A Special Report on Magazine Circulation

70% of Publications Suffer Declining Newsstand Sales

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NEW YORK (AdAge.com) -- To paraphrase Ernest Hemingway, magazine circulation got into its current mess two ways: gradually, and then very suddenly.

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"Gradually," because newsstand sales of magazines have been on a long, slow decline for around a quarter-century.

"Very suddenly," because that's how quickly the biggest source for magazine subscriptions dried up. In the 1990s, stampsheet players such as American Family Publishers, 50% owned by Time Inc., and Publishers Clearing House supplied enormous volumes of subscriptions to subscriber-hungry publishers, then all but disappeared.

No quick solution
The solution to circulation woes, however, will in no way come very suddenly. Various tactics have been tried, and publishers are still looking for ways to repair the damage. The stakes go beyond lost circulation revenue, to marketers skeptical about magazines' value as an ad medium craved by consumers.

Given stampsheets' impressive ability to generate subscriptions, the tactic's demise was a body blow to the magazine industry. In a presentation to 2002's American Magazine Conference, Michael Loeb, Synapse Group president-CEO, said that channel's volume of subscriptions hit 80 million around a decade ago, or more than 25% of the industry's total subscriptions. That let publishers scale back on other sources, such as direct mail, which required constant tinkering and faced increasing paper and postage prices, anyway.

In the '90s, American Family and Publishers Clearing House allowed publishers to keep circulation high without much effort, and they reaped advertising based on big audiences. Perhaps those rate bases were a bit bigger than a rational market might dictate, but it was easy to nab more subs from the stampsheets whenever they were needed.

Sharp 10-year decline
And these easy subs changed magazines' revenue mix. Data-crunching by the Magazine Publishers of America based on ad revenue, which its Publishers Information Bureau tracks, and circulation numbers from the Audit Bureau of Circulations finds a marked drop in circulation's slice of the revenue pie. According to MPA, circulation accounted for 37.7% of magazine revenue in 2002, down from 53% in 1992. (This is admittedly an inexact science, as all the ABC-audited titles aren't audited by PIB, but nevertheless presents the broadest universe of magazine numbers available.)

Now let's return to 2002. According to Mr. Loeb's presentation, the stampsheet players' volume totaled just 7 million that year, after taking hits at the end of the century from legal actions. This happened while consolidation of magazine wholesalers and changes in the retail landscape put newsstand sales under severe pressure, which accelerated declines.

In 2001, an ad recession began a years-long clampdown. Belt-tightening procurement procedures came to marketing in a big way; media buyers were forced to justify anew each dollar spent on advertising.

Reading the fine print
A new wave of marketers and media buyers grew adept at reading the fine print of magazine circulation statements -- which, starting in 2001, required greater detail from publishers in exchange for broader rules on what circulation could be counted as "paid." Magazine publishers were left with oversized rate bases, no easy means to fill them and no upside on the ad front.

This brings us to 2004. An ad recovery remains just out of reach. On the circulation side, the first half of 2003 left many publishing executives wincing. And then the second-half numbers came in.

"The most horrible set of numbers I've ever seen, and I've been tracking [circulation] for 25 years," says Dan Capell, editor of the industry newsletter Capell's Circulation Report. "Seventy percent of magazines were down in newsstand sales," Mr. Capell says, adding that it was the largest drop-off he'd seen by at least 10 percentage points.

The push toward do-not-call legislation threatens significant volume of subscriptions sold through that channel. And while it appears to be an isolated case, the testimony of a former Gruner & Jahr USA Publishing circulation executive that the company knowingly overstated newsstand sales of Rosie did little to inspire faith.

The model is 'broken'
The current circulation model "is broken, for publishers and advertisers," says Karen Jacobs, executive vice president of print at Publicis Groupe's Starcom MediaVest Group, Chicago. "Circulation directors get focused on delivering the wrong goals. By that I mean the publisher goes out and makes a rate-base promise and then the circulation director has to deliver, no matter what it takes, because God forbid they underdeliver."

So what's the way out? Nothing that's simple or easy. There is no one silver bullet to magazines' circulation woes. There is, also, no cheap way to do it. The solutions involve arduous trial and error among several options.

There's the Web, though publishers admit it hasn't lived up to its high expectations. There are promotional strategies on the newsstand side, which are expensive. Some publishers are investigating alternate placement of magazines in non-traditional retail locations, though this is more of a niche-player move.

Reader's Digest Association and Time Inc. cite successes using combination sales of subscriptions, though advertisers raise eyebrows at low-price offers for established titles.

Promising partnerships
Most promising -- and most time-consuming -- is a partnership. Some magazines are seeking out partnerships with retailers and businesses with which they share clear affinities. This, too, isn't easy, as those familiar with the tactic will testify. But there are successes across a number of companies, and for Time Inc., the numbers are starting to add up.

But that has not reached the levels that replace the subscriptions once generated by stampsheets, as even Brian Wolfe, president of Time Consumer Marketing at Time Inc., admits. Publishers must struggle with piecemeal, ground-war approaches to a complex problem -- unless publishers are willing to do the simplest thing of all. "Solution No. 1 is to lower rate bases," says Tom Ryder, chairman-CEO of Reader's Digest Association and the current chairman of the MPA.

Is an answer ever that easy? Rarely. Just ask some of the industry's top players, who once thought the Web would neatly replace the subscription deficit left by the death of the stampsheet sources.

Web: no longer magical
"We at one time thought the Net would turn out to be a magic new source," says John Klingel, president of consumer magazine marketing at Reader's Digest Association. "That's not turned out to be the case."

Circulators today view Web-generated subs as a solid part of the subscription mix but a far cry from being the dominant player. John Hartig, senior vice president of consumer marketing and development for Hearst Magazines, says he expects his company to notch around 1 million subscription orders from the Internet this year, up from around 800,000 in 2003. Karla Jeffries, Meredith Corp.'s vice president of consumer marketing, says she expects a similar showing.

Encouraging numbers to be sure, but market dynamics, circulators say, mean those million orders might ultimately total 500,000 paid-for subscriptions. In 2003, subscriptions across Hearst's portfolio of titles topped 17 million in the U.S., and Meredith flagship Better Homes & Gardens alone carries 7.3 million subscriptions.

Niche titles fare better
The average magazine with a decent Web strategy, circulators say, might reasonably expect to score about 5% of its new paid subscriptions from the Web. This figure can skew significantly higher for smaller magazines in the tech or computing arena and can rise for titles that leverage an unusually rich and relevant Web presence, such as those built around enthusiast titles.

"It's working best where we have a market-dominant place, where we have brands that are very well-established," says Steve Aster, executive vice president of consumer marketing at Primedia.

Circulation-savvy marketers have long accepted the Web as a source of desirable circulation, viewing it as analogous to direct mail. A few, though, express concerns about one key byproduct of Web sales that publishers favor: the continuous-service subscription, where no order is needed for the subscriber to renew and annual charges turn up on credit card statements.

"I'm not a big fan of it," says Jan Weinstein, senior vice president and group media director at Interpublic Group of Cos.' Foote Cone & Belding Worldwide, New York. "The consumer should be given a yes or no choice."

Combo sales court controversy
A more controversial source among buyers than Web subscriptions are combination sales, in which companies bundle two or more publications in one offer. The 2001 loosening of Audit Bureau of Circulations rules governing what constitutes paid circulation -- specifically, rules that previously prohibited subscriptions sold for less than half of a magazine's "basic" price -- gave rise to such efforts.

Reader's Digest, according a company executive, has already netted around 150,000 paid subscriptions this way in 2004 by offering the venerable publication alongside titles belonging to its Reiman Publications unit, an ad-free portfolio of titles such as Taste of Home. Time Inc.'s Health, according to its most recent circulation statements, netted more than 40,000 subscriptions in 2003 through combination sales with bigger brethren Southern Living, Cooking Light and Time.

The downside is that marketers are carefully scrutinizing circulation reports to watch for heavily discounted offers through this channel. "For some it actually works," said George Janson, who buys for Masterfoods USA as director of print for WPP Group's Mediaedge:cia, New York. But in some instances "the question becomes, If a magazine is testing [such circulation offers], how much do I really want to pay for?"

One fruitful combination offer for Health, for instance, made that magazine available with a year's worth of Southern Living for a total price ranging from $16 to $36. The suggested price for a year of Southern Living is $36; the corresponding figure for Health is $19.97.

Offers like this inevitably raise in buyers' minds the issue of "wantedness" and its relation to the price paid for magazines-a topic of hot debate between publishers and marketers.

An intriguing wrinkle
One potentially intriguing wrinkle on this move, albeit one that underperformed, was making combination offers across different publishing companies. Executives at companies that tried this concede such offers rarely worked. Buried, for instance, deep in the ABC audit for the year ended June 30, 2002, is a note saying that combination offers with Reader's Digest netted Meredith's Better Homes & Gardens just under 6,000 subscriptions. This is but a drop in the bucket for two titles that then claimed a combined circulation just shy of 20 million.

Beefing up in-store promotions
A magazine might do better than that by pumping up newsstand numbers using in-store promotions and serious study of sales patterns in that venue. The newsstand remains brutally challenging for virtually every magazine not named Real Simple, O or Us Weekly. One attempt to stem this tide would be to hire Bonnie Fuller. (But the newsstand numbers for her Star indicate even this isn't fail-safe.)

Others, such as Hearst's Mr. Hartig, talk about going store-by-store to key newsstand locations to see how rejiggering pockets and placement can goose sales. "Cracking the code there requires some fairly detailed analytical work," he says.

Peter Armour, senior vice president of consumer marketing for Advance Magazine Group, speaks of seeing double-digit spikes in newsstand sales at Wal-Mart Stores, where its bridal magazines were placed in the key non-checkout store location called the "power alley." Seen in this light, the brewing Time Inc. magazine project with Wal-Mart-only distribution is a novel approach to steady newsstand promotion.

A less ambitious strategy comes from simply seeking different placements for magazines in retail environments. "What we've done is place magazines where non-traditional traffic goes" in addition to traditional locations, Mr. Aster says. So at sporting goods stores Primedia will place its gun titles at checkout but also near hunting equipment. He cites sales lifts of "30% and up" thanks to this method.

More broadly, newsstand promotions may be limited by retailers' desire to focus on higher-margin and pricier items. "I understand where magazines fit into the pecking order," says Mr. Aster. "They're really important to Steve Aster. For the retailers, they're a convenient impulse buy."

What works better in partnering with retailers are broader marketing initiatives that go beyond seeking to boost newsstand sales. Key examples, perhaps unsurprisingly, come from the two biggest magazine companies.

'Lucky' and QVC
Time Inc. is the unquestioned industry leader in this space. At Conde Nast Publications, shopping title Lucky started a partnership with shopping channel QVC near the end of last year, and this linkup has already paid off in significant subscription volume.

"We provide them with content and on-air support" -- via appearances by special projects editor Meredith Barnett -- which nets Lucky "access to customers" both through the channel and its database, says Conde Nast CEO Charles Townsend. There's also a special edition sent to subscribers who come in from QVC, featuring special "Lucky Shops QVC" sections. Insiders claim this partnership has already gotten Lucky "tens of thousands" of subscription orders.

Partnerships like this may not come cheap, though Conde Nast executives wouldn't discuss how or whether money changes hands in such a deal. "Some savvier partners now want to get paid a lot of money," says Marti Schiff, who works on partnerships through her New York-based company, Strategic Media.

These deals "might completely be about building programs for each other. They may be about money changing hands, too," says Steve Sachs, Time Inc.'s vice president of consumer marketing. Mr. Sachs has assembled a number of these partnerships for Real Simple with the likes of Pottery Barn and the Container Store.

Swapping databses
At the latter retailer, with which Real Simple just began the second year of a joint program, Mr. Sachs says Real Simple is the sole magazine for sale in the company's stores, and it appears at each checkout counter. "They feature us in their catalog," he says, "and they have marketed us to their customers of other channels" such as the company's Web site. Benefits for the Container Store include getting its catalog polybagged with subscribers' copies of Real Simple, as well as access to the magazine's database.

More than any other new source, marketers nod in approval at such partnerships. "I go into a Container Store and see Real Simple brochures. What a perfect place," says Starcom's Ms. Jacobs. "How much more targeted can you get?"

The downsides are simple: time, effort and money. As circulators bemoan, tough times in the industry have led to cuts in circulation departments, and such deals can't be assembled without staffing sufficient to shepherd them to fruition.

There are also issues of competition, as Ms. Schiff's comment suggests. The real estate in targeted arenas, be they upselling opportunities at the end of a Ticketmaster phone order or space at retailers' front ends, is extremely desirable to potential partners.

"The sales cycle is very long. Sometimes six months or even a year," says Mr. Sachs. "For every 100 potential clients, you're going to have a really low number" that end up signing on. Nor are they huge. Mr. Sachs says that such deals might account for 5% to 10% of new subscription starts in a given year. But a few of those for a magazine add up.

The key, Mr. Sachs says, is "not to look for the silver bullet. Look for a number of smaller sources that are still significant enough so that, when you add them together, they have enough scale to become what the silver bullet might have been."

Think smaller
Then again, perhaps the best approach is the most radical. Think smaller.

If publishers broadly embraced rate-base cuts, says Mr. Ryder, it would "take price pressure off the industry. People can begin to charge fair prices again. ... They can create a more economical enterprise, charge less in absolute dollars but slightly more in the unit terms because the quality is higher. And you've got a better world."

But there's enormous institutional ego at stake in not cutting rate bases, only some of which stems from the conditioning publishers received from the market in the '90s: bulk up circ, fatten ad revenues, use ad dollars to underwrite more rate base expansion, repeat. Now, though, those ad dollars are long gone, and media buyers aren't shy about expressing displeasure over paying freight they feel should be borne by consumers.

Make consumers shoulder cost
"I have said this many times: Magazines cannot rely on advertisers to support them," says Robin Steinberg, vice president and director of print at Aegis Group's Carat North America, New York. "Consumers have to take a little more of the responsibility."

Some key marketers now say they won't view rate base cuts as a sign of weakness -- and one even implicitly accepts part of the blame for creating the current system. "I'd like to see a magazine with a million passionate readers" rather than "a magazine with a million passionate readers and a million who couldn't care less," says Michael Browner, General Motors Corp.'s executive director of media and marketing operations, and the current ABC board chairman. "In some cases, advertisers and agencies can be held partially to blame at least for creating an environment where magazines think they have to be bigger than their natural circulation."

Veteran circulators, though, question how much elasticity there is in the current consumer pricing model. And some marketers make clear they're rarely thrilled to see rate-base cuts.

"If [magazines] start taking rate bases down, that's when audit statements become that much more critical," says Matthew Spahn, director of media planning for Sears, Roebuck & Co., adding that such moves raise simple concerns: "What am I paying for?"

Nevertheless, several marketing executives praised The Atlantic Monthly, which just cut its rate base 27.8% to 325,000 and plans to double its average subscription price to $30. The wisdom of that move will be tested later this year, when ABC reports consumer response. And observers will then see if advertisers have stayed with the product despite the rate base cut.

The circulation landscape of the future will be significantly reshaped as magazines mix and match among the options noted. Or, rather, it could be. What's still unknown is whether magazines have the courage to attempt the more gutsy and ambitious moves, and whether marketers will have the honor not to punish magazines for attempting the bold changes they claim to support.

~ ~ ~
Ann Marie Kerwin contributed to this report.

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