The Magazine Newsstand's Moment of Truth

A protracted downward spiral spurred by economic and market forces has created a much smaller business for everyone.

By Baird Davis
Monday, May 3, 2010

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[To view entire story with accompanying charts, click here.]

Cathie Black, president of Hearst Magazines, was recently quoted in IPDA Newsstand Forum as saying, “The newsstand is a good launch platform, a barometer, a magnifier of brand and a crucial revenue stream.” It is all of that, but the newsstand is also a market that’s fast approaching another critical juncture in its checkered history.

There is enough circumstantial data to indicate that the sales slide is not an aberration. In fact, there is a growing body of evidence to support the assumption that the newsstand market (as we know it) is nearing a critical defining moment. Here, we’ll explore the reasons for the gravity of the situation.

The numbers help tell the story. In the second half of 2009 newsstand unit sales of audited publications plummeted 12 percent to 356.6 million and revenue fell 11.9 percent to $1.382 billion. This steep decline is part of a continuing trend that began several years ago. In the last two years annual unit sales of audited publications are down a staggering 215.3 million (23.1 percent) and revenue is off $482.6 million—17.5 percent.

Macro Reasons for the Sales Slide
By now it’s well known that the potent double whammy of a brutal recession and the rapid growth of electronic media have conspired to reduce magazine newsstand sales.

• The high level of unemployment, which is likely to persist for several more years, along with restricted credit card use have greatly reduced consumer purchasing power. Consumers have become more cautious and bargain oriented.

• The rapid rise in the use of electronic media (including mobile devices) is diverting consumer attention from print media and, in the process, is permanently changing how people acquire news and information.

Lower Annual Newsstand Revenue Standard
The industry’s standard level of annual magazine newsstand revenue appears to have been significantly lowered. In the ten-year period prior to 2009, the annual newsstand revenue of audited magazines remained in a very tight range—from $3.1 to $3.3 billion. In 2009 the newsstand revenue for audited publications declined to $2.76 billion. There are no guarantees that future revenue won’t go lower, but there are a number of reasons to believe that revenues won’t proceed higher. It appears as if the new annual “standard” newsstand revenue level has fallen to $2.7 billion. In other words the newsstand business is suddenly much smaller—16 percent smaller.

Impact of a Smaller Newsstand Market on Channel Participants
In the last year the four major participants in the newsstand channel—retailers, wholesalers, national distributors, publishers—have each made their own adjustments to meet the demands of a tougher economy and smaller market conditions. We’ll discuss how those changes have further exposed the inherent operating weaknesses of the newsstand channel.

Retailers
Their sales, profits and store traffic are all down. They have reduced the number of items sold in-store, sped up the closing of under performing stores, emphasized less expensive merchandise, become even more selective about the allocation of store space, and chain retailers have become more aggressive in pushing wholesalers to adopt scan-based-trading (SBT) practices.  

National Distributors
They’ve reduced their distribution and marketing field forces and focused their efforts on developing computer-assisted distribution solutions. Time Warner Retail recently rolled out COR (centralized order regulation), a computer assisted distribution program they have been testing for several years. Presumably it will help improve magazine sales and efficiency. CMG, not surprisingly, is testing a similar (but not compatible) distribution optimization program. We don’t know the performance results of these programs, their cost or the rates they have negotiated with wholesalers. The problem for the industry is these systems are “one-offs” that may benefit a given national distributor, but ironically could have the effect of restricting overall channel effectiveness. In addition they continue to ignore the absolute necessity of cooperating with wholesalers to find a more effective way to adopt SBT practices that will benefit all channel participants.

Wholesalers
The magazine wholesaling industry is financially fragile. Anderson News, which exited the magazine wholesaling business last year, is a poster child for those financial difficulties. Their exit left the industry with three major wholesaler groups. But it didn’t do much to shore up the weak financial positions of the remaining major wholesaler groups. One of the three surviving wholesaler groups (Source Interlink) has just emerged from bankruptcy proceedings. In addition wholesalers are being forced by market conditions to adapt to the difficult task of operating with lower sales volumes. They also carry much of the financial burden of operating SBT systems that have been imposed by the major retail chains. Their financial fragility threatens the health of the entire magazine newsstand channel.

Publishers
They have been hurt by increased competition for reader attention from electronic media companies. But it’s been the advertising revenue decline that’s had the most profound effect. It has affected all aspects of the magazine publishing business.

• Advertising: Consumer magazine advertising was down 25 percent in 2009. Some forecast that advertising revenues will improve (slightly) in 2010, but it’s highly unlikely revenues will soon (if ever) return to the robust levels achieved early in the first decade of this century.

• Reduced Number of Titles and Decreased Circ Levels:
In the last two decades the industry, fueled by the boom in advertising sales, over-extended the number of magazines being published. Now publishers are paying the price for their exuberance as they work through the difficult downsizing process of thinning their publication portfolio and reducing the circulation of many continuing publications.

It should be noted that in the past the effect of publication closings on total industry newsstand sales was very slight. But in 2009 this dramatically changed as the number of publication closings far outpaced the number of new starts. In the second half of 2009 a record 82 audited newsstand-sold publications were closed or in several instances discontinued from being audited. The newsstand sales in the second half of 2008 of these closed publications were not nearly offset by an extraordinarily low number (9) of new publications starts in the second half of 2009. The pace of magazine closings is likely to abate in the future, but in the last year they accounted for approximately one quarter (about three percentage points) of the 14 percent newsstand sales decline.

• Cover Pricing: Publishers, starting in 2008, dramatically increased cover prices (from $3.48 to $3.88) in a somewhat futile effort to increase revenue. However, the newsstand market (as we have discussed many times in these pages) is very price sensitive. The 2008 and 2009 price increases, with a few exceptions, appear to have exacerbated recent sales declines.

The circ level reductions and the closings of under-performing titles were long overdue. Eventually they might benefit the publishing industry. But right now it’s evident that the steep sales decline is precipitating other fundamental changes that could adversely affect some of  the financial tenets of the newsstand channel.

Maintaining Magazine Relevancy for Retailers
A closer look at both checkout and mainline sales performance reveals how reduced sales could be having a significant effect on the relevancy of magazines for retailers.

Checkout and Rack Space
In the second half of last year the unit sales of checkout titles fell 8.2 percent and revenue declined 7.3 percent. The sales decline in the second half of last year is not an isolated event, but rather its representative of a downward trend that has reduced unit sales of audited checkout titles by a massive 22 percent in the last two years.

A sales decline of this magnitude has implications that go beyond the obvious. It has begun to expose an underlying problem of significant proportions. In the future will there be enough titles to fill those expensive checkout rack slots?  This is an industry concern because “checkout rack” revenue is an important ingredient in helping make magazines financially attractive for retailers. But in the future there is the growing likelihood that fewer titles will be able to justify the “cost of the wire.”   

• Celebrity and Tabloid Weeklies: Celebrity (People, US, In Touch, Star, OK!, Life & Style) and tabloid titles (National Enquirer, Globe) have been the backbone of the checkout sector for nearly 15 years. Combined the sales of these 8 weekly celebrity-oriented titles account for nearly half (48 percent) of all checkout unit sales. However, there remains a worrisome belief that at least one, and maybe two, of the six celebrity weeklies will not survive into next year.      

• Other Weeklies: In addition to the eight celebrity oriented weeklies there are nine other audited weekly publications sold at checkout—Woman’s World, Soap Opera Digest, Time, TV Guide, Newsweek, Sports Illustrated, Soap Opera Weekly, Entertainment Weekly and Jet. The sales of eight of the other weeklies (excluding Woman’s World whose unit sales only fell five percent in the last year) were very weak, falling a combined 26 percent in the second half of last year. Their rapidly declining sales and the fact that their editorial is primarily associated with reporting on current events (the category of magazines that’s been most jeopardized by electronic media) is an industry concern. It calls into question the likelihood that these titles will continue to pay the rack costs necessary to support future checkout exposure.

• Monthly Titles: The good news is that twelve monthly checkout titles reported unit sales increases in the second half of 2009. Among the top 20 revenue titles there were six publications that notably increased unit sales: First (5.3 percent), O the Oprah Magazine (5.8 percent), Vanity Fair (5.2 percent), Real Simple (6.2 percent) and People Stylewatch (1.9 percent). The highest gainer was the 60th revenue ranked House Beautiful whose sales grew an impressive 18.3 percent. Conversely, there were six monthly frequency titles that reported newsstand unit sales declines of 20 percent or more. They included: Fitness (32.7 percent), Redbook (30.4 percent), Good Housekeeping (30.8 percent) and Bridal Guide (28.0 percent), Lucky (21.5 percent), M (21.2 percent) and Everyday Food (20.1 percent).

In a robust advertising climate it’s much easier for publishers to justify checkout rack expense. But most publishers have come to recognize that magazine advertising revenue will permanently remain at levels well below those achieved just three years ago. This realization, however painful, is causing publishers to more closely evaluate the economic prudence of sustaining their current checkout exposure.  

Mainline Sales Performance
Sales performance at the checkout was disappointing, but, at least there were a few bright spots. However, at the mainline the news is nearly all grim. Unit sales for the second consecutive six-month period fell over 20 percent. In the last half of 2009 unit sales of mainline titles fell 23.6 percent and revenue declined 21.9 percent. In the last two years unit sales of mainline titles have declined nearly 27 percent.

The industry sales effect of discontinued titles was far greater at the mainline than at checkout. The most prominent mainline title closures in 2009 were Men’s Vogue, Domino, O at Home, Country Home, Best Life, EGM, PC Magazine, Blender, King, Vibe and Gourmet. (EGM and Vibe have since been relaunched.)

 The steep mainline title sales decline is jeopardizing the viability of this sector, especially in chain retail stores. It seems clear that the weak economic climate combined with recent retailer and wholesaler initiatives to reduce titles in chain stores along with a big up-tick in publication closings and, perhaps, expedited by high cover prices have all converged to create a mainline sales dilemma of significant proportions.

Sales Decline at Major Publishing Companies
The unit sales of the top 50 newsstand publishing companies, which account for 96 percent of the sales of all audited publications, fell 10.8 percent and revenue declined 10.3 percent in the second half of 2009. Only one of the top 50 companies (Wenner) reported a unit sales increase in the second half of 2009 that was not influenced by recent acquisitions (Bonnier) or by a new publication start (Canusa).

The sales declines were generally well distributed among all companies. But some suffered worse than others. Among the top 25 companies there were six that reported sales declines of 20 percent or more—#9 Meredith (-23.7 percent), # 15 Alpha Media (-34.6 percent), #16 Economist (-25.0 percent), #17 TV Guide (-27.6 percent), #18 Newsweek (-42.2 percent), #19 National Geographic (-21.5 percent) and #22 Future (-51.8 percent).

The newsstand struggles of many of these major companies help highlight the potential problems that lay ahead for the newsstand channel. The newly austere publishing industry will be desperately searching for ways to control costs. For some it will be not only about costs, but a matter of survival. In the next year or two there will be companies in this group that will be acquired, exit the magazine business (like Ziff Davis last year) or simply close their doors. These actions can only exacerbate the seriousness of newsstand channel difficulties, which already suffers from dissonance among its partners.

What Can Be Done to Preserve the Newsstand Channel?
The newsstand channel is nearing a serious calamity—a result of continually ignoring its fundamental problems. The channel participants have a long history of operating only in their own self interest without taking into consideration the paramount need to protect the viability of the channel.

The newsstand channel difficulties are, perhaps, best characterized by its two middlemen—wholesalers and national distributors. These two combatants have been fighting a holy war for over 60 years. When there were over 400 magazine wholesalers there was probably good reason to have two warring middle-men. But in a recast industry with only three major wholesalers their lack of cooperation is much more difficult to justify. And now, in a recessionary environment, it’s almost ludicrous not to have wholesalers and national distributors working collegially to protect the channel.

A serious newsstand calamity can only be avoided if the channel participants finally recognize that their self interests no longer rest with maximizing their own profitability. Their best interests now reside in developing new operating procedures that will help reduce channel costs, promote greater sales efficiency and allow for fairer distributions of revenue and expense. It should be understood that without a more efficient channel there will be no business or profit to protect.

I’m not naïve—change won’t come easily. But to preserve the newsstand channel it will be necessary to persuade the major channel participants to start acting for the good of the channel and not solely in their own self interest. This will require better cooperation between wholesalers and national distributors, raising retailer awareness of the seriousness of the situation and developing a much more proactive publishing community that no longer hides behind the protective shield of their national distributors.

The situation is serious. To avert a calamity the time for action is now.