Reckless Behavior

An evaluation of first-half 2008 circ data reveals magazine circulation levels remain precariously high.

By Baird Davis
Wednesday, November 5, 2008

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Publishers, for the most part, continue to recklessly disregard the dangers posed by their over-circulated publications. In the first half of 2008 the audited paid circulation of consumer magazines did decline, but only .8 percent—from 276.2 million to 273.8 million. This is the lowest percentage decrease since consumer magazine circulation began its slow decent in 2000.

Publishers’ circulation practices seem to have neglected the market reality of declining magazine readership and abating advertising revenue. Nor have publishers been shy about employing verified circulation to buttress circulation levels. The use of verified circulation (this includes sponsored circ as reported by BPA audited publications) rose from 10.8 to 13.9 million (an increase of 29 percent). Why haven’t publishers addressed the seriousness of their bloated circulation conditions?

I’m going to burrow below the surface to try to find the answers. I’ll review the newsstand contribution to circ level trends, raising average per-title circ levels, the competitive threat of “association” publications, the increased use of verified and other ABC paragraph 6 circ sources and finally I’ll look at the inordinate circulation influence of the major publishing companies.

Newsstand Contribution to  Circ Level Drops Precipitously

In the first half of 2008 the newsstand circulation contribution fell to 45.5 million—16.6 percent of total paid and verified circulation. This is down from 17.2 percent a year ago and represents an historic low. The decrease in newsstand circ was chiefly driven by the steep sales decline of Bauer titles. Bauer aggressively raised the cover price on all of its audited publications and the resulting newsstand sales decrease accounted for nearly one half of the industry’s two million newsstand circ fall. But Bauer wasn’t alone, nearly two thirds of the top 33 circulation companies also experienced newsstand circ contribution downturns (see chart, page 38).

The newsstand-to-subscription circulation ratio is a very good guide for helping gauge the industry’s relative degree of over-circulation. Its 4.1 percent descent in this period (possibly the largest decline ever) should be a warning flag to publishers about the danger of their precariously high circ levels.

Number of Audited Titles Fall While Average Circ Per Title Grows

The number of audited paid consumer magazines declined in the first half of 2008 to 544—down from 555 a year ago. Since the first half of 2000 the number of audited consumer titles has dropped by 101—down nearly 16 percent.

In an overcrowded market the loss of audited publications would normally be considered as a natural way to thin the herd. But unfortunately the average circulation of the surviving audited publications continues to rise, partially negating the effect of a diminished inventory of audited publications. In the first half of this year the average circ of surviving titles grew from 498,000 to 503,000.

Growing Impact of “Association” and Sponsored Circ Publications

In this analysis I have consciously separated audited publications whose circ consists mainly of “association” and/or sponsored-circ sources from audited publications that are predominately built on newsstand and direct sources of subscription circulation. However, it’s clear that the growing circ of association and sponsored-circ publications is having an adverse impact on the reader universe of consumer magazines. For example in the first half of this year the number of audited publications in this category rose to 102, accounting for 135 million paid/verified circ. This is up from 90 audited titles and 122 million circ a year ago.

The circulation of association/sponsored-circ publications is growing. They now account for one-third of the circulation of all audited “pink sheet” publications. They may not have a significant impact on advertising, but in a crowded media environment they are undoubtedly having an unfavorable effect on consumer magazine readership.

New and Departing Titles

During the first half of 2008 a total of 22 publications were added to the audited ranks. Two publications each from Time Inc. and Reader’s Digest were the largest contributors. Reader’s Digest added Taste of Home (3.2 million) and Taste of Home Healthy Cooking (587,000) and Time Inc. contributed All You (889,000) and People Stylewatch (686,000). Other major additions to the auditing rolls were Hallmark Magazine (749,000) and O at Home (704,000). Combined the newly audited publications added 9.8 million circ—a record for new publications.

On the minus side there were 33 titles that discontinued publication or ceased being audited. There were seven major casualties (more than 300,000 circ) in this group. Those titles and the paid circ they reported the year previous include: Stuff (1,360,000), House and Garden ((976,000), Athlon’s Football (795,000), Child (740,000), Easy Home Cooking (381,000), and PSM (301,000). The combined circ of these six titles was 4.6 million, which accounts for a significant portion of the 7.4 million circ decline attributed to all 33 discontinued titles.

The circulation contribution of the new titles exceeded, by 2.4 million, the decline attributed to the discontinued audited titles. It’s refreshing to witness the circ vitality of these new publications, but this was one of the major reasons the industry’s aggregate circ level did not decline more in the first half of this year.

Circ Level Adjustments

In the first half of 2008 there were 126 publications whose circ decreased by 5 percent or more, compared to 97 the year previous. This was a positive development. However, the number of titles that increased their circ remained about the same—76 publications, compared to 74 a year ago, boosted their circulation levels 5 percent or more.

There were 26 titles that reported circ decreases of 50,000 or more. These included five titles recording circ level reductions of 200,000 or more. This group was headlined by Reader’s Digest’s gigantic cut of 1.6 million. Also included were Newsweek (401,000), In Touch (355,000), Life & Style (225,000) and U.S. News (206,000). In total these publications reported circ level reductions of 4.7 million.

But nearly counterbalancing the reductions were 24 titles that reported paid/verified circ levels that were higher by more than 50,000. This group consisted of major increases (more than 300,000) from Game Informer (557,000), Domino (501,000), Everyday with Rachael Ray (447,000) and Woman’s Health (353,000). This group of 24 publications accounted for an aggregate circ level increase of 3.7 million.

It was encouraging to note that the decreases from publications with more than a 50,000 circ change out numbered, by about 1 million circulation, those that reported increases.

Verified Circ Rises Dramatically

The amount of verified circulation usage (which included both ABC verified and BPA sponsored circulation) rose dramatically in the first half of 2008 from 10.8 to 13.9 million, an increase of 29 percent. The rise in verified circulation usage, however, is almost exclusively a result of an ABC rule change (which went into effect the first half of this year) that involved redesignating “sponsored paid-public place” circ as verified circulation. The rise in verified circulation usage was nullified by a nearly comparable decrease in the use of sponsored circulation.

ABC Paragraph 6 Source Usage Increases

In trying to evaluate the industry’s use of alternative sources of circulation it’s simply not enough to review verified circ usage. It requires a review of the sources described in paragraph 6 of ABC Publisher’s Statements. For this report, I have assembled ABC paragraph 6 source usage data (BPA titles have not been used in this comparison) for the top 23 circulation companies (see chart on page 40). This data is a representative industry sample, accounting for 78 percent of the industry’s ABC paid/verified circ.

The data in this chart reveals that total paragraph 6 source usage increased in the first half of this year for the top 23 companies, escalating from 13.0 percent of paid/verified circ to 13.7 percent.

Five sources produce 98 percent of the paragraph 6 source volume for consumer magazines. The chart below shows how the circ usage of these five sources changed in the last year.

Overall paragraph 6 usage grew by nearly 7 percent. As previously indicated, verified circ increases rose accompanied by a nearly equal decline in paid sponsored source usage. Loyalty and combination source usage remained relatively stable, but partnership source usage grew a robust 35 percent.

The growing partnership circ source is worth a closer look. The use of this source had previously been the province of a few large publishers with the resources and property affinity connections to make partnership marketing economically feasible. Publications, like Entertainment Weekly, were early partnership adopters because of the affinity between ticket purchasing services and their entertainment oriented readership. Recently this source has been made available to a broader range of titles and publishing companies. M2 Media Group has emerged as a major provider of partnership marketing services to publishers. They are now believed to be the industry’s largest supplier of partnership circulation. Synapse is also a significant provider of partnership circ services. These two companies have helped greatly expand the use of this source.

The use of partnership circ, however, is still heavily tilted toward a relatively few magazines that are very large users of this source. There are, for example, five publications that employed more than 300,000 partnership circ in the first half of this year: Rolling Stone (421,000), the aforementioned Entertainment Weekly (411,000), Parenting (397,000), Field & Stream (370,000) and Better Homes & Gardens (363,000).


The Influence of the Top Five  Circulation Publishing Companies

There are five publishing companies with aggregate paid/verified circulation of 15 million or more: Time Inc., Meredith, Hearst, Conde Nast and Reader’s Digest. They reported a combined 124 million paid/verified circ in the first half of 2008 and account for an immense 45 percent of the industry’s subscription and total circ.

Make no mistake about this—it’s subscription, not newsstand, circulation practices that have facilitated the industry’s bloated circulation condition. Furthermore the top five circulation companies have had an inordinate influence on the industry’s subscription circulation practices. In general these companies have not set a prudent industry example. With only few exceptions these companies continue to support levels for their publications that far exceed normal reader demand. They have been able to do this largely because of their extraordinary advertising success. This, in turn, has set a precedent for other publishers that makes it difficult to reduce circ levels, even in the face of compelling economic evidence.

The top five circulation companies, however, are not homogenous in their approach to subscription circulation marketing. Their strategies are diverse. An example is their approach to employing paragraph 6 circ subscription sources. Conde Nast is a massive paragraph 6 user—20.4 percent of their paid/verified circ is accounted for by these sources. Time Inc. and Hearst are also liberal paragraph 6 circ users—14.2 and 11.0 percent of their paid/verified circ respectively. Conversely Meredith and Reader’s Digest are relatively modest users of paragraph 6 circ at 9.9 and 7.7 percent respectively. Plus Meredith and Reader’s Digest, in contrast to Time Inc., Hearst and especially Conde Nast, have avoided the costly use of loyalty circ.

Meredith titles, on the other hand, have an extremely low average annual subscription price (estimated to be about $10). This compares to the estimated average subscription prices for the monthly frequency publications of the others, which are in the $14 to $17 range. The average subscription term of Meredith’s monthly publications is also much higher, believed to be about 21 months compared to the 14 to15-month range for the others.

Meredith has opted for a low price/high term circ strategy. The others have generally followed more traditional pricing/term practices. The problem, however, for the companies following the high price/low term strategy is that growing price resistance has reduced average subscription prices and lowered response rates for most direct promotions. Only a select few publications from these companies have been able to sustain an average subscription price of more than $20 for their monthly publications. They include Hearst’s Cosmopolitan and O the Oprah Magazine; Conde Nast’s Architectural Digest; Time Inc.’s In Style, Real Simple and Southern Living; and none from Meredith or Reader’s Digest.

With the exception of a few of their publications, the top five circulation publishers are showing the strain of sustaining huge circ levels. Their struggles are revealed in reduced average annual subscription prices and, for several of these companies, in their significant dependence on paragraph 6 circ sources.

Conclusions

In establishing circ levels many publishers appear to have disregarded the dire warning signs of impending circulation level danger—reduced newsstand to subscription circulation ratios, growing newsstand and subscription price resistance, reduced promotion response, rising propensity for employing paragraph 6 circulation and hemorrhaging circulation profitability. On top of that, publishers face the prospect of greatly reduced advertising revenues, sharply rising paper and postal expense and what now appears to be the beginning of a deep recessionary period.

Hey, publishers (especially the influential top 5), now is the time to bit the bullet. Make up for the sins of the past. Lower circ levels, improve circ profitability and in the process provide advertisers greater reader quality. It’s a no-brainer, you can’t go wrong.