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.

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?

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Tuesday, August 6, 2013

Budget Cuts Are Delaying USPS and Federal Retiree Payments

Government efforts to save pennies always seem to end up costing dollars, as some U.S. Postal Service and federal retirees are learning the hard way. As a result, future efforts to downsize the Postal Service through early retirements may suffer.

USPS’s most successful efficiency tactic in recent years has been reducing its workforce by offering Voluntary Early Retirement (VERA). But reports of disgraceful nine-month waits to start receiving full retirement checks discouraged many other employees from taking the offers.

The federal Office of Personnel Management made remarkable progress last year, reducing the backlog of federal and USPS retirement applications by 55%, the agency reported yesterday. In the first quarter of this year, OPM processed more applications than ever in recent memory, putting it “on track to eliminate the pending case backlog” and to achieve “our target processing time of 60 days.”

But look for more backlogs and delays, OPM warned.

With the help of additional overtime and improved processes, the agency was able to keep pace when faced with a wave of about 21,000 early-retirement applications from postal workers early this year. OPM reported that it “was able to produce an average of 14,000 claims per month in February, March, and April rather than the 11,500 per month plateau envisioned in the strategic plan.”

Then OPM was hit by the sequester – budget cuts that kicked in because Congress couldn’t come to agreement on how to close the federal budget gap. The cuts were automatic, with Congress and the Obama Administration having little ability to preserve spending that would end up saving money.

“Beginning on April 28, 2013, all overtime for employees working in RS [Retirement Services] at OPM was suspended and call center hours were reduced,” the agency said. “The loss of funding through sequestration resulted in a reduction of 20 to 25 percent of case production. Our current processing capability generally matches the receipts each month, preventing us from reducing the inventory, which is needed to reach our goal to process 90% of the cases within 60 days of receipt.”
"Retirees should expect an increase in the time required to respond to inquiries."
The sequester has also prevented the agency from replacing employees and may cause it to lose many of the temporary workers it hired to battle the backlog. (When government employees get jerked around like this, is it any wonder that "good enough for government work" is so often substandard?)

“While it is our hope that process improvements developed over the past year will ameliorate some of the adverse effects of these necessary actions, retirees should expect an increase in the time required to respond to inquiries,” the agency wrote.

If normal funding is restored when the new fiscal year begins in October, the agency estimates it can whittle the backlog down to target levels by March 2014. But that’s a big if.

After all, a previous ill-advised cost-cutting program got OPM into the backlog mess in the first place. Claims-processing staff was reduced a few years ago in anticipation of an automation system that ended up being a total failure.

In any case, postal workers considering retirement will still need to consider how they’ll get by in the months between the paycheck stopping and the full retirement checks coming.

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