Wednesday, August 28, 2013

Why Has Magazine Circulation Declined? Blame Advertising

Media pundits frequently pontificate about declining magazine circulation without understanding that it’s merely a symptom of – and sometimes an antidote for – advertising weakness.

For U.S. consumer magazines, circulation at the margin is typically unprofitable. Adding more circulation or keeping some of the circulation you have only makes sense if that helps your advertising sales. Once you meet ratebase – the guaranteed minimum number of distributed copies – any additional sales have no impact on ad revenue.

It’s safe to say that daily newspaper circulation has declined dramatically in recent years because consumers are finding other ways to get their news. But the picture is murkier for magazines. Much of the more gradual decline in magazine circulation (13% since 2002 despite a 9% population increase, points out noted print-industry analyst Dr. Joe Webb) was initiated by publishers themselves to shore up the bottom line.

During the glory days of magazine advertising, many publishers pumped up their circulation with “negative remit” subscriptions. That’s when a subscription agent’s commission exceeds 100%; not only does it keep the new subscriber’s money, but the publisher pays it an additional fee as well.

It also wasn’t unusual to see 20 or more copies of the same issue in hotel lobbies, or a wide variety of free magazines in hair salons, on airplanes, and at doctors’ waiting rooms. Such unprofitable circulation was worthwhile because it enabled publishers to maintain high ratebases, which meant more ad revenue.

The past decade’s slump in magazine advertising has derailed that gravy train. With the loss of big advertising subsidies, publishers are managing circulation more for profitability than for scale these days.

The pundits made much of Newsweek’s precipitous U.S. circulation drop – from more than 3 million five years ago to barely 1 million when it stopped printing last year. But the real story was the 60% drop in ad pages during the last decade. Sapped by the loss of its ad-revenue lifeblood, Newsweek purposely amputated all but its highest-paying subscribers and most efficient newsstand locations in a desperate attempt to survive.

So much for the “circulation war” with rival TIME that was often ballyhooed by ignorant newspaper reporters. There was no such war: It’s been decades since either title tried to grow its circulation rather than just trying to meet its ratebase as profitably as possible.

As for TIME, some may have viewed its recent year-over-year circulation gain of nearly 1 percent as a sign of strength. But my friends in the Circulation Department see things differently. To them, the game is to meet ratebase with as little extra circulation as possible.

They would point out that TIME met its 3.25-million ratebase in the first half of 2012 with only 27,000 extra copies per issue but that the “bonus” nearly doubled to 51,000 this year. Multiplied over 50 or so issues per year, that sort of “waste” (additional unprofitable copies that don’t result in more ad revenue) can really hurt the bottom line.

Moral: Read any news coverage of the magazine industry with a critical eye, especially when parallels are drawn to the newspaper industry. (In fact, in an upcoming article for Publishing Executive, I advise magazine folks to stop reading articles about the newspaper industry’s demise; they are depressing and mostly irrelevant to our business.)

Please see the follow-up article Is Ratebase the Magazine Industry's Crack Cocaine?

Other related articles:

7 comments:

Steven C. Levi said...

Newspapers and magazines have seen their circulation numbers drop because they keep publishing information you can get off Yahoo. To survive they need to change their business model. They should do what they are best at: investigative reporting, in-depth stories on innovators and columns/editorials by people with unique ideas, inventions or perspectives.

Anonymous said...

This is one of the clearest, most informative articles I've seen on publishing to appear on the web in a long long time. As a publisher of a small niche market magazine I full understand and agree with this analysis. We need more concise, focused pieces like this. It's a refreshing change from the media blather that froths around the internet like foam on waste water effluent in a ditch.

BoSacks said...

Geez. I hope Anonymous didn't have me in mind when commenting on blather that froths around like foam on waste water. Even if he did mean me, how can you trust the opinion of a guy named Anonymous? I mean I see his work all over the internet. Anonymous here, Anonymous there, the guy is everywhere. For all I know he is the one solely responsible for media blather that froths around the internet like foam on waste water effluent in a ditch.

Peter Lebensold said...

I don't know about anyone else here, but I am certainly receiving far fewer pieces of circulation-building direct mail these days. And what few pieces I do receive tend - most often - to be mindless reiterations of the much-maligned (but very cheap) voucher pak. As long as publishers (in their determination to do the least/cheapest possible circulation promotion) continue to fail in creatively SELLING their product, their subscriber lists can only, over time, shrink.

Anonymous said...

"In fact, in an upcoming article for Publishing Executive, I advise magazine folks to stop reading articles about the newspaper industry’s demise; they are depressing and mostly irrelevant to our business."

For decades magazines and newspapers have been printing articles about declining profits for other businesses. Whenever a business or an industry was declining and losing workers, newspapers and magazines by the hundreds were there to report it. Now, newspapers and magazines are declining themselves. And they are pissing and moaning, "It's too depressing to read articles about our decline." I guess you jokers don't like it when the shoe is on the other foot, huh?

D. Eadward Tree said...

To Anonymous (2/14/14): Perhaps I wasn't as clear as I should have been. We magazine people should stop reading the depressing news about newspapers and assuming that we're in the same boat. Magazine publishers generally have much better prospects than do newspaper publishers.

Anonymous said...

D. Eadward Tree wrote, "To Anonymous (2/14/14): Perhaps I wasn't as clear as I should have been. We magazine people should stop reading the depressing news about newspapers and assuming that we're in the same boat. Magazine publishers generally have much better prospects than do newspaper publishers."

I agree that specialty magazines like Architectural Digest seem to have better prospects than newspapers. I disagree regarding men's magazines, women's magazines, and news magazines are facing better prospects. Newsweek, New Yorker, and Time, for example, have drastically lost revenues and readership compared to 10 years ago. I can remember when Time used to be around 100 pages. Now, it's closer to half that. I'm also reading about staff workers losing jobs by the hundreds.

Yes, it's depressing to read articles about the demise of your business or the industry you work in. But magazine publishers didn't care about how depressing it was until they themselves are the ones facing their own demise. Do you know what's even more depressing? The quality of these magazines. All the men's magazines look the same. All the women's magazines look the same. They all feature bland articles on the same boring celebrities, with the same graphic design. I can't tell the difference between Esquire and GQ. My woman can't tell the difference between Cosmo and Glamour.

Another thing: I can't tell you how many times I read a news article from an online source and thought, "Wow. None of the newspapers or news magazines are saying anything about this." If the internet didn't exist, I wouldn't know about the riots in Brazil or the flooding in Mozambique. And so much more.

You think magazines declining depressing? Here's something even more depressing: living without the internet and not being able to broaden your intellectual and cultural horizons by learning about the world around you. And instead, having to rely on boring, bland magazines with homogenous content that neither challenge the reader nor inform him of insightful information.