A Rant About Ratebase: How Publishers Large & Small Are Killing Newsstand Revenue

Recently I was going through the F.S.I.’s (Free Standing Inserts) in my Sunday (print) newspapers, when I came across an astounding offer from Hearst magazines. “Enjoy One Year of O, The Oprah Magazine (12 issues) for $8 and Save Even More, Add a year of Good Housekeeping for Just $2 More!” Let’s break down the math. That’s 24 issues of two magazines for $10, or $0.42 per copy that’s printed, labeled, and mailed to your door. For two years of O, The Oprah Magazine plus Good Housekeeping it’s $0.19 per copy printed and mailed to your home! My question is, do small publishers have the resources to provide the production and fulfillment expenses of a subscriber for the $0.19 per copy revenue described above? Ratebase management is geared to provide advertisers with a guaranteed circulation of paid readers. As we know the newsstand is highly volatile. Depending on cover message, or even weather conditions, newsstand sales can fluctuate as much as 50% in paid sales from one issue to another, therefore it is logical that “paid” subscriptions offer a guaranteed paid reader every issue. Large publishers that can charge thousands of dollars for each page of advertising can offset the cost of obtaining subscribers through F.S.I.’s, subscription agents (some of whom are my best friends) that may retain a major portion of the subscription price, or bulk subscriptions to Doctor’s offices. Although they can offset these losses, large publishers irreparably damage the newsstand ecosystem when they undercut subscriptions in the search of ratebase. For smaller publishers, the resources are not there to bankroll print and in my career, I’ve seen too many excellent magazines close shop because of promises made by larger companies of large sales, mass distribution, and increased revenues. The Consequences of Chasing Ratebase An experience I had while working for Cowles Magazines before the acquisition by Primedia substantiates my concerns. We published a history line covering World War II, the Wild West, Vietnam, and military history. The “brilliant” concept created by the original owners before they stepped aside was to have a layout for two titles matching color separations page for page so two different titles could be printed at once, reducing expensive production start-up costs and color costs. But the profitability did not end there, the subscription offer matched the price of the full newsstand price. There was no agent business. No discounted F.S.I.’s. No bulk subscriptions. Advertising, however, was limited to small advertisers that could afford the lower cost of a page and these advertisers included book companies, some video gaming companies, and individual and chain retailers selling books, games, or memorabilia. Despite the lack of big advertisers, Cowles had a strong, direct subscriber and newsstand base that generated a profitable bottom line. When new management reviewed the history line and the subscriber files, they felt that if they could substantially increase the number of total subscribers, there would be an opportunity to call on Detroit and other national, male-oriented advertisers to grow advertising revenue. For the first time, the history magazines used subscription agents including Publisher’s Clearing House to market the titles to their customers. To increase the value to Cowles, frequency for the lead titles was changed from six issues a year to seven. While paid revenue per issue increased slightly because of the remit structure of agent paid subscriptions, the changes negatively impacted the dynamics of the cost savings of production. Once we achieved the magic number of paid readers for the entire history line, a new advertising team headed to Detroit with a strong sell message of thousands of subscribers. On the surface this was a powerful sales message. Thousands of potential male automobile and truck buyers would see ads for Jeep SUVs, Chevy Muscle Cars, and Ford Mustangs. When the ad agencies asked for the demographics of the large subscriber base, the answer was military, retired military. Similar to the scene from the ‘70s film Alice’s Restaurant where the prosecution produced color photos to prove the case of littering to a blind judge, the desired outcome in Detroit was not achieved. The automakers did not want retirees on a fixed income who were unlikely to buy a new car. Meanwhile Cowls lost the profits that full paid new subscriptions and renewals generated. The revenue exchange for a new base of low remit agency subscriptions was costly to the bottom line. Prized renewals were lost as well, since the agents had first renewal rights with the low remit. The cost savings of producing two issues at a time was also gone; the expenses of maintaining a subscriber file and postage were increased beyond the remit revenue. Advertising became necessary if it could be sold. Ratebase goals were achieved. Profits were lost. Small publishers aren’t the only ones shooting themselves -- and the entire retail industry -- in the foot from their pursuit of ratebase. Meredith’s wildly successful Magnolia Journal launched in Fall 2016. Priced at $7.99 in the U.S. and $9.99 in Canada, the launch issue nearly sold out on newsstand. In an era where publishers are experiencing double-digit losses on the newsstand, that level of success is unheard of. Shortly after this successful release, Meredith offered a discounted subscription of $20 for four issues of Magnolia Journal (37% off the cover price), and for an additional $3, consumers could also subscribe to 12 issues of Better Homes & Gardens. These subscription efforts will suppress future newsstand growth and profits for the retailer and wholesaler communities. Is it any wonder that retailers are hesitant to embrace print products, when publishers are so quick to undercut their retail sales? Please note, I have nothing against advertising dollars, however when the pursuit of ratebase interferes with the integrity of retail sales and the future for thousands of magazine titles, I think we should step back and identify long-term goals to keep an industry alive. A Different Path to Print Profitability Simply put the long-term goals for magazine publishers should be: Create an innovative product that consumers want to purchase, like Magnolia Journal. Do not water down successful sales with highly discounted subscription offers. If a title has reached maturity and has lost consumer appeal, don’t insult its history by offering 12 issues for $2.00. Let that title rest in peace and replace it with a new, more successful magazine. Build on new consumer trends. In the past, I’ve written about how the craft market grew from a few general craft titles into many successful niche craft titles. When the interest in certain crafts waned, scrapbooking for example, new magazines were launched to meet the new consumer interests and many scrapbooking titles were pulled from production. Consumer product companies do this all the time from Jell-O Pudding Pops to Cherry Vanilla Coke and Uncle Ben’s Rice Bowls. When consumer interest waned those products were pulled from the shelves and the companies introduced new product lines. They do not offer the “tired” products to consumers at highly discounted pricing via mail order. In line with this, I find it interesting how major magazine conferences focus on having keynote speakers from publishing companies that are forcing smaller niche publishers to diminishing mainline space, while boasting about the “secrets” of their successful business. Yet these major players will pay hundreds of thousands of dollars for checkout positions that sell at low efficiency, while they are giving away the very same magazine via a subscription for less than twenty cents a copy (and we know that second class postage alone costs more than twenty cents to deliver.) Publishers control their own future, and the future of wholesalers and retailers that sell magazines. We should develop the positive sources that will sell magazines and not lessen the value of the product with low-cost subscriptions in the quest of an advertising market that may not exist. I’ve written several blog posts on how small and niche publishers can achieve these goals. For many creative entrepreneurs, I know this is difficult. Put your ego in low gear and identify the key steps to growth and attainable profitability. Wholesalers should embrace the niche publishers who produce magazines with higher cover prices and are the trendsetters of new markets. Ratebase management is a double-edged sword that can hurt in key areas of future growth.

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A Rant About Ratebase: How Publishers Large & Small Are Killing Newsstand Revenue

John Morthanos

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