Wednesday, August 28, 2013

Is Ratebase the Magazine Industry's Crack Cocaine?

It’s time for magazine publishers to kick their addiction to ratebase, noted media commentator BoSacks said today.

Bo, AKA Bob Sacks, brought the issue up in response to my article today, Why Has Magazine Circulation Declined? Blame Advertising.

Ratebase, for the unitiated, is the minimum level of circulation guaranteed by a publisher. The publishers’ numbers are usually checked by an organization like the Alliance for Audited Media, which excludes things like unsold newsstand copies from the counts.

If an advertiser buys a $10,000 page in a publication with a 200,000-copy ratebase, it still pays only $10,000 if the issue’s circulation turns out to be 220,000. But if the number ends up at 199,000, you can bet there will be hell to pay and demands for refunds.

Publishers “need to destroy ratebase,” Bo told me in an email exchange this afternoon. “It is like crack cocaine. It is a great high for a while and then you are addicted and the crash is horrible and destructive.”

But how can we get rid of the ratebase concept in a way that is acceptable to advertisers? They want some assurances regarding how many people will see their ad and what the CPM (cost per thousand copies) will be. But they don’t want to be hit with surprise extra charges if the issue turns out to be a hit on the newsstand and blows past ratebase.

Ratebase is basically nonexistent for web advertising. Many internet ads are charged on a cost-per-click or cost-per-lead basis. Ads that are more branding oriented are often charged for a specific number of impressions, after which the campaign ends. If the campaign is running short of the promised impression count, the publisher can often compensate by extending the campaign, running the ad in additional locations, or throwing in something like an email sponsorship (or, unfortunately, a free print ad).

But such arrangements are more challenging for magazine ads, where the exact audited circulation count may not be known for many months after the issue is published.

Here, for the record, is today’s exchange with Bo:

Bo: Great article.. but It seems to me that you are creating a black and white issue. It's not just advertising. It is the whole damn formula. I have always hated rate base. I used to say it was a cancer, I've moved on with my analogies to it is like crack cocaine. It is a great high for a while and then you are addicted and the crash is horrible and destructive.

Newsstand sales are not down because of lost ad sales. Much of the public has moved on.

I think that good ads help magazines especially in niche titles the ads are like edit. But it is too simple to say the we are failing only because of a loss of ads.

Just one man's opinion.

I liked your piece anyway....

D. Eadward Tree: Thanks. I acknowledge that it's a bit more complicated than just advertising. But lower magazine ad revenue is the dominant reason that publishers are less willing to tolerate unprofitable circulation. Yes, newsstand sales are down (as are other sources like sweepstakes), but publishers have also found new ways to sign up profitable subscribers (like web promotions and email, not to mention tablet editions) that have taken up some of that slack. But where they can't replace newsstand sales, negative-remit, etc., they are generally cutting ratebase rather than propping it up. The ratebase concept is a mixed blessing at best. The web approach of paying per eyeball or per click is far more logical -- and more adapted to a rapidly changing world.

Bo: They need to destroy rate base.... but we are in agreement, as on most important issues.

By the way Newsstand sales are down 45% per Baird and Harrington from 2007.


John Harrington, said...

I left this on BoSacks as well:

Our late friend Dan Capell used to say (write), “Most bad circulation decisions can be blamed on rate base.”

Dave Ball said...

I think you are wrong in your characterization of the difference between brand advertising in magazines and on the web. It is my experience that many web publishers guarantee a number of impressions in a given time period. If it does not appear that they are getting the number of page views anticipated through their normal business practices they will go out and purchase traffic to their site ... not unlike "negative remit" subscriptions in the magazine industry. The only difference is that they are not locking in the impressions over many months. Hopefully the cost of the traffic is less than the revenue from the advertisement.

There really isn't much new out there from a business perspective, just the medium changes.