The Magazine Industry
Cicek Erel
Business of Media: Fall 2013 Instructors: Ted Magder and Tony Muna
Table of Contents Economic Indicators !
Introduction..........................................................................................................................1
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Developmental Costs
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Production................................................................................................................1
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Distribution..............................................................................................................3
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Marketing.................................................................................................................5
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Sales and Revenue
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Circulation: Subscription.........................................................................................6
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Circulation: Single Copy..........................................................................................9
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Advertising.............................................................................................................11
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Leading Firms....................................................................................................................13
Case Studies !
Sports Illustrated................................................................................................................15
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New York...........................................................................................................................19
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Domino..............................................................................................................................23
Current Trends !
Cross-Channel Media.........................................................................................................25
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Native Advertising.............................................................................................................28
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E-Commerce......................................................................................................................31
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Conclusion.........................................................................................................................34
Works Cited..................................................................................................................................35
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Economic Indicators Introduction Though the publishing industry has been destabilized by the digital era, magazines continue to prevail in the modern realm of media. Magazines first emerged in Europe in the late 1600s but did not appear in the United States until the 1890s, when they were led into the mass market by the onset of national advertisers. The collection of engaging editorial content and advertising defines a distinct publication model, and the sector has grown to encompass over 11,000 titles, which amounts to about one-fourth of all U.S. publishing revenues, equating an estimated amount of $38 billion (Vogel 369). Magazines are categorized based on content and/or intent, but most titles (excluding free publications) are distributed via pre-paid subscriptions and singlecopy sales. These business models still exist, but innovations in technology and consequent shifts in cultural values have widened industry platforms; magazines now circulate in both print and digital editions - online, on tablets, and on smartphones. These changes are reflected in the sector’s key economic indicators: the developmental costs of production, distribution, and marketing, and revenue from ad sales and circulation. Thus, a magazine’s success depends on its ability to attract both consumers and advertisers; a macro-economic analysis shows that as the industry anticipates further declines in print circulation and ad pages, publishers are pushing content and advertisements across multiple platforms (Rochette 12).
Developmental Costs Production As in other media sectors, “the cost of creating the content is sunk at the start, and subsequent expenses of manufacturing and distribution are relatively small” (Vogel 361). The industry is
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large and competitive, but only a few select publishers yield substantial profits; this depends on their ability to continue producing creative content that appeals to audiences while keeping production costs as low as possible. However, the business is labor intensive, and securing talented employees comes at a cost. Magazines depend on a team of reporters, editors, researchers, copy editors, proofreaders, art directors, photographers, graphic artist, copywriters, and illustrators on a full-time, part-time, or freelance basis. In addition to the editorial staff, publishers must also outsource printers and hire personnel for advertising sales, production, and subscriber services (Rochette 24). Given the information in Table 1.1, the estimated developmental costs of magazine publishing can be interpreted by calculating editorial, production, and administrative costs as percentages of revenue: Table 1.1: Costs as Percentage of Revenue
Source: Entertainment Industry Economics
This data demonstrates that the developmental costs for production account for about 43% of the revenue stream and are critical in determining operating profits, but these expenses can vary substantially by company. Following the costs of labor, raw materials constitute the second largest expense for a typical publisher - a quarter of the revenue; these materials include paper, ink, and machinery necessary for production. Because paper is a cyclical commodity, publishers
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often negotiate discounted long-term contracts with paper manufacturers so that their production costs will not be affected by the rapidly changing prices (Rochette 34).
Print production remains a key indicator of a magazine’s expenses; however, technological advancements and the rise of digital platforms are transforming the economics of the industry. In addition to financing the production of print issues, publishers are increasing their investment in multimedia products that combine “digitized text, sound, and pictorial data” (Vogel 370). This content, which is typically produced for magazines’ websites, tablet editions, and smartphone apps, requires computer hardware and software and employment of skilled designers and developers in place of raw materials. However, multimedia reproduction and distribution costs are virtually zero. Thus, as the cost of digital development only entails about 15% of net revenues and 75% to 85% of multimedia content revenues revert back to the publisher, print production is still pivotal for determining industry production costs (Vogel 377, 372).
Distribution As magazines expand their platforms, publishers’ developmental costs for distribution are fragmented into a number of different channels. Postage expenses required for circulation of print subscriptions are unnecessary for digital content distribution. As a result, postage costs, which total about 5% of revenues (Table 1.1), are expendable in digital platforms. New technologies enable magazines to publish anywhere and potentially reach larger audiences across the globe at a relatively small cost (Vogel 373). The data in Table 1.1 that presents estimated distribution costs as 6% of revenues reflects the calculation of print editions; however, digital distribution is likely to affect this number as app markets and/or smartphone carriers are likely to
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take a percentage of the publisher’s sales (Vogel 377). Though more and more content is being dispersed through digital mediums, the magazine industry’s distribution costs and revenues are largely dependent on print circulation.
In order for print publications to reach consumers, publishers usually sign multi-year contracts with wholesalers to handle physical distribution of magazines to retailers, process returns, and engage in marketing and in-store services; subscription copies, in contrast, are mailed through the postal system (Rochette 24, 42). Though wholesalers distribute to a variety of retailers, only a percentage of the magazines are sold (the remaining are returned to the wholesalers and eventually destroyed); Chart 1.2 lists the percentages of sales acquired through each channel: Chart 1.2: Retail Sales by Channel
Source: MPA Factbook 2013/2014
Print magazines continue to circulate through different levels of distribution; however, as the market for print sales destabilizes, distributers are venturing to negotiate economic arrangements
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to protect their businesses. Retailers are pushing for higher discounts off cover prices, and as a result, wholesalers are shifting much of their profit margin to retailers (Vogel 376). These changes reflect an uncertain future in magazine publishers’ business relationships with distributers and may eventually impact the developmental costs of distribution.
Marketing While the essence of publishing is producing and distributing publications, marketing is an essential component for the developmental process in order to promote magazine circulation. With the advent of digital platforms, companies are “evolv[ing] beyond traditional magazine publishing to offer full-service interactive marketing” (Berman 11). Because modern audiences are consuming magazines differently than in the past, publishers can employ new campaign strategies to market their publications. These methods might include special issue or custom publishing, e-mail or e-newsletters, social media, mobile marketing, and brand extension products. The data in Table 1.1 that marks advertising, selling, and promotion costs as 14% of the magazine’s revenue does not accurately depict the impact of the digital era. Along with the industry’s shift to digital, publishers’ marketing costs are also moving online, which provides a much cheaper platform to advertise their brand. For example, the paper and postage required for magazine mailers are eliminated as publishers can send out mass e-newsletters to consumers and/ or associated professionals at little to no cost. Digital editions are also helpful in marketing magazine brands; publishers are not just creating content, but actively engaging audiences with subtle campaigns promoting their brand. Brand extension products, however, are largely unaffected by digitalized marketing, and are thus an exception to these lowered costs. Nevertheless, the strategy of “producing goods or services that complement and expand the
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franchise of an existing product, or by licensing their name to manufacturers” is vital for publishers to maintain a loyal audience for their brand and yield revenues (Rochette 26).
Sales and Revenue Circulation: Subscription In order to increase the number of copies sold per issue and thus total circulation revenues, magazine publishers entice consumers with subscription packages that offer discounts from the stated cover prices. Selling pre-paid subscriptions, which generates 35% of publishers’ total revenues, is the industry’s primary vehicle for distribution (Vogel 370). In 2011, subscription sales represented 73% of total paid circulation revenues, equating $6 billion (Rochette 12). Publishers typically market these package-deals to consumers through direct-mail solicitation, agencies, or insert cards. However, with the rise of digital media between 2006 and 2011, total magazine subscriptions have fallen by a cumulative 12% to 282 million subscribers (Rochette 12). As a result, the industry has been forced to find new means of generating revenues. Publishers are starting to utilize digital technology to create new opportunities to maintain and attract subscribers, but in the meantime, they have been forced to raise their rates in order to compensate for the declining circulation. Between 2006 and 2011, the average cost of a one-year basic subscription rose by 1.8% to $29.85; thus, total circulation revenue only fell by 4.5% compared to the 15% drop in total circulation in the same time period (Rochette 12).
Though print circulation is in decline, total circulation revenues are dropping at a slower rate than in the past. This shift in readers’ consumption patterns can be attributed to the fact that subscriptions have not experienced the same devaluation as single-copy sales, because “although
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devoted readers continue to subscribe in a weak market, low disposable income [force] many consumers to hold off on impulse purchases” (Chiang 16). Table 2.1 displays the comparative data for declining subscription and single-copy circulation: Table 2.1: Subscription/Single-Copy Sales
Source: MPA Factbook 2013/2014
While the total number of sales have been steadily dropping since 2007, subscriptions evidently control the industry’s circulation with over 91% of total sales. Given this information, the previously mentioned data indicating that subscription sales represent 73% of total paid circulation revenues in 2011 appears faulty (the numbers in Table 2.1 indicate a ratio of over 90%); this inconsistency can be understood by taking into account digital edition sales that make up approximately 2.2% of the estimates in Table 2.1 (MPA 86).
Thus, the rise in subscription sales (over 2 million additional subscribers in the last year) can be further interpreted by publishers’ increased utilization of digital platforms: circulating digital
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editions of their print magazine online, on tablets and on smartphones. As consumers continue to shift towards multimedia magazines, developmental costs for print are escalating and those for digital are shrinking. As a result, digital dissemination of magazine content reaps more revenue, and publishers are looking to “create incentives for readers to switch to digital editions” (Chiang 9). Modern consumers are immersed in the digital realm and expect to be presented with choices from all media industries, which allows media companies to monetize from the options they offer. Magazine publishers use this as an opportunity to generate revenues from multiple platforms. Chart 2.2 illustrates how consumers purchase digital content: Chart 2.2: Distribution of Paid Digital Content
Source: MPA Factbook 2013/2014
Excluding free digital content, subscription sales constitute 43% of magazines’ digital distribution. However, publishers are finding it “most effective to offer readers access to their content on all print and digital channels for one price,” and 62% currently provide bundled
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subscriptions (John 5). Chart 2.2 supports this claim, as an estimated 44% of consumers choose to purchase magazines with access across to all available platforms. While digital is on the rise, recent research has estimated that “only 6.6% of total magazine revenue stemmed from digital sources in 2012, including both circulation and advertising revenue” (Rochette). However, this number is expected to grow: tablets are becoming more widespread in society, and publishers continue to enhance and promote digital editions with enriched multimedia.
Circulation: Single Copy In addition to subscription sales; magazine publishers also depend on single-copy sales from newsstands, supermarkets, drugstores, and other retailers. However, single-copy circulation has been experiencing a long-term decline, and sales have fallen by 38% to 30 million between 2006 and 2011. Consequently, the industry has raised the cost of a single-copy issue by an average of 2.1% per year within that same time period. As a result, single-copy circulation still generated $2 billion of revenues in 2011 (Rochette 12). Nevertheless, the value of this number is small in comparison to subscription circulation revenues. This contrast in distribution can best be understood in terms of pricing: the raised rates for a single copy of a standard magazine have reached $4.95, whereas the average subscription price per issue is generally only 40% of the newsstand cover price. Thus, “a subscriber typically pays about $1.98 per copy for the same magazine that sells for $4.95 on the newsstand” (Rochette 26). In the circulation of singlecopies, consumers not only have to pay more per issue than if they subscribed to the magazine, but publishers also have to allocate revenues to the various distributors. Table 2.3 provides the circulation revenue allocation for a typical $3-per-copy weekly magazine cover price:
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Table 2.3: Circulation Revenue Allocation
Source: Entertainment Industry Economics
Though typical weekly magazines have clearly raised their price-per-copy above $3, the data in Table 2.3 demonstrates the fact that a portion of single-copy sales revenues must be distributed to wholesalers and retailers; publishers are thus left with 60% of the cover price ($1.80 of a $3 magazine). Increased rates could help bring in extra profits but could lower overall sales by deterring consumers. With subscriptions, publishers are able to secure higher and potentially more long-term profits by circulating their products without as many intermediary distributors; furthermore, subscribers are more likely to become devoted readers who renew subscriptions and provide a steady contribution to the revenue stream.
As Chart 2.2 illustrates, single-copy issues are also available for purchase on digital platforms, wherein revenue trends are similar to print circulation: single issues represent less than 13% of the total distribution of digital content (excluding free content). As digital editions become more widespread, the number of single-copy sales could increase, but readers’ inclination towards pre-
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paid subscriptions show no evident sign of change. However, the data does not indicate that consumers’ incentives to purchase single copies are changing either. A particular issue of a publication may feature special content that consumers might be attracted to, prompting them to buy a single copy even if they are not interested in the magazine itself. Thus, if single-copy circulation continues to decline on both print and digital platforms, the industry will risk losing consumers who turn to magazines for featured special-interest news.
Advertising Circulation allows publishers to gain readership and obtain revenues, but advertisers who seek access to the magazine’s readers also contribute to the revenue stream. The magazine industry depends on these sources, but their respective roles vary considerably among individual titles. On average, magazines derive 60%-65% of their revenues from circulation, but some publications fall far from that range, with some titles earning 90% of their revenues from advertisement sales (Rochette 32). The majority of publishers’ advertising pages and revenues are acquired through run of press (ROP) ads, which are printed within the magazine (Rochette 25). Circulation and a publication’s target audience typically determines advertisers’ decision to buy space in a magazine, and rates are based on an average per-issue circulation (usually stated as cost per thousand, or CPM) (Rochette 26). Though circulation is in decline, magazines are still valuable to advertisers, allowing them to target specific audiences who are interested in a particular subject matter. However, total advertising dollars spent on magazines in the United States have declined by 19% since 2006, and advertising pages fell by an average of 32% from 2006 to 2011 (Rochette 1, 12). Table 2.4 lists the number of ad pages and rate card revenues, based on standard advertising rates, among measured print magazines from 2003 to 2012:
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Table 2.4: Ad Pages and Revenue
Source: MPA Factbook 2013/2014
As the industry’s total circulation is rapidly declining, so are the number of ad pages in print magazines. Revenues, however, appear to be falling at a slower pace, with rate card revenues averaging $19 billion in 2012. While individual publications may depend more on circulation revenues than on ad sales, and vice versa, the expansion of new digital platforms are impacting the role of advertising across all titles.
Magazine advertisement sales are evolving with the digital era: print is in decline, and digital advertising is rapidly expanding. With the rise in popularity of the tablet, more magazines are creating digital editions and shifting towards more digital advertising. However, advertisers have been reluctant to continue spending in a destabilized market sector. As a result, publishers are aiming to demonstrate the value of their digital platforms at the expense of generating lower
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profits, since digital advertising rates are much lower than print (John 4). Consequently, the most recent research shows that magazines have seen growth in advertising during the third quarter of 2013. Total print ad pages and tablet ad units are up by 6.8%, with print rising from -3.8% to -1.8% and tablet ad units increasing 17.5% from the same period last year (PIB). Though publishers reap revenues from digital ad sales, these profits do not suffice to compensate for the lack of print advertising. As many publishers rely on print ad sales as opposed to circulation, declining revenues will yield even higher prices for consumers. If both readership through circulation and revenue from advertisers continue to dwindle, the eventual decline of the magazine industry is inevitable (Chiang 10).
Leading Firms While industry outlooks are troubling, the magazine sector still prevails in the media market and reaches a vast number of consumers. Currently, the industry revenues amount to $38 billion and are estimated to be declining at an annual rate of 0.5% (Chiang 4). However, these profits are mostly shared by a few leading firms. Magazines in the United State rarely remain independent companies, “partly because that it usually takes at least five years for even successful titles to turn profitable” (Vogel 370). Thus, most publishers have been absorbed by larger media and entertainment companies. While thousands of publications are produced, four companies account for much of the industry’s circulation and advertising revenue: Time Inc., The Hearst Corp., Condé Nast, a subsidiary of Advance Publications, Inc., and Meredith Corp. In 2012, these leading firms held a large portion of the total advertising market: 21%, 17%, 15%, and 11% respectively (Rochette 11, 12). Chart 3.1 illustrates the major players in magazine and periodical publishing in the United States, determined by market share:
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Chart 3.1: Major Players
Source: IBISWorld Industry Report 51112: Magazine & Periodical Publishing in the US
This demonstration of the industry’s market share shows that only two firms hold 14.6% of the entire sector. Time Inc., a public company that recently split from Time Warner owns 5.4% of the market share, and Advance Publications, Inc., a private company that owns CondÊ Nast, owns 9.2% of the market share. Further research that tracked 458 magazines that are believed to be the most widely circulated publications found that only 84 of these titles had circulations above one million each; the 84 amounted to about 69% of total measured circulation (Rochette 12). Thus, industry revenues can be largely attributed to these leading firms and their individual publications. Tables 3.2 and 3.3 highlight the revenue growth from 2002 to 2013 and predict the revenue outlook from 2014 to 2019: Tables 3.2 and 3.3: Revenue Growth and Revenue Outlook
Source: IBISWorld Industry Report 51112: Magazine & Periodical Publishing in the US
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As the business of magazine publishing shifts towards new media, industry revenues are expected to continue declining. The data for market share shows that while there is competition for readers and advertisers among publishers, only a few companies control the vast majority of the industry. Thus, it can be assumed that these leading firms are the most affected by the steadily declining circulation and advertisement sales. However, as magazines expand into digital platforms, new opportunities are created for competition; those who are more knowledgable of new media and equipped at monetizing multimedia products could be the driving forces for the future of the magazine industry.
Case Studies Sports Illustrated A macro-economic analysis of the magazine sector shows that Time Warner Inc. is the leading firm with 5.4% of the industry market share; the company’s publishing segment, Time Inc., generates about $3.4 billion, or 12.8% of its total revenues (Chiang 25). Sports Illustrated is part of Time Inc., which also includes other popular titles such as Time and People. Despite its industry value, Time Inc. has continued to struggle with declining revenues and has yielded minimal profits for the media conglomerate. Thus, Time Warner Inc. announced in March 2013 that its magazine publishing subsidiary will spin-off as an independent public company (Chiang 25). Nevertheless, Time Inc.’s individual titles are strong players among other U.S. consumer magazines. The publisher’s weekly sports publication, Sports Illustrated, has evolved into a highly lucrative business that has become one of the industry’s most successful brand names. SI’s print magazine anchors the media franchise, which consist of the following components: SI.com, a sports news website, and its college division, SIonCampus.com; Sports Illustrated’s Golf
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Group (SI Golf Plus, Golf Magazine, and Golf.com); Fannation.com, a social network; and SI Kids, SI Books, SI Pictures, SI Productions, SI On Demand, SI Digital, and SI Events (Time Inc.). SI thus demonstrates its efforts to reach consumers through a wide range of media platforms while still focusing on niche audiences.
The print magazine, however, remains crucial for the overall success of the firm. While many print publications have become obsolete in the digital age, the Alliance for Audited Media lists Sports Illustrated as one of the “Top 25 U.S. Consumer Magazines by Total Paid and Verified Circulation,” with 3,065,507 subscription and single-copy sales in the first half of 2013. However, the magazine is not immune to the challenges brought on by digital media. SI’s total paid and verified circulation was 3,204,945 for the same period in 2012, which indicates that print circulation has fallen 4.4% over the last year (Lulofs). Table 4.1 provides a more comprehensive record of SI’s circulation with data from 2003, 2011, and 2012: Table 4.1: Sports Illustrated Circulation 2003
2011
2012
Subscriptions: Paid & Verified
3,137,953
3,138,438
3,139,876
Single Copy Sales
101,022
55,158
50,041
Total Paid & Verified
3,238,974
3,193,596
3,189,917
% Change from Previous Year
-0.3
0.0
-0.1
Source: Circulation Trends and Data, The Association of Magazine Media
The table indicates that there has been a dramatic decline in single-copy sales over the last decade, with 101,022 sales in 2003 dropping to 50,041 in 2012. However, the comparative data for SI’s total paid and verified circulation shows that the magazine still stands strong. While the
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company’s main competitor, ESPN The Magazine, has presented a challenge to circulation revenues over the years, recent developments in ESPN’s content have increased the distance between the two titles. As ESPN continues to evolve its brand by incorporating new themes such as style, “[readers] seeking straight sports coverage are going to pick up SI, while those looking for sports as well as lifestyle features are going to gravitate toward ESPN” (O’Shea).
Though direct competition from other magazines may be shrinking, the multitude of emerging firms in digital media present a new challenge for the sports publication. In order to reach audiences across all media platforms, SI now offers an “All Access” plan that allows readers to pay a single price of $39 for an annual subscription to both print and digital editions of the magazine (Mickey). The bundled subscription also provides access to SI’s digital content on various tablet and smartphone apps. This business model demonstrates the company’s efforts to compete against other digital media to protect the magazine’s circulation revenues.
Furthermore, as circulation numbers fall, it becomes increasingly difficult to obtain advertisement sales. SI’s ad dollars from January to September 2013 have declined at a rate of 0.6% and total ad pages have dropped by 1.0% from the same period in 2012 (PIB). Table 4.2 compares the recent decline in ad sales to data from 2002 and 2003: Table 4.2: Sports Illustrated Ad Sales Jan-Sep YTD
2002
2003
% Change
2012
2013
% Change
Ad Dollars
460,820,266
453,924,289
-1.5
412,360,921
410,085,558
-0.6
Ad Pages
1,791.08
1,668.78
-6.8
1,003.50
993.64
-1.0
Source: PIB: Magazine Titles Data, The Association of Magazine Media
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Because the declining circulation and ad sales in print are detrimental to SI’s revenue stream, the company has been taking advantage of technological innovations to maintain a profitable business model. These efforts also include changes in digital advertising strategies. While some publishers have put up paywalls that require readers to pay to access online content, SI has been experimenting with a different type of paywall on its website that asks readers to watch a 30second video ad in order to access certain articles from the print magazine (Indvik). Thus, the company can raise its advertising revenues without taking a big risk with its online audience.
Like most other magazine publishers, Time Inc. has been struggling to convert its content to digital media. However, the innovative business strategies of individual brands like Sports Illustrated demonstrate how the publisher “grew its digital imprint overall in the five years to 2013 and [why] digital advertising revenue is expected to grow” (Chiang 25). Current initiatives to expand content across digital platforms include SI Now, a live daily sports talk show sponsored by Ford. The 30-minute streaming broadcast is demonstrates a new business strategy for SI that emphasizes the immediacy of live content (Rondon). The company can thus utilize this online video segment to compete against the 24-hour network sports broadcasters like ESPN, NBC Sports, and the CBS Sports Network.
While weekly circulation and ad sales are critical for SI, the company also relies on the success of one particular issue per year that accounts for 10% of its total revenues. SI’s Swimsuit Issue has evolved into an iconic franchise since its debut in 1964; the issue reaches over 62 million adults annually and “spans more than 20 product extensions across digital, social, broadcast, mobile and consumer products, and reaches 40 million more readers and users than a typical
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issue” (Raphael). The 2013 Swimsuit Issue embraces digital technology for both the production and distribution of its content, and brand spin-offs emphasize techniques to increase audience engagement. Interactive features include a mobile app game, a 360-degree look at the swimsuit models on tablet editions, and a social media campaign that extends across Twitter, Facebook, Instagram, and Google+. Because of its wide reach, the Swimsuit Issue also attracts more advertising from a variety of businesses; ad pages for the 2013 issue increased by an estimated 25% from 78.66 to 98.28 (Raphael). As a vital component of the Sports Illustrated brand that must be reworked each year, the Swimsuit Issue can be used to show how the company has developed new strategies to strengthen its business model for the digital age.
New York Unlike the widespread success of the Sports Illustrated franchise, New York magazine represents a dominant private firm that focuses on a particular city and is categorized as “an under 500,000circulation publication” (Hoover’s Inc.). The weekly general interest magazine is published by New York Media, LLC, and it competes against other New York-based publishers like The New York Times Company and The New York Observer, LLC. While the magazine does not extend across the same range of media channels as Time Inc.’s titles, New York earned the title of “Magazine of the Year” at the 2013 National Magazine Awards for its success in both print and digital media (Haughney). In addition to the print magazine’s own website, NYMag.com, the company has introduced the following spin-off brands: two biannual publications, New York Design Hunting and New York Weddings; The Cut, a fashion blog; Vulture, an entertainment website; and Grub Street, a website that focuses on food and recipes (Flamm). While most publishers struggle to monetize from digital media, New York embraces the web as the profit
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center for its business model. The company announced in December 2013 that it will decrease its print frequency and publish an enhanced biweekly version of the magazine starting in March 2014; “The cut in frequency will yield about $3.5 million in savings, which will then be invested in faster-growing digital efforts” (Carr).
Though NY is defined as a regional magazine, the publication reaches audiences across the nation with a weekly circulation of an estimated 400,000 copies. Table 4.3 provides circulation data for the magazine’s subscription and single-copy sales from 2003, 2011, and 2012: Table 4.3: New York Circulation 2003
2011
2012
Subscriptions: Paid & Verified
416,133
391,077
392,566
Single Copy Sales
23,562
14,389
12,751
Total Paid & Verified
439,695
405,465
405,317
% Change from Previous Year
2.2
-0.2
0.0
Source: Circulation Trends and Data, The Association of Magazine Media
Paid and verified subscriptions constituted 392,566 of the total 405,317 circulation in 2012, whereas single-copy sales formed the remainder 12,751. Despite the dramatic decline in circulation of most other print publications in the digital age, the table also shows that NY’s total circulation has been relatively stable over the years since 2003, and the numbers remained virtually unchanged between 2011 and 2012. However, NY is still affected by the declining print media. Further research shows that single-copy newsstand sales dropped 10% in the first half of 2012 compared to the same period in 2011, and paid subscriptions fell by 2%. While the data seems to contradict this, NY executives have revealed that this is due to raised subscription
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prices, which have nearly doubled since 2005 (Flamm). In another strategy to protect circulation revenues, the company announced in 2012 that it would hand-deliver its magazine to doorman buildings and commercial addresses in Manhattan (Ives). While the majority of NY’s subscribers are located outside of Manhattan, the effort was made to remedy rising postal costs by providing a cheaper distribution model for a portion of its readers.
The magazine’s national audience has also raised the interest of advertisers who normally would not buy ad space in regionally focused publications. NY’s ad dollars from January to September 2013 have dropped by 8.7% from the same period in 2012 (PIB). Table 4.4 demonstrates the declining ad sales in comparison to data from 2002 and 2003: Table 4.4: New York Ad Sales Jan-Sep YTD Ad Dollars Ad Pages
2002
2003
53,787,798 73,367,210 1,854.44
1,683.10
% Change
2012
2013
% Change
36.4
131,809,720
120,327,878
-8.7
-9.2
1,624.44
1,475.41
-9.2
Source: PIB: Magazine Titles Data, The Association of Magazine Media
The table displays a dramatic increase in ad dollars over the last decade, but total ad pages have been in steady decline, dropping 9.2% between 2002 and 2003 as well as between 2012 and 2013. NY executives have explained that print ad revenues have grown over the last year as a result of higher page rates for advertisers (Flamm). Furthermore, the data in the table does not account for ad revenues from digital media channels that are separate from the print publication. While consumer magazines generally obtain 5% to 15% of their advertising sales from digital platforms, NY’s digital properties constitute 40% of the company’s total ad sales (Flamm).
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Because the company is driven by digital advertising, the magazine’s online divisions are essential to the success of the print publication.
Since developmental costs are high and advertisers usually do not pay extra for ad space in tablet editions, most digital issues of magazines are replicas of their print counterparts. However, NY’s business strategy revolves around digital innovation, and the magazine launched a new, interactive version of its iPad tablet edition in April 2013. The enhanced-design app gives existing print subscribers full access to the digital content whereas non-subscribers can purchase single copies or subscriptions directly from the digital newsstand; readers can also access free, regularly updated content through NY’s mobile app (Bazilian). As the company’s business model works to monetize digital properties, NY’s network of blogs, spin-off sites, and partner sites expand opportunities for advertising sales. In August 2012, New York Media sites attracted 4.8 million unique visitors, with about 80% of readers from outside New York (Flamm). Thus, the company was able to draw major advertisers looking to reach a national audience. Though the private company does not release net figures, ad revenues for NY’s online divisions were anticipated to grow 26% between 2012 and 2013 (Flamm).
In addition to New York’s “Magazine of the Year” award, the title also earned “Cover of the Year” for its “The City and Storm” issue depicting the aftermath of Hurricane Sandy. This “viral” cover garnered attention from individuals worldwide, thus increasing online traffic that the magazine could later monetize through digital ad sales (Sternberg). Because the cover became an iconic image through the extensive media exposure, it served as a marketing tool to build the NY brand name. “The City and Storm” was the top-selling single issue of 2012, but its cover story
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also brought in 320,000 visitors, 46% of whom came through social media channels, and 367,000 page-views; the feature article had 13,000 likes and 21,000 shares on Facebook, and 953 retweets and 204 favorites on Twitter (Sternberg). While publishers can not predict whether or not a cover will go viral, they have the opportunity to utilize covers as a marketing tool to reach readers who are not subscribed to the magazine. NY’s efforts to build its brand beyond the print publication have turned the company into “a growth property at a time when much of the rest of the industry is struggling to hold its ground” (Flamm)
Domino Four years after Condé Nast Publications shuttered Domino, the title has reemerged with a new business plan strategically designed for modern consumers in the digital age. Condé Nast, the magazine publishing subsidiary of private media conglomerate Advance Publications, Inc., ceased publication of the lifestyle magazine in 2009. The company attributed its decision to the economic decline that brought the magazine’s ad pages down 4.1% in 2008 (Fell). In October 2013, Condé Nast announced that a “reimagined” Domino brand would be released by the newly formed Domino Media Group. The magazine and its website are now run by Project Décor, a design e-commerce start-up in which Advance Publications is a minority investor (Brooke). Though Domino operates as a wholly independent entity under the Domino Media Group, its business model is backed by Condé Nast’s marketing and distribution services (Condé Nast). The remodeled Domino brand seems to be moving further away from traditional magazine media towards an enhanced content-to-commerce shopping experience.
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While Domino’s print magazine will still be published quarterly, subscriptions will not be offered; the publication will instead act as a brand extension of the digital content. The company can thus avoid the risks of declining print circulation revenues and focus its new business model on e-commerce. The executive team predicts that “commerce will likely compromise 85-90% of revenue” (Brooke). Domino Media Group has re-launched Domino.com as a unique marketplace that “fully integrates editorial content with e-commerce and social capabilities” (Condé Nast). By utilizing modern digital technology and responsive design with social integration, Domino offers consumers with the most engaging and efficient online retail platform. Rather than directing the site’s visitors to another website to complete their purchases, Domino.com directly handles all transactions. Readers can thus stay within the Domino brand and shop the “30,000 products that are integrated into the brand’s archived content, which can also be shared across any social platform” (Welton).
The content-to-commerce business model has been implemented by various publishers; however, Domino is the first magazine that has re-emerged with its primary focus e-commerce. The company’s revenue model works similarly to any other retailer: brands offer their products to Domino at a wholesale rate, which is then marked up and sold to the consumer (Welton). Because the company operates as a small start-up, it faces the challenges of a small staff and low budget - factors that were never an issue under Condé Nast’s management. Nevertheless, the potential risks of launching an e-commerce site are minimal compared to launching a print magazine in a digital age. Though it is too soon to know whether or not Domino’s business plans will generate a sustainable revenue stream, support from a dominant publishing firm should help the media company succeed in the foreseeable future.
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Comparative Analysis Firm
Business Model
Sports Illustrated
Advertising Paywall Interactive Media
New York
Digital Properties Spin-off Brands
Domino
Content-to-Commerce
Circulation
Advertising
4.4% decline 0.6% decline in ad (2012-2013) dollars (2012-2013)
Risks
Declining circulation revenues
0.0% change 8.7% decline in ad Increasing rates for (2012-2013) dollars (2012-2013) consumers and advertisers N/A
N/A
Low budget
Current Trends Cross-Channel Media As digital devices continue to gain popularity among consumers, magazines are implementing new strategies to extend their brands across multiple platforms and compete against the progressively growing crowd of digital media publishers. Cross-channel media is a rising trend among magazine companies, presenting them with the challenge of fragmentation: “everything from app technology to juggling multiple vendors to splicing and dicing content” (John). Since digitizing content is no longer enough to be successful in the industry, publishers are working to create content that can be customized to suit readers’ shifting consumptions patterns. The enhanced experiences available on multi-media platforms not only provide the opportunity to reduce printing and distribution costs, but they can also yield additional sources of revenue.
The platform that holds the greatest influence over publishers’ print product is the digital newsstand, which “makes managing subscriptions and discovery much easier, and might help
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spur greater adoption of digital magazine subscriptions” (Rochette 9). Digital readership is growing, but at the expense of content differentiation; digital editions are merely replicas of print publications. Publishers developed this business model in order to establish their digital presence, which shows that they were “more worried about keeping advertising revenue than protecting their industry. Businesses saved money by spending less on print, but struggled for a share of voice in a newly crowded Internet” (Trahan and Roll). As a result, publishers have been forced to offer free content on their websites to keep their brands relevant to modern readers.
The magazine industry’s traditional business model relies on original content that consumers find worthy of paying for; however, producing new content for all of the different digital platforms is neither efficient nor economical. Thus, magazines’ existing content is often repurposed to be distributed through different media channels - particularly in mobile apps. Chart 5.1 represents the number of U.S. magazine-branded apps released between 2011 and 2013: Chart 5.1: Number of U.S. Magazine-Branded Apps Released
Source: MPA Factbook 2013/2014
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As consumption patterns shift towards mobile devices, publishers are increasing their use of tablet and smartphone apps to support their individual titles. The data demonstrates that the number of magazine apps have experienced a growth of 559% between 2011 and 2013; 339 apps were released in the first quarter of 2011 and 2,234 apps were released during the same period in 2013. However, the business model for these channels is similar to that of the web - “content that’s gratis;” 97% of apps were free to download in 2013, up from 73% in 2011 (Moses).
While many magazines require a purchase after a free download, MPA research shows that 22% of magazine apps are free, “with the rest sold as single copies, digital subs and printed/digital bundles - few are generating significant money from apps” (Moses). However, as digital platforms eliminate traditional distribution costs, publishers have the opportunity to package and deliver their content in innovative ways. Hearst Magazines, one of the industry’s leading publishers, is experimenting with a new feature that allows app content to be more sharable on social media. Readers who share magazine content on social media channels like Facebook, Twitter, or Pinterest can expose brands to an even wider range of consumers. Hearst’s Esquire as well as The Atlantic have also been taking advantage of mobile channels by creating weekly apps to reach consumers beyond their print circulation (Moses). These titles show that fragmentation can have its benefits, allowing brands to strengthen their digital presence by connecting with readers wherever they are - the web, digital newsstands, app stores, and social media.
As media becomes increasingly fragmented with the growing number of digital platforms, content aggregators are gaining momentum in the industry. One of the top aggregator apps is Flipboard, a personalized reader that allows consumers to compile content from the web in the
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format of a digital magazine (John). In addition to the web and social media, Flipboard’s paying subscribers have access to feeds from publishers who are partnered with the third-party app. Time Inc. has been the most recent large publisher to sign on to make content available via Flipboard, hoping to increase its advertising revenues and to attract new subscribers from the 90 million people who are now using the app (Moses). However, some magazines like Condé Nast’s Wired and The New Yorker find that Flipboard is “a replacement for rather than a driver to their brands” (Moses). As publishers strive to entice readers to subscribe to their digital editions and expand their profitability, the increasing number of channels that feed magazine media content present both challenges and opportunities. While technological innovations are shaping new business models that can better connect magazine brands with consumers, even apps designed to aggregate content can contribute to audience fragmentation.
Native Advertising As digital readership numbers are still relatively low compared to print, advertisers have little motivation to spend extra on digital ad units. In order to compensate for free-of-charge digital ads that are replicated from print, magazine publishers have been forced to develop new forms of advertising. Native advertising, or “sponsored content that more or less mimics a site’s editorial content,” has been the most recent trend in the industry (Sebastian). Magazines that have been experimenting with this business model include titles such as Forbes, The Atlantic, and The New Yorker (Carr). The strategy is most appealing to advertisers who seek increased reader engagement with their brands. However, native advertising presents challenges to publishers who want to preserve online ad rates while maintaing journalistic credibility with their audiences.
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While sponsored content is still in the early stages of development, the number of companies implementing the business model are rapidly growing. Leading publisher Time Inc. has partnered with native-ad server Sharethrough to generate revenue from its various titles without having to pour money back into the creation of content. Publishers using Sharethrough select sponsored messages from the server’s network, and the “headlines and thumbnail images for the posts then appear in [the host] site’s main newsfeed, adopting the site’s fonts and colors” (Sebastian). Since a portion of the revenues generated from this branded content remains with the partner company, Sharethrough is only one of many other vehicles that drive ad sales for Time Inc.’s digital sites. Other publishers have also partnered with outside companies to increase native advertising. Forbes’s BrandVoice works similarly to Sharethrough to allow advertisers to produce engaging editorial products that are in accordance with the host site’s aesthetic; the partnership has proved successful as revenue from BrandVoice doubled in the last year (Carr).
While using a third-party to obtain quality sponsored content means that revenues have to be shared, publishers and advertisers have both been satisfied with the results. A recent study on the effectiveness of such content revealed that consumers look at native ads 53% more often than display ads, and they lift purchase intent by 18% and brand affinity by 9% (Whitmore qtd. in Rondon, Welton, and Mickey). Since branded editorial content cannot be measured by the standards of traditional advertising, it is difficult to evaluate its business model. However, as digital marketing becomes “increasingly driven by relevancy and seamless content integration,” more and more publishers are turning to native advertising as the solution to declining ad revenues (Crum). Chart 5.2 illustrates how patterns of advertising consumption have shifted in the short frame between June and November 2013:
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Chart 5.2: Share of Consumption
Source: Advertising, WebProNews
While video and display advertising used to hold the greatest share of consumption, native advertising’s share grew from 7% in June 2013 to 44% in November of the same year (Crum). As sponsored content becomes increasingly widespread in the media, it can also create confusion for readers and pose a serious threat to publishers’ credibility. The most prominent example demonstrating the negative effects of the trend is The Atlantic, “which in January allowed Scientology to create a post that was of a piece with the rest of the editorial content on its site, even if it was differently labeled” (Carr).
As a result of the growing controversy surrounding the nature of sponsored content, the Interactive Advertising Bureau and its Native Advertising Task Force released the “IAB Native Advertising Playbook” in December 2013. The document is aimed at providing a “consistent framework...to seamlessly integrate brand messaging into consumers’ content experiences” (IAB). IAB’s playbook serves both publishers and advertisers by evaluating strategies for native advertising and establishing principles of regulation to help readers distinguish between branded and editorial content. As sponsored content continues to evolve
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under such regulations, the trend is likely to become a dominant aspect of the magazine industry. While many readers may question publishers’ credibility under this business model, successful native advertising would still appeal to those who would prefer sponsored content over ads that interrupt their experience with magazine media.
E-Commerce By developing new business models and partnerships based on new technologies, publishers are making themselves more relevant to modern consumers. As magazines continue to seek new ways to diversify their sources of revenue, e-commerce has emerged as a prominent trend for the industry. Online retailing has transformed the business models of all media sectors in the digital age, and magazine publishers are implementing the strategy in new and distinctive ways to appeal to their own audiences. In addition to the recently re-launched Domino, various other titles from leading publishers such as CondĂŠ Nast Publications and Hearst Magazines have been utilizing the advanced e-commerce technology. Table 5.3 presents the estimated growth of U.S. e-commerce sales between 2012 and 20117: Table 5.3: U.S. E-Commerce Sales
Source: Trends & Data, Internet Retailer
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The data predicts that online retail will increase by about 14% each year leading up to 2017; sales amounting to $225.5 billion in 2012 are estimated to grow to $434.2 billion in 2017. While these numbers include sales from all business sectors, the magazine industry is likely to follow a similar path as e-commerce continues to shape publishing strategies.
Since publishers focus on creating quality content before implementing e-commerce elements into the platform, magazines provide the ideal medium for an interactive shopping experience. The trend is likely to grow as tablets and other digital devices that facilitate online retail become increasingly widespread in more affluent households. Chart 5.4 displays the estimated growth of U.S. mobile commerce sales via smartphone and tablet from 2012 to 2017: Table 5.4: U.S. Mobile Commerce Sales
Source: Trends & Data, Internet Retailer
E-commerce sales from mobile platforms - smartphones and tablets - were up 82% in 2012 to $24.81 billion, and they are expected to rise to $108.56 billion by 2017. The data indicates that mobile comprised 11% of retail e-commerce in 2012, and the ratio is estimated to grow to 25%
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by 2017. Given that magazines are now an integral part of consumer experience on these mobile devices, retail m-commerce sales in the industry are expected to reflect the data presented for sales in the U.S. According to further research from GfK MRI, 70% of tablet owners have expressed desire to buy items through ads in digital magazines; this number shows that ecommerce conducted through tablet editions is likely to prove successful (Folio:).
Harper’s BAZAAR of Hearst Magazines launched the first-ever content-to-commerce site, ShopBAZAAR.com, in 2012. In September 2013, the company announced its partnership with global online retailer, the YOOX Group - a collaboration that has made it possible for readers “to shop the pages of BAZAAR without once leaving the bounds of the brand” (Harper’s BAZAAR). The magazine’s readers are thus able to purchase any of the products displayed in the print magazine directly from the publisher’s digital platforms. Allure, a Condé Nast publication that conducts sales through its website, has been another leading figure for the development of e-commerce. Allure.com has grown to encompass over 5,100 “buy buttons” that enable consumers to shop while engaged in online editorial content (Mickey). While Harper’s BAZAAR has not released the terms of its partnership with the YOOX Group, Allure reveals that it splits sales revenues with Quidsi, the company’s commerce platform partner (Mickey). These fully-integrated shopping experiences demonstrate the enhanced e-commerce used in modern magazine media. As this trend continues to increase the value of digital readers, publishers are able to further protect themselves from the uncertain future of their print publications.
Content aggregator Flipboard has also embraced e-commerce by releasing a new feature on its app that allows users to create shoppable catalogs; consumers can select content from the web to
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customize and share their aggregated content (Fiegerman). In addition to Flipboard’s users, retail brands can also create catalogs to promote their products. Readers can make purchases directly from the app, but the company does not yet take a cut of the sales - though it is expected to head in that direction (Fiegerman). While a compilation of products from the web may not constitute magazine media, Flipboard’s business model is still an adaptation of traditional print magazines for the digital age and is important to understand current trends in the industry. As the company’s shoppable catalogs show, e-commerce can not only benefit publishers, but also their marketing partners who facilitate transactions, as well as the brands whose products are featured for sale.
Conclusion With the advent of digital technology, the magazine industry has moved beyond its traditional business model towards distribution on multi-media platforms. While publishers’ primary sources of revenue have been declining along with the print industry, magazines have fared better than other old media as they continue to provide advertisers with access to niche audiences. Despite escalating competition in the digital realm, some companies have been able to navigate shifting patterns of consumption to deliver content tailored for modern audiences. Publishers are implementing strategies to diversify their revenue models: by fostering collaborative partnerships with new media companies, magazines remain relevant amidst changing cultural values. Current trends help create a seamless experience across channels that feed magazine media, and they allow readers to access content when, where, and how they want to - in a personalized manner. Print is destabilized, but it is not dead. Even in its new forms, magazines present an engaging collection of editorial content and advertising. The magazine industry continues to evolve, expanding into new segments within the business of media.
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