Thad McIlroy - The Future of Publishing

The Elevator Pitch for the Future of Magazines

 

Page Index

• Overview
• Magazine Statistics
• How Many Magazines?
• Circulation
• International Data
• Magazines in Canada
• The Economics of Magazine Publishing
• Magazines and the Internet
• New Digital Formats for Magazines

Overview

With most of their revenue derived from advertising, the traditional task for the average magazine was to deliver eyeballs to ads. Traditionally the only metric for success in this endeavor was to deliver the most eyeballs possible (aka "large circulation"). Circulation revenue for the average consumer magazine was, at best, a breakeven proposition.

Question: how much to charge for a yearly subscription? Answer: as little as possible. The lower the subscription cost, the higher (at least in theory) the number of subscribers, or eyeballs. That's why we still see improbably low offers for magazine subscriptions. A recent issue of Harper's magazine is more than pleased to save you 84% off the cover price on a one year subscription.

The second most common impediment for most periodicals (and indeed for many other publishing media) is the cost of distribution. While newspapers usually employ paid contractors to handle the physical distribution of the paper in their immediate urban market (ah, but the days of "the paperboy" are long gone. I've never really understood why. It always struck me as a fairly inexpensive way to get these hunks of folded papers tossed onto doorsteps. What went wrong? Must look into this one day), magazines rely heavily on government postal services, and there are never-ending battles between magazine publishers and postal services about how large the postal subsidy should be. Magazines make passionate arguments about literacy and an informed public; post offices demonstrate how much money they lose providing this heavily-subsidized distribution service.

An October, 2007 article in Folio, Postal Reform: The Good, The Bad, The Ugly, will bring you up-to-date on the latest news in the struggle between periodical publishers and the USPS.

Magazine Statistics

Most trade organizations (certainly not only those serving the publishing business) cannot be counted upon as reliable sources of statistics regarding their own industries. They serve to protect, mostly reinforcing a positive viewpoint for their members. The statistics they release rarely paint a gloomy picture. If a short-term trend appears ominous, other statistics are found that point to a brighter future. Generally the outlook appears positive.

So there are two opposing perspectives that can be easily formed about association data: it is skewed and of dubious value, or, it is accurate and the naysayers are wrong.

As an analyst I take a middle ground: there is significant value in association data; even greater value when it can be corroborated against third-party sources.

The magazine industry is extremely well-organized in its data collection and presentation. While it does release the occasional gloomy report, its data presentation paints a very positive outlook for the magazine industry.

I'm not a naysayer of the present or future value of magazines. I read many of them with great pleasure, and hope to continue to do so for a long time to come. But my task here is to look closely at all of the published data, and let the conclusions fall where they may.

Data collection for the U.S. magazine industry is focused on four related sources: the Magazine Publishers of America (MPA) and its affiliates: the Publishers Information Bureau (PIB), the American Society of Magazine Editors (ASME) and the Independent Magazine Group (MPA-IMAG). The Canadian industry is covered in-depth by Magazines Canada.

There are also two trade magazines heavily (or exclusively) focused on magazines: Folio Magazine and Ad Age. Canada, in turn, is covered by Masthead and by Marketing Magazine (although it does go beyond magazines to be targeted as "Canada's national weekly publication dedicated to the businesses of marketing, advertising and media"). Like all trade magazines, their independence from the industries they cover is always subject to debate.

There's an interesting counterpoint to the industry data, which is the U.S. Census Bureau data for NAICS 511120 Periodical Publishers. Unfortunately while the 51120 category covers a host of different types of periodical publishers, they all fall under this classification number. Only a closer look at the number of establishments reveals that there is indeed a separate category for periodical publishers, 51112. However the U.S. Census data records only 7,298 periodical publishers in the overall category "All Establishments."

This is supplemented by "516110 Internet Publishing and Broadcasting." This covers all periodicals focused "exclusively on the Internet," and, more broadly, "Internet publishing & broadcasting," but includes a mere 2,057 establishments in the 2002 data.

As the government data is clearly wrong, the industry-generated data becomes more fascinating by comparison.

How Many Magazines?

The American Society of Magazine Editors (ASME), quoting the National Directory of Magazines, 2007; published by Oxbridge Communications (available for $1,695) holds that there were 22,106 magazine titles published in the U.S. in 2006, down from 31,570 in 1999. (See the Gallery of Dead Magazines.)

The ASME focuses on "consumer magazines and business publications," in other words, not trade magazines, controlled circulation and the like.

This same organization, elsewhere on its site, very clearly illustrates the problem that bedevils all publishing analysts: Claims about the number of titles published, in every publishing category, vary so widely that the statistics are somewhere close to useless. ASME looks at five different listings of the number of magazines published and finds not only a 90% disparity between the highest and lowest, but also that the highest number claimed is roughly 10% lower than what the association itself claims elsewhere on its own site (as noted above).

As the Magazine Publishers of America (MPA) points out "There are several sources that provide the number of magazines available in the U.S., some more comprehensive than others. The following chart cites five of these sources: the National Directory of Magazines, Standard Rate and Data Service, Audit Bureau of Circulations, BPA Worldwide, and the Publishers Information Bureau." The data below is unusually frank for a national organization that represents roughly "240 domestic publishing companies with approximately 1,400 titles."


Source: ASME

The same association quotes from the National Directory of Magazines, 2007, published by Oxbridge Communications, which lists 22,106 titles available in 2006.

Historically, Oxbridge's National Directory of Magazines reported 21,344 titles published in 1989, reaching a peak of 31,570 titles by 1999, before beginning the decline to today's figure of 22,106 (a 30% drop), or to 19,419 (an 8% increase!) based on the chart above.

Circulation

Q: Why do magazines have all those little cards that fall on the floor when you open them?

A: The publishers of magazines have no concern for the reading public. They want you to think you can get magazines only by subscription or at newsstands. This is simply not true. Those cards are magazine babies, or seeds. Plant them, nurture them, and in six weeks' time you'll have a ripe TV Guide or Reader's Digest. In two months' time you'll have Time or Newsweek. After six months you'll have a mature Playboy, Esquire, or Vanity Fair. You must water them carefully, however, or you could end up with a small-town newspaper or one of those real estate guides from the Laundromat...
                     - From Ask Dr. Science: He Knows More Than You Do!

Unlike most other forms of publishing (including music and film), advertising-supported periodicals are not always thrilled when unit sales expand. The reason is simple: revenue for the actual sale of the product is covered primarily by ad revenue, and magazines can reach a point where even moderately improved ad revenue can't cover the cost of increased money-losing circulation. Newsstand circulation is hugely unprofitable (because of distribution costs and the large return rates), and serve mainly to bolster new subscriptions. A vicious circle!

Only in the periodical industry would you find a trade magazine headlining an article "Circ[ulation] Levels Remain Precariously High in Second Half 2006." I can't imagine Publisher's Weekly running an article titled "Book Sales Remain Precariously High in Second Half 2006!"

The article is very revealing of some of the underlying realities of circulation-to-advertising economics. "Several decades ago, advertising and circulation contributed equally (50/50) to a publishing company's profit. Today the profit contribution ratio at most publishing companies is tipped heavily in favor of advertising..." The article then delves deeply into some of the finer points of how circulation figures are audited and reported. Let's just say that you can't believe everything you read, neither in circulation figures, nor in advertising revenue.

Time magazine has recently made a conscious decision to drop circulation levels to improve profitability.

Staying with industry-reported figures, according to the "The Magazine Handbook," publishing by the Magazine Publishers of America, magazine circulation is doing just fine, albeit not much increased from late 1990s levels. Newsstand sales have decreased, but this has been offset by subscription sales.


Some of the most recent data suggests a fairly modest decline in magazine circulation, while certain key titles (Reader's Digest, Time, and a few others) have been hard hit. An excellent article examining the intricacies of recent circulation changes was published in Circulation Management magazine in November, 2007.

International Data

There is another angle on circulation data, and it's provided by Ulrich's. By this company's description, "Ulrich's is the authoritative source of bibliographic and publisher information on more than 300,00 periodicals of all types - academic and scholarly journals, Open Access publications, peer-reviewed titles, popular magazines, newspapers, newsletters and more from around the world. It covers all subjects, and includes publications that are published regularly or irregularly and that are circulated free of charge or by paid subscription." The Web site is now more comprehensive than the print edition.

Bowker is one of Ulrich's sales agents. Bowker points out that "the 45th Edition of Ulrich's Periodicals Directory (includes) more than 14,600 new serials as well as 5,270 titles which have ceased publication."

The University of Texas Libraries informs that "in the 36th edition of Ulrich's Directory of Periodicals, 9,586 titles had ceased or suspended." That represents some 5% of the "regularly and irregularly issued serials" classified by Ulrich's. Can we state that periodical publishing is in a constant state of churn?

Magazines in Canada

The magazine industry in Canada continues to grow at a healthy clip, having reached 1,160 titles by 2005, 55% more titles than in 1996. (I have not found comparable U.S. growth data.)


Source: Magazines Canada

What puzzles me is the great disparity against the usual ratios. Canada has roughly 10% of the population on the United States, and most industrial data shows Canadian companies exist in a similar ratio. But 1,160 Canadian magazines should then translate to a mere 11,600 U.S. titles, roughly 50% of most reputable estimates. I think it would be fair to say that smaller countries have a less onerous task counting their population and other lesser data, so I'm inclined to accept the Canadian figure. Why is it so disproportionate on a title-per-capita basis?

Part of it lies perhaps in the trade magazine sector: the U.S. can support multiple trade magazines per industry where Canada might support just one (or perhaps two). Extending this further, special interest magazines, such as those devoted to the raising of tropical fish, may not find a sufficient subscriber base in Canada to justify an economic base for their publication.

At any rate, the number of magazines published in Canada inflate U.S.-only figures by no more than 5%.

However the Canadian magazine industry also appears much healthier than its U.S. counterpart in term of circulation.


Source: Fast Facts, published by Magazines Canada.

Fast Facts also paints a promising picture for Canadian magazine ad growth on the broader international stage.

The Economics of Magazine Publishing

Here's a clear and concise explanation of the economics of magazine publishing, written in April, 1988 by John Klingel and published in Folio: The Magazine for Magazine Management, perhaps dated, but still relevant:

"The marginal profit on advertising is very high, whereas the marginal profit from the publishing product is extremely low. For every additional dollar of advertising, there are relatively low direct or incremental costs. Ad commissions might be 15 percent, and there are additional printing and postage costs, and perhaps some editorial costs if a constant ad:edit ratio is being maintained. But, in general, the incremental costs of advertising are extremely low. If ad costs average 20 percent of revenue for a publication, the mark-up could be described as 500 percent.

"Contrast that mark-up to subscription sales where a $12 subscription might carry printing, postage and fulfillment costs of $8. Here we have a 50 percent mark-up - and for many publications, that's a lot. I'm familiar with publications that charge $12 and have service costs of $18, and a publication that charges $27 and costs $23 to fulfill."

The State of the News Media 2004 (http://www.stateofthenewsmedia.org/narrative_magazines_economics.asp?cat=4&media=7) provides a plethora of additional statistics, more, I think, than in the 2007 version of the same Web publication.

I'm still trying to find a chart that illustrates clearly where all of these numbers fall. When I find it, I'll add it to the site.

In the meantime, here's a headline from a recent press release from the Publishers Information Bureau (PIB):

Magazine PIB Advertising Revenue and Pages Post Gains in First Quarter '07.

A quote from the text of this release:

"New York, NY (April 10, 2007)-Total magazine rate-card-reported advertising revenue for the first quarter of 2007 increased 6.9% compared to the same three-month period last year, closing at $5,273,215,997, according to Publishers Information Bureau (PIB). Ad pages totaled 52,154.49, up 1% from January through March, 2006.

"Total PIB revenue for the month of March 2007 increased 8.8% compared to last year, closing at $2,282,204,898. Ad pages totaled 22,388.48, up 2% from March 2006."

So I guess everything's OK?

What are we to make of this twaddle?

My interpretation is that the figures are extremely selective, representing members of the Publishers Information Bureau, but in no way representing the reality of magazine publishing as a whole. There are two ways to "prove" that magazines are doing just fine. One is to very carefully leave out those who are not. The other is for the survivors to up their ad rates, so that even if circulation is down, high-fashion companies and watchmakers will continue to pay grossly inflated rates for ad pages, in despair of other sources to waste their ad dollars.

Please look at these numbers, representing three magazines about as mainstream as it gets:

A very telling chart appears on the stateofthenewsmedia.org (although examining only the top three U.S. news magazines):



Both editorial and ad pages are plummeting; ad pages at a higher rate than editorial pages.

And we are to believe that all is well is magazine-land?

Magazines and the Internet

It's an open question whether or not magazines or newspapers have suffered more in their attempts to find a home on the Internet. Both had access to one of the simplest forms of Web publishing around: just toss what's on the printed page onto the screen, with or without graphics. Some newspapers and magazines have sought to augment articles when published on the Web, with interactive features and links to more in-depth information. (The Magazine Publishers of America (MPA) keeps track of many of these initiatives.)

But many of the efforts have been half-hearted. The most-common publishing method used by magazines for their websites still involves taking a shovel and loading the words onto one or more pages. Rather than trying to increase the value of their editorial content, most of their effort is directed towards trying to get more advertising crammed onto the same pages no matter how offensive it is in terms of appearance and its ability to interrupt the reader in his or her task of simply trying to read the article in front of them.

Some magazines are still coy about their Internet presence. Harper's Magazine for years steadfastly refused to offer anything more than its famous Harper's Index on the Internet (this has changed substantially in recent months). The New Yorker, on the other hand, after several years as a wallflower at the Web publishing party, now offers about a third of its new content each week on the Web. The choice of what gets offered continues to mystify the layman. I find that some weeks the only article that would move me to purchase the publication is available for free on the Web while other weeks it seems like every article but the interesting one(s) can be found on the Website. To its credit, The New Yorker makes a consistent effort to allow open access to their extremely well researched and well-written articles concerning current US politics, as well as a great many archival articles and reviews.

New Digital Formats for Magazines

In a development I greet with the same enthusiasm as I greet eBooks, there are now a number of new digital formats for reading magazines (and other publications) on the Web, formats that do not necessarily rely solely upon the browser. I was pretty happy using browsers for reading magazines on the Web - yet another browser add-on instinctively makes me uncomfortable.

Adobe Acrobat is, I suppose, the tried and true digital format for magazines. These new add-ons are like PDF created by non-programmers, without help from any UI expert. It's much easier to reach a magazine article directly in the browser rather than in PDF, let alone these new readers. I save articles in PDF - an excellent archival format. But I prefer to read them on-screen, formatted for the screen. Here are two examples of alternatives to PDF for inconvenient screen reading:

Texterity

Texterity, a company with a history in digital publishing, now focuses mostly on publishing magazines on the Web. It offers its very own file format, Published Web Format (PWF), which "provides a flexible approach to presenting information. Using standard HTML and JavaScript, with underlying SVG and XML data structures, PWF is the basis for custom web and offline solution[s]." (In September, 2007 Texterity announced that it has been awarded a patent for PWF.)

As per the company's Web site: "With digital editions, publishers know exactly which pages readers turn to and how much time they spend on each article. Advertisers know whether readers spend time on their ads and whether they click through to read more about the products and services. Special links guide readers to specific offers, white papers, or registration areas based on demographic information. From the reader's perspective, digital magazines provide the same enjoyable experience as thumbing through a print magazine. The hierarchical table-of-contents, embedded page links, and phrase search and highlighting makes it easy to quickly go to the articles or advertisements they want most."

Zinio

Founded in March, 2000, Zinio "is the recognized leader in digital publishing and marketing services. Why? Because we understand publishing, we know how to create new market and revenue opportunities for publishers and we give consumers more choice, convenience and accessibility than anyone else.

"Only Zinio offers publishers:

"A world without borders - The Zinio Global Network is the first global distribution network for magazines. For the first time, publishers can effectively market their titles across borders digitally and consumers can browse and purchase titles from around the world in one place, in the language and currency they prefer.

"Retail Expertise - Our online magazine newsstands are managed and merchandised to maximize subscriber conversion. We also generate targeted email to nearly one million people every month to strategically cross-sell our roster of titles.

"A complete suite of turnkey products and services - from customer acquisition, retention and cross-sell direct marketing programs to seamless production services, a robust e-commerce engine and extensive digital delivery, circulation and fulfillment services.

"Zinio by the numbers:

• 1,700+ magazine titles from 350 publishers
• 160+ textbook titles
• 40 million+ digital deliveries
• 5 million visits per quarter to our retail sites
• 3 million subscribers in most of the world's countries
• Database of one million magazine buyers available for cross marketing
• Zinio sells 81% of the top 200 consumer magazines (print and digital) in the US"

There are others, of course, but you get the idea. I invite you to try them - someone has to.

I do not predict success for these companies. It goes back to my analysis of eBooks. I don't see why we should use a fundamentally new medium, one very much in transition, to closely mimic an old and dying medium. With all of the new flexible and navigable formats available on electronic devices today, I cannot find a pressing need for this technology. The main reason that certainly publishers are adopting this technology with such unseemly enthusiasm is that these formats preserve the advertisements, and a publisher can make a brave attempt to argue that online readers will still see their ads. With the technology so clumsy, and most of us reading on smaller portable/notebook computers, I can't wait to skip the ads. I would recommend to publishers that they look instead to offering combination advertising packages, including both print pages and Web banners, Flash or similar.

References