The Reality Beyond the Economic Cycle

Folio: The Magazine for Magazine Management, Nov 1, 2003

Byline: Commentary by Harry Somerdyk

The last several years have not been kind to the media industry. The record revenues and profits of 2000 have given way to double-digit decreases in each of the last two years. Nowhere has the decline been more keenly felt than in magazine publishing, where the falloff has been more prolonged and the prognosis remains less optimistic.

In the face of significant year-over-year decreases in 2001 and 2002, and the trend continuing for many magazines this year and next, the downturn has been described as the worst ad recession ever. And that poses very troubling questions: Why are magazines suffering so harshly when the overall economy isn't? Is the severity of the magazine recession, in fact, an indication that more deep-seated problems, rather than the latest economic cycle, are at work?

To give us some perspective, turn the clock back to 1982-'83. The rate of inflation was just coming off an astronomical 11.5 percent year. The unemployment rate averaged well over 10 percent and home mortgage rates averaged about 12 percent. The recession of 2001 was mild by comparison and short-lived. Today, inflation, a bit more than 2 percent annually, is a nonfactor. Unemployment is just over half of what it was 20 years ago, and consumer mortgage rates have reached their lowest point in four decades. Ad spending in measured media, while down from its all-time high of $246 billion in 2000, was still a healthy $237 billion in 2002.

So it's pretty clear that magazines publishers are not merely the victims of the economic cycle. They are, in fact, losing ground to other advertising media. While spending in all measured media more than tripled from 1982 to 2002 (from $67 billion to $237 billion), the portion spent on magazine advertising fell. Between 1981 and 2001, the latest years for which complete comparative data are available, the share of all ad spending in magazines - both consumer and trade - decreased from 5.8 percent to 4.7 percent.

By contrast, the combined share of dollars spent in network/cable television increased from 21.3 percent in 1981 to 23.5 percent in 2001. And spending in Web-based media - a nonfactor two decades ago - managed to capture 2.5 percent of all ad dollars in 2001.

It's fairly easy - and probably correct - to conclude that the increase in television's total share as well as the Internet media's explosive growth has come at the expense of magazines. Put bluntly, magazines have failed to keep pace in an otherwise dynamic, growing, and evolving media marketplace.

What has the industry done about it? Apparently, not much. Publishers still cling to the same tired formulas they've had in place for years:

They still throw money at marginal subscribers to pump up circulation, reasoning (if such strategy can be called reasonable) that they will leverage the increased "tonnage" on the advertising side. As a consequence, most publishers undervalue their products in the marketplace by holding subscription prices to artificially low levels. (Rhetorical question: Are most cable households paying the same rates they did last year for the same cable service? How about for Internet access? What are the chances that those prices will stay the same - or fall - over the next 12 months?)

In the advertising marketplace, this routine is wearing thin. Publishers continue to play the total audience game, while claiming that magazines are a qualitative medium, delivering engaged, literate and for the most part, demographically desirable readers. When anyone with $10 or $12 can get a year's worth of a high-end monthly, who's kidding whom?

As an industry, consumer magazine publishers need to come to grips - and quickly - with the reality that lies beyond the economic cycle. They need to quit playing the total audience game - which has reduced many magazines to commodities in the eyes of advertisers and readers - and commit to a qualitative story in the market.

The legacy of this numerical formula (lower price=more readers=more advertising revenue) will be difficult to live down. But publishers such as The Atlantic Monthly's David Bradley may have the right idea: They're cutting marginal subscribers and charging more for those who remain - readers whose commitment to the magazine make them a more desirable target for advertisers.

The final, and maybe most painful long-term issue, is that there are too many magazines feeding off of a shrinking pie. In 1980, the Ayer Directory of Publications listed 10,236 magazines in North America. In 2002, according to the National Directory of Magazines, that number jumped to 17,321. The market cannot and will not support that much inventory. The overcapacity needs to be addressed by the industry that created it. To wait, is to invite the marketplace to choose the survivors, which will force a deeper and more painful correction.

For decades, magazines have been arguably the most creative, innovative and vibrant part of the media landscape. With a disciplined commitment to strategies that reflect the new realities of the media marketplace, the magazine industry can position itself to regain its rightful role as the medium of thoughtful and engaged choice.