For magazines,
the Great Realignment
Publishing faces a tumble in the next four years
By Diego Vasquez
Feb 19, 2010
Things are bad for magazines right now, everyone knows that, but a new forecast shows just how bad and just how much worse things are going to get before they start improving. By 2014, four years from now, total magazine revenues will have plummeted by 35 percent from 2007 levels, or from $47 billion to $31 billion, according to mediaIDEAS, a New York magazine consultancy. The forecast predicts that revenue will begin climbing again in 2015 due mainly to new technology such as e-readers that will begin to be widely adopted. MediaIDEAS refers to the forecast period as the Great Realignment in which the magazine industry will be transformed into a smaller but more efficient industry by shifting away from print toward digital as revenue shifts away from advertising toward circulation. Those changes should begin to kick in by 2014. David Renard, partner at mediaIDEAS, talks to Media Life about the Great Realignment, the impact of e-readers, and why the industry is ripe for change.
Your research refers to the periodical industry as being in the midst of a Great Realignment. What does that mean? How is the industry being realigned?
The industry has primarily gotten its revenue from print since its birth.
The Great Realignment is two things. One is that the current decline of the industry will subside and it will regain its footing later this decade, but as a completely different industry, one where print is no longer the only game in town and advertising is no longer the same golden goose as it was.
What’s coming is that digital will rise dramatically and circulation revenue will rise dramatically, but not specifically print circulation.
The same way iPods created a platform for MP3s, one separate from the web, so too will the new reading devices create a new platform for print, or what we call paginated media.
What is the basis for defining the size of the market at $47 billion in 2007, for example? Is that based on total revenues? Assets?
That’s based on total revenue.
You can’t look at it as revenue just from consumer magazines and b-to-b titles. It’s periodical publishing in its widest form, including academic journals. It’s exactly what the government has as its definition of periodical publishing.
The forecast seems more severe than some others. How does your forecast compare to other forecasts out there in terms of shrinkage, and what forces are you factoring in that others are missing?
Well, we’re factoring in technology. You can look at forecasts from people who only know the magazine industry or only know the newspaper industry. Those people come out of ad sales research, but we don’t think that’s the right approach.
We don’t believe that’s the reality of the marketplace.
You really need to take a step back for the larger picture. And you need to understand how technology will affect it.
We’re going to have turning points. Consider that when CDs replaced tape, within 12 years the tape industry was completely eradicated.
We’re not being as dramatic as that, but we do see turning points that are similar in terms of their impact.
You cite three factors for the shrinkage: ongoing economic uncertainties, the internet’s growing importance—technology—and publishers’ intrinsic inefficiencies (e.g. circulation, printing, auditing). When you say ongoing economic certainties, are you referring to the general economy?
The economic uncertainties now are related to the general economy, but as you move forward they will have to do with how much advertisers will be willing to pay for the bread and butter of the industry, which is ads in printed magazines.
And what do you mean by publishers’ intrinsic inefficiencies? Are you talking about the inherent inefficiencies that come with print and paper, or do you mean inefficiencies in how publishing companies operate? Or both?
It’s obviously the issue of print and paper but it goes beyond that to circulation and inefficiencies in single-copy sales and subscriptions.
There’s the widespread abuse of sponsored circulation and the amount of copies that are supposed to be read and requested. Many publishers are dealing with the fact that circulation in general is not paying for itself.
Of the three, what is the biggest factor?
I think the biggest factor is technology. Because of the other two factors, technology becomes an even bigger factor.
If the youth in this country continued to be as addicted to technology as it is today—we call them screenagers—but the magazine industry were completely efficient, reducing waste dramatically and was more on point in terms of the product they created, I don’t think it would halt the decline, only soften the curve.
How do publishers most need to change in terms of how they do business and how they perceive the business they are in?
I think publishers have to realize that they are not information-on-paper suppliers. Publishers are privileged mediators of information with their subgroup of readers, clients, audience and individuals.
So they need to know who exactly their customers are. They need to focus on that need and on the information that needs to be provided to the audience, regardless of how it’s provided.
That’s something that everyone’s talked about for at least 10 years, but we still believe the magazine in its full, beautiful, color, paper and bound physicality is sacrosanct.
The publishers who decide to make the jump first and focus their energies into creating a product for tomorrow’s marketplace will be the ones that survive.
It’s clear that when the industry starts picking up again in 2014-2015 or so it will have changed or will have seriously advanced in how it makes its revenue.
Your forecast places much weight on the arrival and adoption of e-readers for bringing about something of a revival for magazines. How will e-readers serve to bring about this revival? Just what are the great advantages of e-readers for publishers? Are we talking of primarily huge cost savings? How about on the revenue side of things?
We see the market for e-readers worldwide being about $25 billion by 2020, and that’s just for the hardware. We’ll be releasing what the content side of that equation will be.
E-readers clearly fill a void between computation devices used to write, view movies, etc., and the actual paper product. They fill a void in that logical way and also between the PDA or smartphone and the laptop. The iPad goes a long way toward filling a similar void.
E-readers clearly fill a void between computation devices used to write, view movies, etc., and the actual paper product. The iPad goes a long way toward filling a similar void. The difference is that e-readers have a screen technology that permit them to carve a niche out in the marketplace for long-form reading.
The iPad will be able to make inroads with full-color books and magazines, but e-readers are going to continue to thrive in the book world primarily because of their reflective screen technology and amazing battery power.
By about 2015-2016, you will start seeing screen technologies emerge that are designed specifically for magazines. Screens will be large and flexible so they don’t break, and they’ll have full color.
That’s when you’ll start seeing convergence devices that will really be true readers. They will have the color and computational properties of the iPad but they will be made for reading.
This won’t only affect the magazine industry but the photocopier industry as well. You will be able to read business documents without printing them out or having to read them on your computer.
As a related question, just how widespread will the adoption of e-readers be? Could you, for example, say this or that percentage of subscribers will adopt them at some point in time?
We’re still trying to define that. But I can tell you the threshold will be when the devices reach about $100 per unit. We believe that this will be around 2015. That’s when widespread adoption will truly begin.
Now you start seeing a bit why the graph builds back up. Everything’s happening between 2013 and 2016 basically. You’ll have this platform where you can have digital paginated media that’s sold and read by a wider range of individuals who can now buy devices for around $100.
As we get past the low point of 2014 and begin to see growth again, will magazines be profitable again? And how profitable? Do you expect profits at levels enjoyed at the peak of the print era?
We haven’t fully looked at the cost side of the equation, but I can tell you that in terms of revenue, that’s the big issue with the Great Realignment. The industry is not for the foreseeable future going to recover completely what it lost in the past 10 years.
When we are dealing with a smaller industry, because less of it is in print and therefore less of the revenue is associated with the high cost of print, I would imagine that margins would grow.
Any sense of how magazines will fare beyond 2020?
I think the most important thing is the magazine industry is going to be part of a larger paginated media industry. We call it that because the truth is down the line there won’t be much difference between a magazine and a book. There’s nothing that prevents a book from having advertising. And there’s nothing that prevents a magazine from not having advertising.
A major part of the business of publishers is going to be paginated content. Providing content in a paginated format that’s easy to read and designed in a way that the reader can enjoy.
That doesn’t mean that will be the only type of content publishers will be making money on. But there will continue to be a small bonus paid for paginated media over just plain articles, images and RSS feed-type data.
What we expect is that in 2010, out of an industry of about $36 billion, about $27 billion will come from print, and about $9 billion will come from digital and “other,” other meaning events, etc.
In 2020, out of an industry of close to $35 billion, print will represent about $11 billion, and the remaining will be digital and other. So you see the dramatic move away from print.
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