The American Magazine Retail Sales Experience

A decade ago, the American mass market magazine distribution channel, virtually overnight, was radically transformed. During the ensuing years, the sales profile of magazine newsstand sales has evolved equally radically, although not nearly in such a disruptive fashion. Now, as the business eases into the later years of the new century’s first decade, its future shape remains uncertain, as in fact is the shape of the entire US magazine industry, and perhaps even the broader landscape of media. Not only does the channel’s future shape remain uncertain, it’s ability to maintain itself, even in the marginally acceptable fashion of the past ten years, is equally uncertain.

In broad strokes, American magazines are heavily dependent upon advertising, which traditionally provides more than 50% of their revenues. For many of the most successful and most well known titles, the ad share is considerably higher. In this decade, the rise of the internet has scrambled the traditional media mix for many advertisers, and print media, newspapers and magazines, has been the most severely impacted. Publishers, who are struggling to deal with the new realities of advertising, may seem to be somewhat distracted in their efforts to cope with circulation issues, be they subscriptions or single copy. However, it is not disingenuous to claim that, in light of a very unsettled ad market and a subscription business that has been devastatingly disrupted, that newsstand is the steadiest, most reliable, if not the most lucrative, leg of the traditional three-legged magazine revenue stool. While that may explain why publishing management focuses the greater part of its attention on advertising and the value of many subscription sources, it does not mean they can continue to let a hobbled distribution channel operate without greater attention just because it appears to be producing reliable, if unspectacular results.

After a lengthy period of generally depressed single copy sales (down 28%, 1996 to 2001), annual unit sales have risen, albeit by small amounts, in each of the last three years and in four of the last five years. Many observers feel that the improved performance, or perhaps more properly the stabilization of the newsstand market, is merely the success of a single category, celebrity weeklies, that is masking an otherwise desperate sales environment. However, magazine retail sales history demonstrates that overall numbers have always been skewed by the performance of a handful of magazines, in fact probably more so than they have been in the past few years.

Although casually referred to as a mass market system, newsstand sales are, like other media, more diffused than they were a decade ago, or even 20 years ago. While the largest publishing companies may represent huge shares of the market, individual titles are decidedly less dominant than they once were.

Decline of the super-sellers

The most significant change in mass market magazine retail sales has been the disappearance of the super-selling titles. Twenty years ago, 1987, annual retail unit sales were 2.192 billion. Last year, they were 1.449 billion, which means that they have fallen nearly 34% since then. That same year, 15 magazines averaged over 1 million units-per-issue. In fact, one magazine, TV Guide’s average was 8.3 million. Two others were selling around 5 million, two more over 3 million, and another two were better than 2 million. Last year, only five averaged more than 1 million newsstand units-per-issue, and not one of them exceeded 2 million. However, for the rest of the magazine publishing world, the environment has not changed that much. In 1987, 116 titles averaged more than 100,000 single copy sales, and in 2006, the number was 108. At the 50,000 level: 1987, 179 publications; last year, 177. Almost all of the business’s losses over nearly two decades have come at the expense of a few very large sellers. For the vast majority, the opportunities for achievement are about the same. Additionally, the number of magazine titles available on the newsstand is estimated to have doubled during the past 20 years to more than 5,000.

Still, while the performance, solely measured in terms of unit sales, of most magazines has not changed substantially, much else is different. As late as the mid-1980’s, single copy sales retail sell-through figures were still close to 50%. They have been under 40% for all of the last decade, and while they have inched higher since bottoming out at 33% in 2003, today’s 36% figure is not exactly something to boast about. Improving efficiencies is a much talked about topic; retailers complain about it and publishers, national distributors, and wholesalers all claim they can do something about it. However, from this jaundiced viewpoint, it appears that most major publishers are more concerned about capturing as much sale as possible, guaranteeing their ad rate bases, and if lower efficiencies are the price of that, then so be it.

Rise of the retailers

The changes in the distribution channel have increased the complexity of the North American newsstand market radically for publishers. The increasing strength of retailers, who even into the early 1990’s were at best only regionally dominant, has brought new levels of complexity in terms of costs and manpower to the publishing equation. When the channel was more or less controlled by wholesalers (as late as 1995, more than 300 wholesalers operated in essentially exclusive geographies), publisher marketing efforts were managed at that level. As the major chains – Wal-Mart, Safeway, Kroger, and others – became national entities, they broke down the wholesaler framework and took control of the distribution channel. (The cataclysmic shift that took place, virtually overnight, in 1995 throughout the magazine distribution channel is worthy of a book length explanation. However, the result is that four financially distressed wholesale companies now deliver about 90% of all magazines to retail, but their contracted retail customers control the terms of the business). Where once, publishers and national distributors worked with wholesalers, whose sole business was selling publications, they now must sell to supermarkets, discount stores, and drugstores, where reading material is a relatively insignificant part of the product mix. For instance, in supermarkets, where half of all magazines are sold, they represent less than one percent of the retailer’s total sales. Clearly, the new retailer-focused marketing program is distinctly different and more challenging than the old wholesaler system.

Retailers are often called master extractors of supplier’s moneys. When the channel was restructured, retailers initially focused on extracting more from the newly competitive wholesalers, which resulted, as noted earlier, in an economically weakened distributor level of the channel. After that, retailers became more aggressive toward publishers and national distributors. Retailers had always sold front-end checkout space, which included rack costs as well as display payments. Those costs have increased at inflation-plus levels. Additionally, displays throughout the stores, for publishers and national distributors, have become more costly. Traditional display allowances have increased, as have the costs of managing them.

Major publishers and their national distributors can still manage the cost, not only of maintaining their current business, but also of introducing new titles. Three of today’s ten best selling magazines (ranked by annual retail dollars) were launched in the last three years. A dozen or so of the top 50 have entered the market since 2000. However, the costs and challenges of entry for a publisher without prior access to an established magazine marketing operation have become daunting.

The bookstore route

Many medium-sized and smaller entries are opting to enter retail almost exclusively through the bookstore marketplace, and particularly through the dominant chains, Barnes & Noble, Borders, and to some extent Books-A-Million. Their management, although certainly capable of extracting publisher funds for all kinds of displays and promotions, has been generally willing to provide easier levels of access to their mainline, if crowded, display fixtures. Bookstores’ share of magazine sales is now over 10%. Their business is selling publications and they recognize synergies between books and periodicals. The approach to the bookstore marketplace has its differences. Whereas, selling your magazine in a single supermarket chain will go through all of the wholesalers delivering the retailer, publishers must chose between one of two so-called direct distributors, Ingram Periodicals and The Source Interlink, who provide nearly all magazines to Barnes & Noble and Borders.

Cash-strapped wholesalers

While the wholesale level of the distribution channel has lost much of its marketing influence, as well as most of its profits, it retains an irreplaceable function. The remaining wholesalers, large and small, provide delivery, merchandising, pick-up and return processing services. Additionally, they are the only centralized and complete sources of magazine retail sales information. Their financial distress is nearly universally acknowledged by publishers and national distributors. Yet, a decade-plus after the economic model supporting the wholesaler system was rendered unsustainable, nothing meaningful has been developed to replace it. Even the moderate sales improvements of the past three years have not benefited wholesalers. The 1.5% increase in unit sales last year resulted in a less-than one percent revenue increase, because many of the newly successful celebrity-focused weeklies have cover prices under $2.00, a price point most publishers passed by several years ago. The average cover price of a magazine sold declined for the first time, by two cents to $3.35, in 2006. An independent analysis (The Impact of Low Priced Magazines is available from Harrington Associates – email: info@nscopy.com) of the impact of low-prices found that there were no circumstances under which a magazine priced under $2.49 was profitable for a wholesaler.

Despite the general recognition of the financial fragility of wholesalers, publishers as a whole have not developed a new economic model to support their major artery to retail markets. As referenced early in this article, the senior management level of the publishing industry is also challenged by an unsettled advertising revenue stream, expansion into internet operations, and a subscription business that may have gone through a transformation almost as radical as that which wracked the newsstand business. When trying to manage in an environment challenged at every level, the prevailing attitude may be that if the single-copy level has not collapsed despite a decade of financial insecurity, and has even recently been producing stable performance levels, then it will, hopefully, continue to function, if not actually prosper.

However, executives closer to newsstand business are not quite so sanguine. The admittedly miniscule performance improvements of the past three years could turn around in a split second; and management of one or more major wholesalers, all of whom are parts of larger companies, could easily decide that, after years of sustaining marginal operations, it is no longer viable and exit the business if there are no buyers available. Retailers, as is retailers’ nature, would turn their attention to other products to fill the void.