Media pundits frequently pontificate about declining magazine circulation without understanding that it’s merely a symptom of – and sometimes an antidote for – advertising weakness.
For U.S. consumer magazines, circulation at the margin is typically unprofitable. Adding more circulation or keeping some of the circulation you have only makes sense if that helps your advertising sales. Once you meet ratebase – the guaranteed minimum number of distributed copies – any additional sales have no impact on ad revenue.
It’s safe to say that daily newspaper circulation has declined dramatically in recent years because consumers are finding other ways to get their news. But the picture is murkier for magazines. Much of the more gradual decline in magazine circulation (13% since 2002 despite a 9% population increase, points out noted print-industry analyst Dr. Joe Webb) was initiated by publishers themselves to shore up the bottom line.
During the glory days of magazine advertising, many publishers pumped up their circulation with “negative remit” subscriptions. That’s when a subscription agent’s commission exceeds 100%; not only does it keep the new subscriber’s money, but the publisher pays it an additional fee as well.
It also wasn’t unusual to see 20 or more copies of the same issue in hotel lobbies, or a wide variety of free magazines in hair salons, on airplanes, and at doctors’ waiting rooms. Such unprofitable circulation was worthwhile because it enabled publishers to maintain high ratebases, which meant more ad revenue.
The past decade’s slump in magazine advertising has derailed that gravy train. With the loss of big advertising subsidies, publishers are managing circulation more for profitability than for scale these days.
The pundits made much of Newsweek’s precipitous U.S. circulation drop – from more than 3 million five years ago to barely 1 million when it stopped printing last year. But the real story was the 60% drop in ad pages during the last decade. Sapped by the loss of its ad-revenue lifeblood, Newsweek purposely amputated all but its highest-paying subscribers and most efficient newsstand locations in a desperate attempt to survive.
So much for the “circulation war” with rival TIME that was often ballyhooed by ignorant newspaper reporters. There was no such war: It’s been decades since either title tried to grow its circulation rather than just trying to meet its ratebase as profitably as possible.
As for TIME, some may have viewed its recent year-over-year circulation gain of nearly 1 percent as a sign of strength. But my friends in the Circulation Department see things differently. To them, the game is to meet ratebase with as little extra circulation as possible.
They would point out that TIME met its 3.25-million ratebase in the first half of 2012 with only 27,000 extra copies per issue but that the “bonus” nearly doubled to 51,000 this year. Multiplied over 50 or so issues per year, that sort of “waste” (additional unprofitable copies that don’t result in more ad revenue) can really hurt the bottom line.
Moral: Read any news coverage of the magazine industry with a critical eye, especially when parallels are drawn to the newspaper industry. (In fact, in an upcoming article for Publishing Executive, I advise magazine folks to stop reading articles about the newspaper industry’s demise; they are depressing and mostly irrelevant to our business.)
Please see the follow-up article Is Ratebase the Magazine Industry's Crack Cocaine?
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