Byline: Lisa Lockwood

NEW YORK — Turn off the television and log off your computers!
That might well be the rallying cry for magazine publishers, whose biggest challenge these days is a fundamental one: How to attract more readers. Declining newsstand sales; more competition at the checkout counters; a proliferation of titles and increased competition from cable and network TV, radio and the Internet, are all contributing to a difficult environment.
Publishing executives point out that, in the quest for circulation, they’ve had to become extremely innovative in how they promote their magazines; their direct mail programs; renewal strategies and partnerships.
In recent years, newsstand sales have come under intense pressure, due primarily to the consolidation of wholesale distributors, which in turn has led to increased problems at the point of purchase.
Just last week, a report broke in The New York Times that the Justice Department is examining the business practices of the major wholesalers who deliver 90 percent of the magazines to newsstands in the U.S. While the inquiry began five years ago, in recent months it has begun to focus on the major wholesalers, in part to see if there is any evidence of collusion among the wholesalers to keep their costs down, which would violate antitrust laws.
Since 1995, the number of wholesalers has shrunk from 350 to 40. Previously, the top four wholesalers controlled 26 percent of the market. Today, the top four control 80 percent of the market, said industry executives. The results of all this consolidation have been less servicing of the newsstands; squeezed profit margins; greater demands from retailers; less popular titles getting short shrift, and less of an inclination to distribute to smaller and out-of-the-way retailers.
Fashion titles have had various results. According to Audit Bureau of Circulations, in the first half of 2000, mature titles such as Vogue and Harper’s Bazaar were off 9.1 percent and 2.5 percent, respectively in newsstand sales, while relative newcomers such as Marie Claire and InStyle, showed 8.1 percent and 9.6 percent gains. W was up 3.7 percent while Elle was down 0.8 percent.
“I don’t have much of a reaction to it [the Federal inquiry],” said Steven T. Florio, president and chief executive officer of Conde Nast Publications. “The whole question of newsstand is very problematic for all large publishing companies. What we’re seeing is a steady erosion of the number of pockets available. The buying public is not reading magazines like they used to.”
Florio said that store owners are looking at this as an “income-per-square-foot basis. You’re not competing against Hearst, but Coca Cola,” which might offer to put a refrigerator at the checkout counter. “More of the circulation rate base is covered by subscription, which is more expensive to get.”
Florio said there’s been “a steady, even decline,” on the newsstand, but it’s not a disaster. He pointed out that newsstand sales were a lot healthier 10 to 15 years ago, “when there was a better environment for selling magazines and more magazines were sold.” Florio attributes the newsstand decline to more competition for leisure time. “There are more magazines than ever before and they’re competing with network TV, cable TV, radio and the Internet.”
“The big issue is 2001 and what’s going to happen. There’s been three paper increases, there’s going to be a postage increase — they’re talking about a staggering 16 percent. With more magazines building rate bases with subscriptions than newsstand, it’s pretty serious if you have to mail it. Also diesel fuel is up to $2 a gallon and ink has surcharges. The cost of doing business next year will be significantly higher than this year. And ad budgets are flat. It’s going to be a good year, but a very tough year as we go into 2001,” said Florio.
As for how he’s looking to build readership, Florio said, “We’re always testing new sourcing for direct-mail pieces, and special programs within the single-copy arena.” For example, Wal-Mart created an enormous store display for Bride’s in mid-aisle for a full month earlier this year.
John Fennell, executive vice president and chief operating officer of Hachette Filipacchi Magazines, said: “I have no idea what they [major wholesalers] did or didn’t do. It adds another complication to the whole situation. This is our supply chain+.I think the situation has gotten worse [the last few years]. The distribution channel doesn’t have the same depth as before. Before it serviced a wider area. You see it on the newsstand. Exposure equals sales. If you don’t have the exposure, you lose a sale.”
He said that the retailers are “king of the hill” when it comes to the newsstand situation. “What we have is the wholesalers are controlling 80 to 90 percent of retailers in the country. They [retailers] are asking for additional discounts, and wholesalers gave over money to retailers to win the accounts. The retailers were able to dictate terms to the wholesaler as far as margins. Wholesalers’ business became less profitable and then they asked the publishers for more money.” Fennell said he works with all four wholesalers — Anderson News Corp., News Group, Hudson News Co. and Chas. Levy Circulating Co. He said every retailer in the country has aligned itself with one wholesaler, which all began when Safeway decided it didn’t want to work with so many wholesalers. “They wanted one [wholesaler] and a lot have followed since.”
Fennell pointed out that there are 4,700 magazines in distribution on a monthly basis. “Retailers are pushing to carry fewer magazines. They want to carry more efficiently. Fortunately for Hachette, our titles are very strong,” he said.
“We’re looking to increase our newsstand presence and are doing a lot to help the retailer and wholesaler,” said Fennell. For one, Hachette is pricing its publications higher, and they all [wholesaler, retailer and Hachette] share in the revenue. Woman’s Day, for example, has raised its price from $1.29 to $1.69, while Elle has gone from $3 to $3.50, and George has gone from $2.95 to $3.50. “Hachette is very vertical and has a special interest target, so we can charge more for our product. Our rate bases have been going up,” said Fennell.
Describing subscription strategies, David W. Leckey, vice president of circulation at Hachette, said Elle has capitalized on an insert-card program. “A newsstand buyer is our number one prospect for subscriptions,” he said. Elle has increased the number of insert and blow-in cards it puts in its magazines. Leckey also said they’ve been able to market Elle with catalogs such as Victoria’s Secret and J.Crew. At the end of a phone sale, a telemarketer will ask the customer if she’s interested in a subscription to Elle. “The demographics of Victoria’s Secret customers and Elle’s are very similar,” added Fennell.
Fennell also said Hachette has financial interest in Enews.com, a full subscription online agent, and is expanding its exposure through specialty distribution outlets, such as distributing Metropolitan Home to the Frank’s Nursery chain, and Premiere magazine to Blockbuster. Hachette is also pushing for continuous service, which means automatic renewal of subscriptions. “It eliminates a lot of the paper work. We feel very strongly about this because our titles are special interest,” said Leckey. The consumer has to opt-in, in order to take advantage of automatic renewals. Fennell also said they’ll buy promotional space on a monthly basis, near the cash register at airports and terminals to promote, for example, the September or March issues of Elle.
“The story on the newsstand is not a demand problem as much as a distribution problem,” noted Jeremy Koch, senior vice president of consumer marketing at Time Inc. He agreed the consolidation of wholesale distributors has caused “tremendous problems” at the newsstand. During the transitional period, “a lot of copies were not going where they needed to be going.” He explained that newsstand stability was shaken and distribution channels that had been functioning well were all of a sudden experiencing disruption. “People were gobbling up each other and they were also under tremendous pressure from retailers.”
Koch said the consolidation problems hit their worst point last year. “We’re beginning to work our way through the issues that plagued us. There’s been an improvement in allocation issues of where copies are going. The merchandising of copies is now the big problem.” In particular, restocking the racks and getting new copies on the stands were functions that were disrupted most during the consolidations.
“Part of that suffered a lot,” said Koch. In the past, stands were often merchandised twice a day, and now they’re merchandised twice a week. “It’s hard on some magazines,” he said. Time Inc.’s InStyle presents a problem in the big months such as March and September because only two copies fit in a rack at a time and Koch pointed out that if a newsstand doesn’t have people aggressively servicing the racks, it poses difficulties. Overall, titles such as InStyle and Teen People are “doing quite well on the newsstand.” With disruptions in service, the greatest problems occur with the weekly magazines, such as Entertainment Weekly and People.
“A couple of themes are really at the basis of what is going to be the reinvention of how magazines are marketed and sold,” explained Koch. “One is partnership marketing.” There are agents that put magazines together with credit card companies or banks, so that a bank or credit card statement might carry incentives to buy a magazine subscription. Time Inc. has a relationship with Ticketmaster, whereby at the end of a ticket sale, the agent asks if they’d like to buy Sports Illustrated or Entertainment Weekly. It also has a similar relationship with Home Shopping Network.
With American Family Enterprises in Chapter 11, Koch noted that sweepstakes are no longer a productive way to sell magazines. “The subscription side of the business lost a very efficient way of marketing. We’re scrambling to replace stamp sheets.”
Time has been aggressively testing continuous renewal service. In addition, he said the Internet has become an important source for subscriptions. He said Time Inc. is using AOL both in broadband marketing and highly targeted marketing.
Lindsay Valk, senior vice president, director of circulation marketing at Hearst Magazines said: “It continues to be a very difficult environment for all consumer magazines. The downward decline in unit sales the last 20 years has increased the last two years.” To attract more readers, Hearst does affiliate programs, e-mail solicitations; barter deals with Web sites and works with cataloguers. It’s also thinking about making changes in pricing. “We’re restricted now. If the rule changes, we can sell subs at lower rates, and have more flexibility in our marketing efforts.”
He said the company is investing in checkout programs for its larger titles, and is doing some work in cover testing, where it tests an actual cover before it goes on the newsstand. Hearst continues to believe that celebrity covers help sell magazines. For O, the Oprah Magazine, where the TV talk show hostess has been featured on all five of its covers so far, Valk said: “Our gut tells us we’re better off with Oprah on the cover. Over the long haul, I don’t think she will be on every cover. We’re doing tremendously well. To say we’re excited about our results would be a bit of an understatement.”

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