Circ's Up

Circulation Management, June 1, 2004

Byline: Ray Schultz

How's this for a cushy job? Circulator on a major national title that mails at the nonprofit rates.

Don't be fooled: Scott Rockman and Lisa Dunham of Smithsonian magazine have just as many headaches as everyone else.

For starters, they have a rate base to make with only a modest contribution from newsstand sales. And they are expected to run a tight ship financially.

But they are bearing up under the strain, as we found out when we sat down with them to discuss the magazine's circ strategy.

Smithsonian has made its two-million rate base with every issue for ten years. And by managing circulation for profit, Rockman and Dunham have steadily increased their contribution to the museum (circulation now generates over 60% of the magazine's total revenue).

Rockman, vice president and chief operating officer, consumer marketing division for Smithsonian Business Ventures, joined in 1999 after stints at McCall's, Medical Economics Publishing and Institutional Investor. Dunham, who serves as circulation director for the magazine, started in 2002 after working in circulation on Time and Martha Stewart Living.

Their greatest pleasure on the job (besides working for a renowned magazine with strong loyalty from its subscribers)?

"The money goes to a good cause," Dunham says.

CM: Scott, what were your problems when you came on board?

ROCKMAN: We were facing all the same challenges that other publishers are facing. Our circulation was at 2 million and had been since 1996, but revenues were flat. We had sold a good amount of term, so our expenses were down, but we were faced with the prospect of trying to replace those long-term subs that were all coming up at the same time.

CM: Can you quantify that?

ROCKMAN: We probably needed about 200,000 subs more than we were comfortable replacing. At the same time, new direct mail lists were hard to find, and our marginal direct mail was very expensive.

CM: What did you do?

ROCKMAN: Our initial strategy was to cut back on the marginal direct mail. We didn't try to solve the circulation hole by adding mail - that would have been very expensive. We added some short-term agency business, and we developed a new pricing strategy, which was to raise our prices to generate additional subscription revenue.

CM: For example?

ROCKMAN: We were at $12 intro, $24 basic rate. We raised that to $13, then $14 and $26, then $24 and $28. Then ABC changed its rules, and we were able to uncouple the basic rate from the renewal rate. Then we continued to increase our renewal rates to $29, our basic rate to $34, our gift rates to $34 and at the same time lower our intro rate back to $12.

CM: That didn't depress response?

ROCKMAN: Nothing was down. In renewals, where our price increases have been aggressive, all five of our largest renewal sources show renewal rate improvements since 2001. Some sources are up as much as seven points. The strongest sources, with the least room for improvement, are up at least a point. We increased renewals production in '03 by 12%, and for this year we're up about another 4%.

CM: But that strategy must have cost some money.

ROCKMAN: We spent about 10% more in the last two years on average than we spent in the prior three years.

CM: How did you get your upper management to sign off on that?

ROCKMAN: For every investment decision, we do a three-to-five year lifetime value analysis. We vary our assumptions to check the sensitivities in terms of response, renewal rates and so on, and we show the return on investment.

CM: Did the investment pay out?

ROCKMAN: Circulation's net contribution is up 8% this year after an increase last year of 11%. Our 12-month cash flow is up about 9% over the prior 12 months after being up about 5% last year. Our deferred income for the copies that are left this year is up about 7%, and our deferred income for the copies after next year is up about 11%. These are things you don't see on an ABC statement.

CM: What kind of volume do you do in direct mail?

ROCKMAN: We mail between 15 and 20 million new-business pieces a year. It varies based upon prior-year performance and economic conditions. In 2003, we increased our mail volume by about 21% compared with 02., and we increased our net subs sold by about 38%, and cut our cost-per-acquisition by about half. Overall, as a result of the investments we've made, direct-to-publisher production was up 15% in '03 vs. '02. At the same time, our agency production was down about 40%.

CM: Why did you reduce your agency subs after increasing them?

ROCKMAN: Over the long term, the only way you can increase profitability - without raising rate base - is by increasing the net per copy. As we have been able to increase our direct-to-publisher subs sold, we have cut back on our agents.

CM: What kinds of lists are successful for you?

DUNHAM: It's the usual suspects: Other magazine lists, book-club lists, our own house lists. Many of our readers are actively engaged in the world, so the newsmagazines in general do well for us. And we've doubled our usage of our own lists, both past expires and other house lists. We're putting a lot of elbow grease into collecting various lists from around the institution.