pattison Group, is the majority owner of CMG, along with minority owner wholesaler Hudson News. So there would be some large impediments involved in eliminating TIR (owned by Meredith) and Curtis from the scene. However, this shouldn't prevent TNG, with support from Hudson News, from addressing the prospect of making immediate procedural changes in their dealings with CMG that take advantage of the real possibility of achieving significant redundancy reductions. Over time, perhaps, these changes could be incorporated in their dealings with TIR and Curtis.
TNG certainly appears to know what needs to done to reduce costs and gain efficiency. But what still seems to elude them is the absolute necessity of working cooperatively with the other channel participants, particularly publishers, when initiating change.
Publisher Perspective
The most contentious issue for publishers concerns the method of accounting for sales, returns and calculating "shrink" (the difference between copies "actually sold" and copies scanned via POS). This is not a precise process, therefore it leaves room for a great deal of interpretation. There in lies the problem. In general publishers feel that TNG has not always been completely fair or transparent in making and justifying their "shrink" calculations.
Publishers also speak of other concerns - The necessity to reduce the number of titles being distributed (it's a privilege not a right), the need for more efficient distribution planning services and a desire to make better use of Magnet data. Plus there's a general feeling that TNG should be more proactive in reducing costs.
Working Across the Aisle - Publishers understand that market conditions have forever changed the newsstand ballgame. So they don't expect perfection from TNG. But most of all they want to see a wholesaler that is more responsive to their particular needs and a supplier with a greater willingness to "work across the aisle" to solve problems and initiate change. Publishers absolutely hate significant operating and pricing changes that are initiated unilaterally.

TNG Must Lead - "Solve Their Own Crisis"
I previously believed that the major publishers should lead the newsstand reform effort. I now recognize that as a wildly naive pipe dream. It's difficult for publishers, with their diverse interests, to find the common ground necessary for cooperative leadership. It's not in their DNA. Plus it's also become readily apparent that publishers do not have the necessary systems know-how to lead a reform effort. They have lots of ideas about what's wrong, but they lack comprehensive system operational expertise.
It's All Up To TNG - By necessity the reform leadership ball is now squarely in TNG's court. They have to step up and take command. To do this, however, they'll first have to make a customer relations about face by doing what they didn't do when they unilaterally asked publishers for "an investment". Namely they must provide the leading newsstand publishers (Meredith, Hearst, American Media, Bauer, Conde Nast, Penny Press, Kappa) with comprehensive plans for "simplifying" the system, reducing costs and demonstrating their embrace of a more transparent approach to doing business.
If the TNG plan is prepared fairly, honestly and comprehensively it will most likely be accepted because publishers, even though many are making alternative arrangements, recognize that a TNG distribution program is still the best option for them. Conversely, if it's not done with care and a cooperative sense of empathy it could spell the collapse of the system.
We should all be rooting for TNG to step forward and kick the crap out of the "gridlock" that's stifling the newsstand sales of magazines.
P.S. Don't forget to "snatch & share" your thoughts about this piece with others.   

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