2007 – a mixed bag

Where do US consumer magazine publishers stand as 2007 stumbles wearily to a close?

The answer is, of course, far from black and white.

In the positives column, despite the increasingly intense competition from online media and ad-spend cutbacks by the automakers that magazines have been so heavily dependent on, consumer titles’ advertising revenue performance has been on the upturn this year.

Ad pages have been essentially flat with 06, but Nielsen reported national magazines’ ad spend rising by a substantial 8.4% for the first half, to reach $9.5 billion – making them the top performer among "old media". Yes, the internet jumped 23% (to $3.7 billion) for the period, but given that 10 of the 16 media tracked saw revenue losses (including network TV, at -3.8%, and B2B magazines, at -5.7%), consumer magazines are looking pretty robust.

Magazines continue to benefit from surging pharmaceuticals ad spend (toiletries / cosmetics also generate more revenue than automotive now), and most other major categories have increased magazine spend this year as well.

Achieving "engagement" amid massive ad clutter continues to be a rallying cry for all marketers, and magazines are benefiting from research confirming that consumers are generally more receptive to print advertising than in-your-face TV ads.

Marketers also know that their survival depends on creating media models that integrate and cross-leverage old and new media. A recent Harrison Group consumer survey conducted for Deloitte & Touche, for example, found that three quarters of consumers aged 13 through 75 report enjoying magazines (even though many said they could read content from the same publications online). Further, in BIGresearch’s latest "Simultaneous Media Survey" of over 15,000 consumers age 18 or older, magazines ranked as the number one medium triggering online searches (nearly 52% said magazines cause them to do online searches, versus 44% for broadcast TV and 41% for newspapers).

This media usage data speaks not only to magazines’ advertising prospects, but to the fact that lots of consumers — and not just the older ones — continue to value and consume the print medium, even as they spend more time online. Further, publishers are making progress in integrating their circulation / online audience strategies (although cross-identification of online users and print readers remains a significant obstacle).

Still, as has been amply documented here, the challenges on the circulation side of the consumer magazine ledger continued to grow, rather than abate, during 2007.

Scan-based trading

Indeed, since my last column, the newsstand distribution scenario has taken a turn for the worse. One of the four major US wholesalers, Anderson News, notified national distributors that, as a result of doing a growing amount of its business through scan-based trading (wherein retailers no longer pay the wholesaler up front for inventory, but pay only for copies scanned / sold), Anderson would be making large deductions from its payments to ND’s.

The potential ramifications for the distribution system are huge. Anderson’s initially announced deductions across ND’s could amount to as much as $40 million, according to The New Single Copy, and the portion of business done through SBT is growing rapidly not only for Anderson, but all of the wholesalers. ND’s warned publishers that they might have to suspend distribution to Anderson unless they received normal payments, though discussions have, as of this writing, avoided the need for such drastic recourse.

Publishers and their ND’s are also wary of wholesalers’ increasingly tight relationships with retailers and aggressive moves to initiate change, including unilaterally cutting the number of magazines distributed (although this appears to have upped sell-through by several percentage points without significantly impacting sales). Meanwhile, publishers / ND’s naturally have their own, often competing agendas.

Finding solutions amid the shifting economics and power balance will demand an unprecedented level of cooperation among players who struggled to work effectively together even during the newsstand’s heyday. As circulation consultant Baird Davis points out, the stability of single-copy sales performance in first-half 07 (unit sales flat, revenue up 1.5%) is "more a testament to the enduring appeal of magazines than to enlightened marketing practices."

By-issue figures

On another front, publishers have acceded to media buyer demands for by-issue circulation rate base guarantees (see my September/October column). Maxim / Blender publisher Alpha Media Group and bellwether Time Inc have already announced by-issue guarantees (Time Inc will credit advertisers for any by-issue shortfall that exceeds 2%). Both are also among majors now putting their titles on ABC’s online Rapid Report system, which provides ongoing reporting of by-issue circulation results — another initiative that was initially resisted by publishers.

Given market realities, publishers have clearly decided that embracing such metrics is the better part of valour, and hoping that advertisers will be satisfied for a time — and come through with spend that will offset the additional operational costs involved for media owners. Further erosion in circulation margins is not a happy prospect.

In short, 2007 has been a mixed bag… and traditionally magazine-based companies, along with all media, will of course continue to experience upheaval as the internet and other forces reconfigure the playing ground.

Yet, with genuine, concerted effort on the part of publishers and other industry players to work together more effectively, 2008 could see the industry build on its momentum in leveraging its strengths and turning upheaval to ultimate advantage.