Friday, January 25, 2013

Digital magazines: Circulation pricing and information issues vary across titles, the fee and user info wars with Apple were unnecessary and counterproductive

After attending a series of meetings this week with various service companies and groups of publishers, I am amazed how much lingering misinformation and bad feelings remain when it comes to the fees being charged by Apple within the Newsstand and the issue of reader information.

The problem starts with the issue of paid circulation. In general, the industry would like to pretend, or at least often pretends, that their very livelihood is dependent on paid circulation. But the fact is that very few consumer magazines rely on turning a profit from their circulation efforts, and even fewer B2B titles do.

For a magazine like Consumer Reports, that does not accept advertising, paid circulation revenue is vital. But even CR offers readers a reasonable rate for an annual subscription, currently $29. As a nonprofit, the magazine is dependent on contributions and other revenue sources other than just reader subscriptions. But at $29 for a year of print magazines, it is most unlikely that the amount generated, just over $2 per issue, covers print and distribution costs (in fact, there is no way it does).

But it is the nature of print magazine publishing that this is the way circulation works: the goal of a circulation manager is to sell single issues and subscriptions, manage the costs of the department, and if highly successful, end up with as small a loss as possible.

Looking over the P&Ls of some of the B2B magazines I have managed, I see that circulation generally accounts for between 10 and 15 percent of all costs (slightly less if a title is hit with high administrative costs, those costs passed on to the title by the corporate entity). When postage is added in, generally seen as a production (or "mechanical") cost, that number is doubled. In other words, things associated with circulation account for a quarter of all costs, and next to nothing in revenue towards the bottom line.

With this in mind, it remains a mystery why the issue of Apple's 30 percent commission on subscriptions and single issue sales was, and remains for some publishers, such a big deal.

Some media sites, and more than a few tech sites, have written pieces that make snide remarks about the number of paid subscriptions sold by some magazine publishers inside the Newsstand, concluding that the numbers are not adding up for the publishers.

What is not being taken into account, beyond the production costs being saved by few print readers, is the positive effect digital subscriptions is having on rate bases. The last batch of ABC reports is showing that many publishers are reporting higher overall circulation, easily maintaining their rate bases despite falling print numbers. This fact is saving more than a few publishers from having to rebate back paid ad space revenues.

While paid circulation strategies are more complex than they first appear, varying both within the consumer and B2B magazine industries, the issue of information is just as complex. One of the biggest grips heard by many vendors is that Apple's Newsstand is does not automatically share the information on the buyer of a digital magazine subscription, and that very few readers are opting to share their information with publishers.

This is a legitimate concern for publishers, though one that is also overblown.

For most titles, a reader subscription card at most gives the publisher information such as name and address. Credit card information only comes if the reader uses that form of payment, many simply check "Bill Me" and later send in a check. Other information like email address and demographics are often not required to subscribe to a consumer magazine. The reason is simple: the real goal is to maintain that circulation level to support the ad sales efforts, not to build reader databases.

But publishers DO want to build those databases, which is why they conduct surveys, promote reader contests, etc. Even where publishers control the digital subscription process, information gathered is limited.

Take Next Issue Media, for instance, the digital newsstand service built by the biggest publishers in the industry. The first thing the service gathers is your email address, then your credit card information, name and address.

What is missing is the useful information that advertisers really want: the demographics – age, gender, income, interests. Publishers will need to continue to gather this using the traditional methods.

So what are the legitimate concerns of publishers in regard to the new digital newsstands created by the big tech companies? Fairness and discoverability, for sure. With Apple and Google controlling what potential readers see in the Newsstands, new titles entering the space are at a huge disadvantage. Apple, in particular, is send a very loud message to the big boys that the Newsstand is their domaine; the small, independent publishers can enter, but they are at a huge disadvantage when it comes to having their titles found by potential readers. Only Amazon is somewhat better in this regard.

The other big issue that may grow in importance over time is one of technology platforms. At any time any of the big new digital newsstands could demand that all tablet editions be built using the same systems in order to produce a more uniform product offering. Already there are areas were this is the case – eBooks, for instance, where not all formats are accepted across Apple, Google and Amazon (let alone other bookstores).

Another area that would concern me is the ability of the big tech companies to really understand what publishers need. One vendor told me that they often hear of meetings held between a big magazine publisher and Apple, for instance. But what comes out of these meetings rarely helps the industry overall and is often centered on the marketing needs of a few titles.

For B2B publishers, cracking the qualified circulation problem inside the Newsstand remains the top priority for many publishers. For consumer publishers, getting agencies to support the platform with new ad dollars seems to be the biggest issue that effects the most titles.

When one looks at the important issues facing today's magazine publishers launching digital editions, those Newsstand fee and the subscription mechanism currently being used within the digital newsstands seem pretty minor in comparison.