It’s doubtful that a single soul in the US publishing community was surprised by the overall 8% drop in single-copy unit sales shown when the ABC and BPA numbers came out last month.
Well… perhaps some were surprised that the decline wasn’t even steeper. Why? Because the effects of inflation and a dreadful economy — consumers being hard-pressed to pay for food and gas, never mind discretionary items like magazines — were bound to be exacerbated by significant cover-price increases implemented by many leading newsstand titles since last July.
The hikes, particularly on leading checkout titles, raised average cover price for audited titles by 9.4% in just a year, from $3.42 in first-half ‘07 to $3.74 in first-half ‘08, according to circulation consultant / analyst Baird Davis.
The price increases helped buoy up dollar sales — the full category’s dollars declined by a relatively modest 2.7%, and audited title dollars actually rose by 1.2%, according to the New Single Copy.
| US newsstand stats - First-half 2008 | |
| Full Magazine Category | |
| Unit Sales | - 5.2% |
| Dollar Sales | - 2.7% |
| Audited Titles | |
| Unit Sales | - 8.3% |
| Dollar Sales | + 1.2% |
| Sources: Full category: Magnet; Audited Titles: ABC and BPA, per New Single Copy analysis. | |
However, all but two of the top 12 newsstand magazines saw unit drops ranging from single to (mid-teens) double-digits. (The exceptions: People, up 5.2%, and OK!, up 19.4%.) Those 12 titles account for roughly half of all US magazine sales, and the hits experienced by 10 of them resulted in a 10% drop in their combined units, reports Davis.
The price increases — including 50% hikes on Bauer top-sellers In Touch and Life & Style — came in response to wholesaler objections that their cuts of some cover prices meant they were not covering their distribution costs, as well as publishers’ need to cover rising production (and distribution) costs. Most publishers also upped wholesaler margins in the past year or two — revenue undoubtedly needed by wholesalers since US gas prices jumped in recent months to levels closer to those paid by the rest of the world.
However, wholesalers were demanding higher margins long before gas prices doubled, and getting them. Further, industry-wide draws were cut by hundreds of millions of copies over the past year or so (due in part to publisher initiatives to improve P&L’s, in part to unilateral wholesaler actions), and the average sell-through level has moved up several points in the last few years. Wholesalers’ per-copy savings from draw cuts / improved sell-through calculate, on paper, to tens of millions of dollars.
Publishers know that most wholesalers’ economics are troubled despite all of this, but maintain that those who’ve made financially insupportable deals with retailers to keep accounts can’t expect product suppliers to totally underwrite their losses. (Particularly given that wholesaler in-store merchandising was suffering even before gas prices caused them to make more cutbacks on store visits.)
Back to the future
In one of the countless ironies associated with the newsstand business over the years, a possible solution may lie in trying essentially to revert to the geographically-based dynamics of the pre-1995 distribution system. That is, before retailers forced the consolidation of hundreds of regional wholesalers down to just a handful by making wholesalers bid to serve accounts that often span huge areas.
Several years ago, national distributor CoMag Marketing Group implemented a complex plan to help improve wholesaler economics (and publishers’ service) by earning territory designations and performance-based incentives. That plan apparently helped, and a revised version is being released. However, while CoMag’s clients include its owners, Condé Nast and Hearst, plus many other publishers, it certainly doesn’t cover the whole industry.
Magazines, as a whole, have been able to raise cover prices consistently — though not in line with overall inflation — over the years, trading off unit losses for revenue gains. But until the economy improves, raising prices further could depress units to a point where revenue lost on copies sold outweighs per-copy revenue gains.
Declining newsstand economics leave publishers scrambling harder than ever to meet rate bases cost-effectively. Unfortunately, given leaps in paper / postal costs (more postal hikes are coming next May, and some magazines may face 6% jumps) — and given that the consumer budget crunch is undoubtedly affecting response even to deeply discounted sub offers — publishers have been painted into an economic corner. With advertisers also making economy-driven cuts in traditional media spend, how many publishers will risk cutting rate bases now?
Overall first-half circulation levels for audited titles were flat, but circ economics were hurt by having to meet rate bases by replacing lost newsstand copies (and public place copies formerly reported as paid on ABC sheets) with subs that are more costly than ever to obtain.
One result: publishers are increasingly focused on developing partnerships with outside consumer product marketers to yield cost-effective subs eligible to be reported as ABC-paid. Next issue, I’ll offer more on how publishers are leveraging such partnerships.
