2005 PUBLICATION PRINTING Outlook -- Readers Paying the Price

BY MARK SMITH

Technology Editor

It's only fitting that LIFE magazine should be a barometer for the vitality of the publication market. This de facto "canary in the coal mine" for the magazine publishing market recently had its third incarnation. What's significant about this latest go is that the magazine is now being distributed as a weekly newspaper insert, thereby avoiding subscription and mailing cost issues.

Publishers and printers alike have noted a surprisingly strong up-tick in the market of late, at least for consumer titles. There has been a noticeable shift in the market, though.

When the industry started to rebound, signs of this change could be seen in market data from the Magazine Publishers of America's Publishers Information Bureau (PIB). Even as more of the sectors that PIB tracks reported strengthening revenues, growth of ad pages lagged far behind, remained flat or continued to decline.

Through the first 10 months of 2004, PIB reports magazine revenues closed above $17 billion, or an increase of 10.3 percent compared to the same period in 2003. While total ad pages also registered an increase, it was a much more modest 3 percent gain.

Six categories stood out in terms of revenue growth, posting double-digit increases. These include: Apparel & Accessories (revenues: 11.6 percent/ad pages: 3.1 percent); Food & Food Products (13.6 percent/9.1 percent); Media & Advertising (16.4 percent/8.9 percent); Retail (20.2 percent/8 percent); Financial, Insurance & Real Estate (23.3 percent/15.3 percent); and Public Transportation, Hotels & Resorts (23 percent/8 percent).

The changing relationship between magazine revenues and ad page counts is just one consequence of a trend toward focusing on the reader as a primary revenue source, asserts Samir "Mr. Magazine" Husni, Ph.D. Husni is a recognized publishing industry expert and professor in the Department of Journalism at the University of Mississippi.

"If there is one word to describe the 2004 magazine scene it is change," Husni says. "A change of mentality, more than anything else, among the top magazine publishing companies."

Beginning with the consumer magazine sector, the publishing business model is starting to change. Publishers are realizing it isn't necessary to publish the biggest, thickest magazine in order to make money, he says.

LIFE's reintroduction is a high-profile example of this trend, along with the likes of Hachette Filipacchi Media's For Me magazine, the journalism professor argues. The latter runs with 64 pages and is still able to make money, he points out.

Husni traces this trend back to the impact of German publisher H. Bauer Publishing (Bauer Publishing USA) with its titles like In Touch Weekly and Life & Style. Bauer had been flying under the radar for years while developing a publishing business that didn't depend on advertising as a revenue source, he says. The crux of this business model involves rediscovering the broader concept of circulation, rather than just subscriptions, and finding ways to make money from it.

"There has to be a change in mentality by publishers to charging the real price for a publication; making readers pay for the content," he argues. "We can't have magazines that readers buy for $4.95 on the newsstand, but can subscribe to for $.50. The two numbers will probably meet in the middle, with newsstand prices coming down and subscription rates going up.

"Advertising will continue to be important, but we can't go back to the days when most of a publication's revenues came from advertising," Husni continues. "Advertisers have more options, so they are getting more demanding in terms of accountability, reach and results."

A natural consequence of focusing on circulation revenues is the comeback of the newsstand as a force in the industry, he adds. Though still the exception, publishers are even experimenting with newsstand-only magazine launches like Time Inc.'s All You, which is distributed through Wal-Mart stores.

This trend has a number of implications for printers, along with the publishers. It may sound counter-intuitive at first, but Husni says circulations are going to drop, while total distribution will increase. The greater the move toward single copy sales, the more copies of individual titles that will have to printed, he contends.

"Sales-through rates don't change. They are still in the 37 to 40 percent range, so publishers will print 10 copies to sell four," the journalism professor explains. "With subscriptions, if you have four subscribers you print four copies. The industry is going to see higher volumes of printing."

Newsstand sales can also influence the nature of the publications themselves. A heavier grade of paper may need to be used to ensure that magazines stand up on the shelf and in the rack, Husni points out. Side-by-side comparisons and cover prices may dictate the use of better looking paper.

In addition, newsstand restrictions dictate a degree of uniformity in formats to fit in racks. At the same time, though, U.S. publishers are starting to adopt the "hand bag" or "purse" size that is already quite popular in Europe, Husni points out. "Newsstands here haven't been built to hold that size," he adds.

Publishers may end up being victims of their own success, Husni warns. "There were more than 130 magazines launched in October alone. I've never seen anything like that before," he observes. "All of the major publishers have been starting new titles. Time Inc. started five alone this year and attempted a sixth one. Last year, it didn't launch any.

"We may hit the 1,000 mark by the end of the year, and definitely will see more than 900 new magazines launched on the consumer side in 2004," Husni reports. "Last year, there were 949 launches, but that was an usually big year. That total was a jump up from 745 new titles in 2002."

Crowded Newsstand

One thing that could put a brake on all this business activity is a fight for newsstand space, he says. "Newsstands are not expanding in the same ratio as the number of magazine titles."

By far, the biggest trend in new launches is adding a city or state name to a specialty magazine, Husni asserts. "We are really becoming very community centered. You now have New York Dog magazine next to the New York Spaces magazine on the shelf," he notes.

The professor is optimistic about the industry's future despite all the competition for people's attention. "This is just the beginning. We are going to see some good days ahead of us," he enthuses. "We are in the business of complementing whatever people are using—the Internet, television, Xbox. Once we start thinking in terms of competing, we are out of business."

Husni is less bullish about the outlook for business magazines, though. "Competition—from the Internet and direct marketing, in particular—is forcing these magazines to start thinking about change, as well. Publishers have to begin thinking in terms of controlled paid circulation," he says.

"If you are offering something that business people value, even if they've gotten it free for 20 years, they will pay for it. If they are willing to pay $200 or $300 for a newsletter with eight pages, what would they pay to get a full trade magazine? The value of the content should be charged to the reader first, and then to the advertiser," Husni concludes.

One recently released study—PricewaterhouseCoopers' "Global Entertainment and Media Outlook: 2004-2008"—actually is more optimistic about the outlook for business titles. It projects spending on U.S. consumer and business magazines to grow at a 3.8 percent compound annual rate through 2008, to $38.4 billion. Consumer magazine spending will average annual growth of 3 percent, while the business-to-business (b2b) sector will experience a much more robust 5.6 percent compound annual growth rate through 2008, according to the report.