Beating up on paid circ model

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Is paid circulation dead?

I posed this question in the November 2001 issue of Circulation Management. Since then, I have seen no evidence to weaken my belief that the paid circulation model for magazines is dying.

Total retail sales of magazines continue to decline, both in units and revenue. The expense of marketing subscriptions continues to rise and margins fall. I don't know a single circulation practitioner who would claim that circulation margins for the industry as a whole have done anything but decline over the last decade.

You may think I'm crazy for questioning the viability of products that generate more than $10 billion from consumers. However, if it costs publishers more than $9 billion in marketing expense to generate that revenue before product costs, you do have to question that viability, especially since that expense is increasing at a faster rate than the revenue.

If you recognize these facts, the next question is "Why?"

Some in the industry would say it's because we've taught consumers that magazines shouldn't cost very much and that we've relied too much on sales gimmicks such as sweepstakes to promote subscription sales.

While there is some truth to this, it's far too simplistic to chalk up response declines and consumer price resistance to these practices alone. The current paid circulation picture is being shaped by several far-reaching and unprecedented factors. And, far from being passing trends, these factors will have an increasingly pronounced impact in the years ahead.

The most fundamental of these is a major shift in consumer attitudes about paying for advertiser-sponsored content. Consumers have been receiving free, advertiser-supported content through network TV and radio for decades, and they're now accustomed to getting virtually any information that they need or want "free" from the Internet-also an advertising-sponsored medium.

Yes, they're paying a service provider for access to Internet content. And many are paying for access to cable TV. But the perceptual dynamic of paying a monthly charge for a wide variety of content is different from the one at play in being asked to make direct payment for specific content, such as a TV program, an ad-supported basic cable channel or a single publication.

conditioned to get free content

Now, I don't believe that people consciously say to themselves, "I'm not going to pay for advertiser-sponsored content." But I do believe that they have been conditioned to get such content free or for a nominal price. Aside from a few newspapers, paid publications are the only advertiser-supported national media that now ask people to make direct payment for content.

If you doubt my premise, ask yourself what would happen if the producers of "Friends" required viewers to subscribe for $1 per episode. I submit that instead of enjoying an audience of many millions, it would dwindle to a few million or even less. Or if a basic cable channel such as ESPN charged $20 per year for a subscription, how many people would subscribe? On the other hand, there does not seem to be a problem in charging for ad-free premium channels such as HBO.

I am certainly not opposed to advertiser-sponsored content-that would practically be un-American! I am merely making an observation based on what seems to be overwhelming empirical evidence. Just last month, for example, Chairman-CEO Terry Semel floated the idea that Yahoo! might establish premium services free of advertising. And Chris Kimball, publisher-editor of Boston Common Press' Cook's Illustrated, is successfully charging readers top dollar for his publications that are ad-free.

Another major factor making the paid circulation model problematic is the competition for time and consumer dollars posed by new media. When we ponder the decline in newsstand sales of the teen girl category, we should consider the usual structural reasons, but also realize that in the Internet, DVDs, cell phones, MP3s and other new media, girls might be finding other ways to spend their time and money than on magazines.

Exacerbating these factors are others:

* An antiquated, inefficient retail sales system.

* Increased competition, costs and regulation for direct marketing, the major channel of subscription sales.

* Industry-imposed scrutiny of circulation sales practices, which has impeded the ability to find new, creative sources of subscriptions.

Having said all this, I'm a great believer in the utility and value of print. If the Internet had been around for 500 years and someone just invented the printing press, we'd all be talking about this valuable, highly functional new medium called print that is going to transform the way people receive and use information.

Do people still read and enjoy magazines? Of course. Then, what are the implications for publishers and advertisers if my premise is correct?

First, if the consumer continues to value magazines but is less willing to pay directly for ad-supported content, we must develop new ways of generating consumer revenue. For example, an "ISP" for magazines that would charge a monthly fee to the consumer for a variety of magazines and replace the tired old subscription model.

Second, while publishers understand that we live in a multiplatform world, too few understand that our customers want to receive information and entertainment in a wide variety of ways. Publishers need to cater to that and find ways to profit by it. We are content-providers, and print is only one of many media in which to present it. We need to think of media beyond the printed page as more than "brand extensions" or a chance to create a little ancillary income.

turn customers into readers

Third, more publishers should stop selling space and start selling marketing solutions for our advertisers. Most advertisers now have Web sites, databases and participate in some form of direct marketing. We can help ourselves in creating new readers for magazines by turning our advertisers' customers into our readers. In fact, I'd like to ban the word "advertiser" and replace it with "strategic partner."

Fourth, advertisers, rather than quibbling over the meaning of circulation statistics and frothing at the mouth over "wantedness," should question the current publishing model because every year, more and more of advertiser dollars are required to subsidize the cost of publishing. In continuing to place a premium on what pink sheets say, advertisers are abetting an antiquated business model.

If you ask me whether I am an optimist or pessimist, my answer is simple: I am optimistic about the future of magazines as a medium, but I know that the publishing model that has served publishers and advertisers so well for so long is soon going to be as extinct as the buggy whip.

Mr. Block is vice chairman and co-founder of USAPubs, a direct marketing company specializing in magazine subscription sales. His wide-ranging career of more than 30 years in publishing includes being president-consumer marketing at Petersen Publishing.

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