Navigating the US newsstand maze

Although there are quite a few parallels between the UK and US newsstand systems, any UK publisher considering exporting its products to the US should have an understanding of the many variables and challenges in the current US environment — as well as expert guidance in navigating this maze.

Here’s a top-line look at the complicated factors impacting today’s US newsstand marketplace, and some advice from US newsstand professionals with import / export experience on what UK publishers need to consider.

Declining newsstand sales

Long before US consumer magazine publishers were faced with serious subscription challenges (as detailed in last issue’s feature), there were significant and growing newsstand problems. After years of steady post-WWII growth, sales of total newsstand units for audited magazines (which include the major brands, as well as many niche titles) began to slip in the early 80’s. And the decline has more or less continued without abatement. In fact, from a peak of about 91 million in 1980, overall audited-title units had plummeted to 51 million by 2003. Although some titles, large and small, continue to buck the trend, overall audited newsstand units have been dropping by over 4% per annum in recent years.

Due to continual growth in the number of new titles entering the newsstand arena, the industry’s total units, including both audited and unaudited titles, managed to keep inching up until a few years ago. Combined unit sales growth among smaller-selling magazines (those not among the top-100 unit sellers) used to offset the declines of the larger single-copy titles. But no more. In fact, in 2003, unit sales for these smaller newsstand titles dropped precipitously, due in large part to financially-strapped wholesalers’ cutbacks in serving smaller, independent retailers, according to the newsletter The New Single Copy (TNSC). This means that, for the first time in a decade, the top-100 newsstand titles are actually showing smaller unit declines than the "rest of the line." The result is that the top 25 now account for about 43% of all units, those in the top 26 to 100 now account for about 36%, and the rest account for 27% (down from 32% in a single year).

The dynamics are clearly shifting in favour of larger titles, but the overall picture is hardly rosy for them, either. In fact, 2003 was one of the worst years in recent history for the newsstand as a whole. Total magazine units dropped by 6.5%, and audited-title units by 4.2%, TNSC reported. The top 25 titles’ sales dropped by 4.5%, the middle rung’s by 5.5%, and the "rest of the line’s" by a whopping 8.7%.

What about newsstand dollar sales? Due to continued ability to raise cover prices (in contrast to the significant consumer resistance encountered in raising sub prices), as well as the constant influx of new titles, overall and audited-only dollar sales had been managing to show marginal growth, or at least stability, despite the ongoing unit declines. However, again reflecting the growing pressure on smaller titles, total-industry newsstand revenue dropped by 3% last year, to $4.6 billion. And while audited titles’ dollar sales held steady, at $3.2 billion, industry experts are now reporting signs of consumer resistance to further cover price increases. (Between 1991 and 2003, average cover price among audited titles rose from $2.66 to $4.22.)

Declining efficiencies

Meanwhile, newsstand "efficiencies," or "sell-throughs," are far below where they were in years past. While a few magazines manage to sell 50% to 70% of the copies distributed to some specialized types of outlets, like book stores, and some major publishers and their national distributors (ND’s) have successfully improved their efficiencies, last year, on average, the overall industry’s sell-through average was a dismal 34%. (That average is expected to rebound a bit in 2004, along with unit sales, as a result of a somewhat improved economy.)

What’s behind the newsstand’s problems? Some combination of many factors, including growing competition from other media (the Internet can’t be helping), declining reading among young people and time-challenged adults, too many titles (over 4,000 by some estimates) vying for a declining amount of retail display space, and a damaged distribution system that is not functioning optimally.

There is good reason for providing all of this background, because it adds up not only to serious impacts on overall operating and financial dynamics for US magazines, but sheds substantial light on the challenging scenario faced particularly by smaller US magazines and all newcomers to the country’s troubled newsstand arena. Let’s take a closer look at how the system now operates, and then at what all of this means for imports hoping to succeed in the overall US newsstand environment.

A mass-distribution sea change

Until the mid-90’s, the US mass-distribution system depended on a large number (more than 300, at peak) of independent, regional wholesalers. Essentially, each wholesaler had a monopoly, serving the lion’s share of all of the magazine outlets within a territory, including both mass-market chain stores and independent retailers.

Then, as now, wholesalers bought magazines from publishers (through publishers’ respective ND’s), resold them to retailers, physically distributed the copies to stores, picked up and processed unsold copies/returns, and recorded the sales results and other pertinent data. (In the US, retailers pay only for those copies actually sold to consumers. In fact, counting returns and subtracting these from a store’s copy allotment for a given issue of a magazine is still the basis for determining the number of copies sold, although scanning cover data at checkouts will replace this system in supermarkets and mass retailers in the years ahead.)

And then, as now, publishers depended on ND’s for several functions, including: "banking" (ND’s advance the costs of getting single copies out to wholesalers / the market, and are later reimbursed by publishers); securing "authorizations" from retailers to have specific magazines sold in their stores; calculating recommended allotments or numbers of copies of a magazine on a store-by-store basis for wholesalers; and devising marketing / promotion / display plans for publishers who wish to pay for such services. ND’s also provide strategic support for magazine launches. There are but a handful of ND’s in the US, including Comag Marketing Services (co-owned by Hearst and Conde Nast), TDS and Warner Publisher Services (owned by Time Warner), Curtis Circulation (90% owned by Hachette Distribution Services, Paris) and Kable Distribution Services (privately owned).

In the mid-90’s, retailers turned the traditional mass distribution system upside down by beginning to force once-regional wholesalers to bid for the business of entire, often geographically dispersed, retail chain accounts. This bidding process ended in a huge consolidation of wholesalers (there are now only four majors: Anderson News, Hudson News, The News Group and Charles Levy — plus many "secondaries"). Moreover, to compete for these accounts, large wholesalers agreed to retailer terms and distribution commitments that greatly raised their operational costs, and this has proved devastating to the financial health of most of them.

Fearing the possible collapse of one or more major wholesalers — and with no viable mass distribution alternative at hand — publishers have grudgingly made some concessions to help keep wholesalers afloat. To reach traditional mass outlets (supermarkets, mass merchandisers such as Wal-Mart, drug stores, airport and other terminals, and convenience stores), a 40% off-cover-price discount to wholesalers was once standard. But today, discount structures are very much in flux. Some magazines with lesser newsstand volume and clout now give wholesalers a discount exceeding 45%. Wholesalers by and large still resell magazines to major retail chains at between 30% to 40% off-cover-price, but terms vary by retailer and type of retailer. (The cost structure just described applies only to titles displayed on retail mainlines. Checkout titles give wholesalers lower discounts — usually 28% to 38% — but they output major sums in merchandising / slotting fees to retailers.)

How can imports succeed?

Here are key points and advice gleaned from US newsstand pros with import / export experience:

1. Within mass-distribution outlets, economics pose major hurdles for imports. Because UK titles are generally much more circulation, than advertising-driven, it’s tough for them to make an acceptable profit in a system designed mainly to serve ad-driven titles. While niche-oriented, more circ-driven US titles also face disadvantages in this milieu, UK titles tend to have higher production costs, not to mention overseas shipping costs.

"UK titles need higher per-copy remits because of their circulation-driven nature, and also because of their additional export costs, so they tend to need substantially higher sell-through percentages than the titles that they are competing with in the US — as well as substantially higher cover prices," sums up T J Montilli, newsstand manager for Dennis Publishing’s US operations, who has collaborated with the company’s UK operation in importing a number of Dennis’s UK titles into the US. As Montilli points out, among other factors, mass-distribution outlets have lower average sell-through than the industry as a whole — possibly below 30%, at present. "Although it’s not inconceivable, with all of the right factors in place, I, personally, have yet to see an imported title sustain itself for long in the mass system," he says.

Ralph Perricelli of Magazine Communications Consultants (MCC), whose firm has helped market such UK titles as Sugar and B in the US, agrees that mass-market distribution is tough for imports, but says that some have a shot at success, depending on their ability to position themselves within the competitive dynamics of their respective categories, such as women’s, automotive, etc.

2. Bookstores and other selected retail outlets are generally the most profitable channels. "Careful, targeted distribution is certainly one of the biggest keys for imported titles," says Montilli. "In my experience, the most viable channels are generally the large bookstore chains — Barnes & Noble (B&N) and Borders — and the small number of independent retailers specializing in high-end international press. If a publisher can float the very high entry fees and promotional requirements, they might find it worthwhile to be in international airport terminals. But since relatively few of their advertisers are likely to be interested in reaching primarily US readers, domestic airline terminals probably don’t make a lot of sense." With tightly controlled, store-by-store allotments (order regulation, or O&R), some imports may be able to achieve efficiencies of 60% or even 65%, Montilli notes.

Reaching B&N, Borders and most other book store chains means being distributed through one of three "direct" distributors: IPD, Ingram or Speedimpex (which use third-party delivery services such as UPS to deliver copies, rather than maintain their own fleets of trucks, like wholesalers.) Also, one important chain, Books A Million (209 stores), is owned by the wholesaler Anderson News, which is the chain's sole distributor. In the past, publishers generally sold to directs at a 50% off-cover discount (including the 10% RDA), and also paid reshipping fees. The directs generally resold to retailers at a 40% discount. But again, all of these numbers are in flux now — deals can vary widely. An ND can assist in setting up relationships with directs and other channels. Many UK titles have had success by contracting with one of the UK-based ND's that handle significant amounts of exporting business. However, most US ND's also handle imports, and those with particularly high client volumes going into bookstore chains may be able to offer particularly attractive reshipping fees (such fees can range all the way from 12 to 35 cents), according to US circulators who have worked with imported titles.

3. Strategic assessment of the terrain is critical. Perricelli stresses the importance of a careful assessment of overall distribution objectives — mass versus bookstores/targeted channels — and, if mass appears viable, a thorough analysis of which mass "classes of trade" (supermarkets, mass merchandisers, drug stores, convenience stores, etc) have the right demographic fit. This should be followed by a detailed analysis of store-by-store allotments.

Again, Perricelli also emphasizes that analysis of category dynamics is critical, wherever the magazine is to be distributed. In addition to strong editorial content, UK titles often offer more pages and better-quality paper. However, assuming that the magazine’s editorial genuinely strikes a cord with US readers, either on a niche or mass basis, publishers must assess whether they truly have "value-added" factors that can support higher cover prices than the competition’s within a given category. Is the competition offering an equivalent or better product (in the consumer’s perception), at a lower price? "Any UK publisher who doesn’t do serious homework is liable to waste a lot of money," warns Pericelli. He adds that, if conditions seem warranted after such analyses, limited, live tests may be the best way to definitively determine the answers to such questions.

One more caution for the uninitiated: US standards are far less liberal than UK standards when it comes to "adult" editorial content. Frank, outright nudity usually precludes distribution in mass outlets. (Even in convenience stores, which sell large numbers of men’s titles, these magazines must generally be polywrapped.) In fact, mainstream US magazines with cover lines or graphics deemed "too racy" by mass retailers are increasingly having their covers blocked, or even being thrown out of ("unauthorized" by) chain store managements.