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of rate-base cuts
Tough times forcing titles to shed reader bloat
By Jeff Bercovici
It’s no secret that the economics of magazine circulation have for a long time been badly out of whack.
Readers pay far too little to buy magazines. Publishers pay way too much to buy readers. Advertisers help to perpetuate the cycle by punishing magazines whose circulations slip.
Now, at last, the situation may be changing.
With magazine advertising down for the second straight year and expected to be weak again next year, extra circulation acquired at high cost through subscription agents and other marginal sources no longer pays for itself.
Rather than absorb their losses in silence, publishers—backed up by a chorus of circulation experts—are increasingly speaking about the need to reduce circulation and raise the prices for single copies and subscriptions.
One result of this will be, they say, will be a wave of rate base cuts over the coming year.
"When ad revenue was rising constantly, it was easier to justify spending more to reach that last consumer," says Diane Potter, vice president of consumer marketing for Gruner + Jahr USA Publishing, echoing sentiments shared by many of her peers.
"The cost of that last human being you bring in to support your rate base needs to be looked at critically."
Publishers of some of the industry’s biggest magazines have lived for years with the reality of declining circulation.
TV Guide reduced its rate base by more than 3 million between 1996 and 2001; Reader's Digest cut its rate base by 2.5 million during the same period and plans to cut it again, to 11 million, in January.
Now there are signs that the idea that less can be more is gaining ground among publishers of midsize titles.
Many took note earlier this month when Hachette Filipacchi Media reduced the guaranteed circulation of three of its titles, including Premiere, which shrank its rate base from 600,000 to 500,000 while upping its cover price from $3.50 to $3.99.
Circulation analyst Dan Capell says that this combination of reducing rate base while increasing price is both a natural way to let the air out of an overinflated circulation and make sure that a reduction results in improved margins.
In fact, though publishers are understandably reluctant to trumpet it, some 25 percent of all magazines that claim a rate base made at least one reduction between 1996 and 2001, according to a recent Capell & Associates analysis.
"The whole industry is scratching its head, saying, 'I gotta come up with a formula that's less ad-dependent,'" says Capell.
An obstacle to doing so, however, is the need or perceived need to keep up appearances for the sake of advertisers.
Capell notes that when Hearst Magazines reduced the rate bases of its titles across the board in 1995, "it was not well-received in the ad community," partly because the publisher failed to offer a proportionate reduction in ad rates.
Hearst suffered losses in ad pages that year.
Steve Rosenfield, a publishing analyst for the Media Resource Group, says that magazines that don’t have a direct, obvious competitor will find it easier to reduce rate base without risking large page losses.
"If you have a competitor, they're going to say it's a sign of weakness."
That said, Rosenfield advises advertisers not to look at it that way.
"Those last few percentage points of circulation do not drive the core attributes of the product," he says. "If it's a good product at 925,000, it's not a better product at 1.25 million."
G+J’s Potter believes marketers are increasingly coming to that realization on their own.
"I don't think there's anywhere near the negative stigma attached to cutting rate base that there used to be," says Potter.
"Ten years ago, if you cut your rate base it was assumed to be evidence of weakness. Now advertisers who are much more savvy recognize it's a wise decision."
Still, for publishers to end their dependency on junk circulation, they'll have to show real firmness and resolve -- something that will be even more difficult if the ad economy bounces back sooner than expected.
"The answer is simple and obvious," says Rosenfield. "The actual what'll happen is yet to be determined."
November 18, 2002
© 2002 Media Life
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