The Dynamic Between Newsstand Efficiency and Profits
Why higher newsstand efficiency can come at a price.
During this year’s MPA IMAG Conference, Bryan Welch, publisher and editorial director of Ogden Publications, Inc., made a case for low newsstand efficiency. “If you’re profitable at, say, 28.5 percent, why push for more?” he asked attendees.
This question brings only more questions: How can reducing the newsstand efficiency of a magazine be a good thing? If a publisher increases efficiency, doesn’t that mean more profit in the end? Not without consequences, says Welch.
“I’m not an advocate for low efficiency,” he says. “I’m speaking against the notion that high efficiency is always a good thing for us, as publishers. I hear too many of us talking as though higher efficiency is always good, but if that’s at the expense of total sales, profitability and audience development, then it isn’t a good thing. We as publishers need to know the economics of the newsstand well enough so that we can exert appropriate force to achieve the most profitable efficiency—not necessarily the highest.”
Welch used a magazine with a draw of 100,000 as an example (see chart below). It costs $60,000 to produce the draw and it sells at an efficiency of 49 percent, or 49,000 copies, with a net income of $50,000. If the publisher were to increase the draw by 25,000—or by another efficiency step of 40 percent—and sell 59,000 copies, the total of efficiency of the draw would decrease by 2 percent even though the net income has increased.
Many factors influence the appropriate efficiency level, including cost of goods, revenues per copy, ancillary revenues, subscription revenues and price, Welch says. “The only way publishers can maximize the value of their newsstand business is by understanding their goals and then negotiating with the other players to push their counterparts toward the most beneficial scenario for the publisher.”
Historically, he adds, publishers have too often seen circulation as a means of building and maintaining a rate base. “They haven’t been rigorous in newsstand economics,” he says. “If they were, they could discover that they have a profit center. Then they would be able to address the questions of those economics more rigorously.”
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