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Publishers Weigh Discounting With Unclear Future

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As magazine publishers scrap for pieces of a smaller ad pie, they have resorted to deep rate discounts, free pages and other enticements to avoid putting out skeletal issues. But will those discounts come back to haunt publishers as they head into the summer when next year’s rates are typically set?

That’s a real concern, publishers say. “When you do a 20 percent rollback, you’re eroding your margin, and at the end of the day, selling cheap pages will never get business over and over again,” said one publisher, who, typical of his peers, wouldn’t talk on the record for fear of jeopardizing already precarious business. “Discounting is ultimately eroding what you can charge for your advertising.”

Publishers said the practice has another costly downside, even though some privately fessed up to giving occasional discounts. The less an advertiser pays per page, the less money is left over to create the events and other added-value programs that clients increasingly demand. “If your entire net profit is $3,000, there’s very little margin to do anything with,” another publisher said.

These days, though, few on the selling side can afford not to cave to rate pressure at least sometimes. In the first quarter of 2009, year-over-year ad pages fell a disastrous 25.9 percent to 37,196 while rate-card reported ad revenue fell 20.2 percent to $4.2 billion, according to Publishers Information Bureau.

Stories abound of publishers who let a page go for $20,000, when the published open rate was $160,000; offered two pages for the price of one; or waived spending thresholds that advertisers usually have to pay to receive volume discounts. Even Condé Nast, which is famous for holding its ground when it comes to rates (and whose titles are among the biggest decliners in terms of ad pages), is widely said to be offering clients greater flexibility in other ways (the company declined to comment).

“Everybody’s struggling, and if the client’s got money, they’re getting some good deals,” one senior buyer crowed. “If it stays the way it is, we’re going to be able to get better deals next year.”

Publishers historically have sought 3 percent to 8 percent annual rate increases, but those requests will be falling on deaf ears this year. “For 2010, we should experience deflation rather than inflation based on the current economic conditions coupled with the digitization of the media landscape,” said Robin Steinberg, senior vp, director of print investment and activation at MediaVest. “In addition, magazines are down two years in a row, reflecting a decrease in demand.”

Some publishers are digging in, though. “We’re definitely talking about an increase; maybe less than before, but we’re definitely talking about an increase,” said Christina Grdovic, vp, publisher of American Express Publishing’s Food & Wine, noting that the title raised its rate base, albeit by just 25,000 copies, to 925,000 this year. “People do respect paying more for more.”

The pressure to discount is all the more intense by the fact that many magazines have come to rely heavily on ad revenue while selling subscriptions on the cheap. Average subscription prices have actually decreased over the past decade. Some buyers expressed irritation that they’re footing most of the bill for consumers.
 
“Magazines will have to get more money out of newsstand sales and other nonadvertising buckets (brand extensions, licensing, whatever) since there is a fat chance advertisers will be willing to make dramatic jumps in page rates post-recession,” said one buyer.

Some publishers are looking to readers to make up for the ad shortfall. Hearst Magazines’ Good Housekeeping, for one, will raise its cover price to $3.49 from $2.50 in 2010, and others are testing or planning sub-price increases. But it’s hard to see how publishers will be able to make up from consumers what they’re losing from advertisers.