How Do We Get Out of This Mess?

Circulation Management, Nov 1, 2003

Byline: DANIEL B. BREWSTER JR.

The industry is going through a turbulent period. We keep saying there's light at the end of the tunnel, but it's a helluva long tunnel. The publishing formula that we knew three years ago, five years ago, is in my view fundamentally flawed. And I think it was predictable three years and five years ago that we would be in the situation that we are in today.

In the decade of the nineties, we had year-after-year unprecedented advertising growth, fueled by a sudden acceleration in the late nineties derived from Internet-connected services and other categories. During that period of time, every major publisher began to push circulation. Push. Push. Push. The term was cut. Prices were dropped. More generous offers were extended. Better premiums were developed.

WHAT WENT WRONG?

We all remember the famous sneaker phones that Sports Illustrated offered. We did that because the advertising dollars were there to cover the marginal cost of acquiring those subscribers. But then, of course, those subscribers began to cycle through the file much faster and we began to see the circulation economics on publications erode, particularly with term and price. And when the file began to cycle too fast, we had to replace more and more and more readers, single copy buyers, subscribers at the margin - and let's face it: Every single magazine has a demand curve. The first ten people who buy People magazine might pay $300 for a subscription. The last ten people are getting it free or the publisher is paying something for them.

We have gotten way too far out on the demand curve in trying to attract readers to our magazines - proven simply by the fact that the sudden decline in advertising revenue began in the first half of '01. The economics weren't there to support the sub acquisition costs. Publishing P&L's began to fall apart.

So what did we do? We concentrated on the cost side. Cost management meant head count reductions. What are we if not an industry of people? So when we cut costs we really cut to the core of what we are by reducing head count and reducing the one thing that we sell - product quality.

So here we had this perfect storm - a sudden decline in advertising revenue, escalating subscription acquisition costs, wholesaler consolidation - from 70 ten years ago to today five, four of which are in real economic trouble - and single copy sales fall off a cliff.

In '01 we had the first decline in single copy sales since World War II. In '02, we had the first decline in both revenue and single copy sales. And in '03, there are a variety of numbers, but the best that I can get is that we are off about 7.2% year-to-date in single copy sales and some of the women's service magazines are off 20%-plus. These are big numbers in terms of the impact on the bottom line of our business.

THE TWO THINGS WE NEED TO PRESERVE

How do we get ourselves out of this mess? The way we move forward is first of all to recognize that we have resized our businesses. We have taken costs out. We can't build those costs back in. We can't support those costs any longer, so we have to be vigilant on the cost side. But not in terms of talent or product quality. Those are the two things that we really have to preserve. We discovered that at Family Circle magazine, where we increased the trim size, invested in stock, increased editorial pages and increased the subscription price, increased the cover price and single copy sales went up for a period of time.

There is something that exists between the editorial team of the magazine and the audience that is undefinable. It's the magic dust of our business. Magazines do things that no other medium can do. They are a resource where experts in an area sift through all the available information, figure out what's most relevant to an audience that has expressed a need or desire for that information and then deliver it to them in an attractive format. Only magazines can do that.

Despite all of the pessimism that I've just described, I'm an optimist when it comes to magazines, and I will tell you why. In the last five years, more successful magazines have been launched than in the prior ten years. And we've seen a whole new genre of magazines emerge - like Maxim and ESPN - that are challenger brands or even category busters.

A SHIFT IN THE MARKETPLACE

I think there has been a shift in the marketplace. Magazines started out as illustrations, color photos and text. Then in the late sixties great designers came around. And the consumer has developed a very different way of getting information. Now as important as text and images are, pull quotes, captions, rules, shaded boxes - all sorts of things create points of entry for the reader and get information off the page quickly. So ultimately what we invest in our senior editorial and art departments we will reap rewards from. And what we fail to invest in our senior editorial and art staff and product quality, we will pay a penalty for. The importance of product quality I don't think I can overstate. I remember when I was at Life magazine and the P&L was going in the wrong direction. The head of production kept saying, "Dan, the signature of Life is its size." And I said, "The consumer won't notice."