The A|B Split

Are ultra-cheap magazine subscriptions good or bad business?

By Bill Mickey
Monday, January 4, 2010

With the decline in advertising, media companies have been exploring ways to coax more revenue from their readers. One by-product of this process has been a resurgence in paid content online. Yet that strategy requires publishers to convince readers that the content they’ve been getting for free in an ad-supported model is now valuable enough to pay for. Tangentially, print content is getting the same scrutiny, with publishers examining ways to wring more money from cover and subscription pricing. So, when a magazine promotes too-good-to-be-true subscription deals, some observers cringe at what they think is a tactic that only serves to bloat circulation and devalue the product. Others say not so fast, cheap subscriptions are simply one part of a wide array of marketing tactics that incrementally sustain and feed circulation, and cheap first offers often lead to high pay-up rates. Samir “Mr. Magazine” Husni, founder and director of the Magazine Innovation Center at the University of Mississippi, and John Klingel, former president of consumer magazine marketing at Reader’s Digest, offer their cases for and against cheap subscriptions.

We Can’t Add Value if It’s Perceived as Valueless
By Samir “Mr. Magazine” Husni, Ph.D.

A few months ago I visited with the folks at Western Horseman and saw a sign on the wall that made me smile. This sign was simple and to the point, and it showed me that even though our industry is changing around us on a daily basis, there are some things that will never change. The sign simply said: “The only way to make a magazine better for the advertiser is to make it better for the reader.”

Some may argue that making a year’s subscription to a magazine cost less than a frozen pizza makes good sense, but in my opinion, you often get what you pay for. As an industry, we have gone crazy. Even late night infomercials are asking consumers to pay more for a backwards robe and two book lights than we are asking most consumers to pay for hundreds of pages of content per year.

It has been said that I don’t know much about circulation economics. It has been said I live in a dream world. Well, last week—in my dream world—I traveled to Birmingham with a group of my students to meet with the folks at Hoffman Media. They must be equally as ignorant as I am because they aren’t devaluing content through cheap gimmick schemes to bolster failing numbers.

Hoffman Media is a growing magazine company with titles such as Cooking with Paula Deen, Sandra Lee Semi-Homemade and Victoria under its ownership. Do they offer discount subscriptions? Not likely. They are still asking buyers to pay roughly $20 per title. A fellow professor on the trip asked if they would even discount subs when bundled with other titles. The answer: Maybe a few dollars, but you’ll still pay for the content. The end result is a magazine like Cooking with Paula Deen is reaching more than 750,000 audited circulation without a single devalued or verified subscription.

Yes, I know the famous argument of hooking the reader for the first year with those great offers, but in a time and day where information is abundant, how can we add value to a product that is seen as value-less—even for a first-year? It amazes me that we keep talking about charging for our online content, while we have yet to charge for our offline content.

It is stupid to ignore technology, but it is more stupid to embrace technology without a plan. All those jumping on the digital bandwagon need to learn first how to sell their content in print, dream world or not! The things of the past are exactly that, from the past. Hoping for a return of the advertising-driven model to generate most of our revenue is the same as hoping that digital media will be able to make as much money as print media.

Call me ignorant of economics and tell me I live in a dream world, but when we visit this column five years from now I will be more than glad to introduce you to a few people, such as Hoffman Media, who are still employed and more than happy to tell their tales.

Happy readings and here’s to the next decade in selling content.  

Raising Prices Won’t Even Dent the Problem
By John Klingel

Magazines unfortunately have very few pricing options, and low pricing is something that they are forced to do. This problem isn’t new and I wrote about it in FOLIO: in the 1970s. What has changed is the relatively new ABC pricing rules which gave publishers more latitude in using low pricing. To understand magazine pricing, you first have to understand some basic facts about circulation economics. In 25 years of consulting, I worked with over 300 publications ranging from 15,000 to 15 million circulation and ending my career at Reader’s Digest. I’ve seen an enormous amount of data to back up my observations.

After more than 50 years of price testing by practically every magazine, it is clear that virtually all magazines have the same price elasticity for paid circulation. (Newsstand price elasticity is totally different.) The data shows that if price goes up 10 percent, volume goes down by at least 10 percent. If you renew people at the original price paid, the renewal rate will be the same at any price. People who pay more don’t renew any better than the people who pay lower prices. Another big surprise was finding that the demos don’t change by price. The rich won’t pay more than the poor. This data is counter intuitive, but circulation is very scientific. Prices were tested, results tracked over time, and careful financial analysis was done. Over the last 50 years, these industry tests have included thousands of different concepts and theories about how to change price. These pricing observations are industry-wide and are also true in foreign countries where I’ve had a lot of experience.

The horrible fact is that as a magazine raises price, the circulation profit decreases or losses increase. Even when a magazine can raise price, very little falls to the bottom line. There’s simply no leverage in price increases. In fact there’s often more profit leverage in lowering price. A few years ago, I was involved in testing price where we dropped the introductory price by 30 percent and response went up by 70 percent making the lower price much more profitable than the higher price. This testing was repeated over 20 times and consistently showed comparable results. And many other publishers were seeing similar results in their price tests.

An argument that’s usually thrown out in debates on pricing is that if magazines don’t raise price they won’t survive. That’s true! But the economics show they won’t survive any better if they do raise price.

As someone who spent his career in the magazine industry, I want it to survive. It distresses me to hear the “magazines must raise price” refrain which I’ve heard for over 40 years. It sounds logical to people who don’t understand circulation economics, but it is also extremely distracting. Publishers shouldn’t be tilting at windmills. Many very good circulation people have been working on the pricing problem for a very long time. So it’s time to face facts: Raising subscription prices won’t even dent the profit problems the industry faces. It may be difficult to face the realities of magazine economics and accept that subscription pricing is not a solution, but survival depends on it.

To survive, magazines have to dramatically change their economics. Postage, freight, paper and printing represent 50 to 60 percent of total magazine costs and these costs are what need to change. New and inexpensive (profitable) sources of magazine circulation would also help. At first, I had hoped the Internet would be a viable and significant source for paid subs and it has for a few titles, but for most titles it’s not a major source. Sooner or later, most magazines are going to have to go digital as the old publishing formulas aren’t going to work in the future.