Magazines are already under intense pressure to manage circulation profitably in the face of steep subscription declines. Now publishers are poised to battle advertisers over the definition of the word "paid.''
The outcome will have significant economic ramifications for the industry, affecting how magazines sell millions of subscriptions and win millions of dollars in advertising.
Two committees of the Audit Bureau of Circulations -- one representing magazine publishers, the other print media buyers -- are struggling to reach agreement on a proposal that would radically change how magazine publishers count paid circulation. Although many challenges remain, both sides hope to have a proposal hammered out in time for an Audit Bureau of Circulations board of directors meeting that begins July 19 in Aspen, Colo.
VALUE OF PAID
Magazine advertisers have long been trained by publishers to value paid subscriptions more highly than unpaid subscriptions under the theory that consumers have a stronger bond with magazines they shell out money for than with those that simply show up in the mailbox.
According to current Audit Bureau rules, only subscriptions sold for at least 50% of the basic subscription price count as paid. But publishers want to change the rules so that a paid subscription is a paid subscription, regardless of price. That makes it possible for publishers to slash subscription prices in order to maintain circulation -- and ad rates.
The magazine industry's cheapest sources of new subscriptions, embattled sweepstakes outfits American Family Publishers and Publishers Clearing House, are producing 70% to 90% fewer subscription orders than they did a year ago, according to industry estimates. That leaves publishers scrambling to find ways to make up for the shortfall.
PROFITS OFF 20%
Three industry executives, each of whom works in upper management at a leading publishing house and each of whom spoke only on the condition of anonymity, said circulation profit margins for mature titles are off by at least 20%. Newsstand sales also continue to decline, adding to the pressure publishers feel to improve circulation operations.
"Most publishers have seen circulation margins take a hit, with the exception of new titles. The problems of mature titles are compounded by the fact that they have seen newsstand sales fall off. They then have to replace those with more expensive subs,'' one industry executive said. "For some titles, the loss of AFP and PCH has been devastating. . . . It was estimated that a little over one-third of new subs came from the stampsheets. With levels off 70% to 90%, it's awfully hard to replace that many subs overnight.''
As publishers seek new sources of subscriptions, they find themselves bumping into Audit Bureau rules that limit just how much a subscription price can be discounted and still be counted as paid for circulation counts.
The debate centers on a proposal by magazine publishers that the Audit Bureau abolish a line in reports that lists the number of copies sold for at least 50% of the basic subscription price. Advertiser members of the Audit Bureau argue that if publishers remove that information from reports, they must reveal some other quantitative measure to replace it, namely the average price paid for subscriptions.
QUID PRO QUO
"Everyone agrees that if we make it easier to sell subscriptions some additional disclosure is needed,'' one publishing executive said. "You don't want to put very strong competitors who can sell their subscriptions up against others who are selling theirs for a penny a copy without that being transparent on the statement.''
Added one media buyer, "If we can take the focus off an arbitrary number and focus more on disclosure of what's actually going on, that's probably good for both sides. How we get there is something else again.''
The Audit Bureau currently allows publishers to voluntarily list the average price paid for subscriptions. But because many magazines rely on discounts to sell subscriptions, only 10% of the 819 titles measured list the figure on circulation statements.
Publishers argue that Audit Bureau rules should govern how they report paid circulation but not limit the way they sell subscriptions. They argue that the 50% rule cuts into their ability to market magazines effectively.
Media buyers believe a mandatory rule that forces publishers to reveal the average price paid for subscriptions is the best solution. But publishers argue that won't solve the problem.
PUBLISHERS UNDER PRESSURE
"If the trade-off to abolishing the 50% rule is that average price paid becomes mandatory and is listed on the ABC statements in a prominent place, publishers are going to feel pressure to charge as much as possible so that number is high,'' said Chip Block, president of USAPubs.com, a subscription marketing company. "That eliminates the flexibility the new rules are supposed to promote.''
Copyright June 2000, Crain Communications Inc.