Media Outlook: Consumer Magazines – Toughing it Out

The dark clouds hovering over consumer magazines should begin to dissipate as the forecast calls for a brighter 2004, according to Veronis Suhler Stevenson’s annual industry projections. For the past two years, slow economic recovery compounded by a downbeat consumer confidence index has made for challenging times. But Veronis says the publishers who have stayed in the fight will be better for it in the long run.

“Magazine publishers are out there trying to strike up new circulation sources and trying to create new programs that are exciting to advertisers,” says Andy Buchholtz, VSS managing director. “Everyone is trying to stick to their knitting and make it all happen. When good times are too good, you get distracted and now everyone is getting on the right track.”

Overall spending in magazines from 2002 to 2007 will grow at a compounded annual rate of 4.2 percent, to $25.8 billion, according to VSS’ Communications Industry Report for 2002-2007. That is an improvement over the 1997-2002 period, which saw magazine spending grow by a meager 1.9 percent. In 2004, total magazine spending will rise 5.8 percent, to $22.7 billion.

By far, the greater challenge for publishers is getting circulation back on track. Consumer magazines continue to rely more on advertising than circulation. Ads in 2004 will comprise 53.7 percent of spending versus 46.3 percent for circ. By 2007, ads will make up 57.4 percent of revenue and circ will account for only 42.6 percent. To combat the overdependency on advertising, some publishers are putting more effort into circ-building. Whereas publishers could once easily pump up circulation from third-party agents such as sweepstakes and telemarketing, those sources can no longer be relied upon. Reader’s Digest this year announced plans to lower the rate base of its flagship monthly by 9 percent, from 11 million to 10 million in large part because of its decision to eliminate the use of sweepstakes promotions. The move caps a process begun at RDA in 1999 to phase out the unprofitable and controversial stamp sheets, which had triggered lawsuits by several states.

Other titles slashing rate bases include Hachette’s Premiere, which in February fell 100,000 to 500,0000 (Premiere also reduced its frequency to 10 issues per year, and raised the newsstand cover price to $3.99 from $3.50), and teen titles Seventeen (Hearst), Time Inc.’s Teen People and G+J USA Publishing’s YM.

Meanwhile, other publishers could be affected in the coming year by the Federal Trade Commission’s kibosh on telemarketing if the National Do-Not-Call Registry does go into effect. And on the newsstand, publishers continue to struggle with lackluster sales as a result of the still problematic distribution system.

On the plus side, magazines are relying more heavily on cost-efficient direct-to-publisher efforts, which includes taking a second look at the Internet for pulling in subscriptions. “Online subscriptions are growing steadily and are a productive part of our mix,” says Jack Kliger, president/CEO of Hachette Filipacchi Media. Though the Web is still a small portion of HFM’s consumer marketing effort, Kliger says he thinks it “holds tremendous potential.”

Circulation will inch up at a compounded rate of 1.8 percent to $11 billion for the forecasted period, notes Veronis. Total circ spending in 2004 will rise 4.3 percent to $10.5 billion, up slightly from the $10.1 billion projected for this year.

Per-issue unit circulation will be flat in 2004, however, with single-copy sales continuing their downward spiral, off 2.6 percent. And through 2002-2007, newsstand sales compounded annually will be down 2.3 percent and subs will remain largely flat. Broken down, subscription sales in 2004 will continue to account for an even greater amount of total circ. Single-copy sales will account for 13.9 percent, down 0.5 percent from the year before. By 2007, single-copy sales will make up only 13.1 percent of magazines’ total circ.

On the ad front, this year’s television upfront might bode ill for magazines. “Advertisers felt they had to lock in at upfront prices to protect themselves,” notes Lee Doyle, Mediaedge:cia managing partner, director of client services. “If their budgets don’t hold up as they get their budget planning, it will come at the expense of other media.”

Veronis’ Buchholtz, however, is more optimistic. As the economy picks up steam, consumer magazines will see better times. Advertising for consumer magazines will grow at a compounded rate of 6.2 percent to $14.8 billion. For 2003, ad revenue for the industry will grow to $11.3 billion, which is the highest it’s been since 2000. Ads in 2004 will continue to rise, up 7.2 percent to $12.2 billion.

“We have a product that consumers want and love, and maybe we have undervalued that,” notes Kliger. “There are more parts of the business we can impact in the future, and we’re addressing that now as an industry.” Lisa Granatstein writes about magazines for Mediaweek.