Magazines in the headlights

The BBC’s £165m mainly-UK magazines business notched up an impressive-sounding 9% increase in profits – just as it is about to be acquired by private equity firm Exponent. The £21.6m of profit from all the magazines including Radio Times, Top Gear, Gardeners World, Good Food etc is actually reckoned to be not much more than the contribution made just by the venerable Radio Times (still selling almost 1 million copies a week). But Exponent (the last bidder standing in the lacklustre race for BBC Magazines), will need all the help it can get to make private equity-style returns in what is a worse-than-average sector of the media industry.

Magazines are another of those media markets where UK consumers have been spoiled for choice. It is also (like daily newspapers) another sector whose health cannot be measured by closures of significant titles – because (so far) there haven’t been many. But the statistics do make painful reading. Sales of the 100 most popular magazines have plummeted by 23% in the past 10 years. Recent figures are just as alarming. The circulations of women’s weeklies declined by almost 10% during 2010, with two of the stars OK! and Heat dropping by 23% and 19% respectively. Film magazine Empire lost 11% of its copy sales, FHM 25%, Cosmopolitan 7%, Take a Break 7%, and Q 7%. The depressing milestones are everywhere. Celebrity bible Heat now has copy sales about half of its peak of six years ago, but that’s better than Bauer stable-mate FHM which is 75% off its best.

With copy sales traditionally accounting for an average 65% of all magazine revenues (less in monthlies), that is only part of the story. But advertising revenue too is falling fast. Last year, when total UK spending by all advertisers bounced back by 9% (after a disastrous 2008-9), magazines achieved a share-losing increase of only 3%. In 2011, when total UK advertising growth is slowing to 1%, magazines are likely to be down again, victims (among other things) of online marketing which now accounts for 25% of all adspend – compared with 3-4% for consumer magazines.

There are other problems for magazines. One is the growing dominance of supermarkets, now accounting for more than 40% of all copy sales. Magazine publishers are not the first suppliers to realise that Tesco et al are as good at buying from suppliers as they are at selling to consumers. The combination of those ‘sales channel’ pressures and squeezed consumer spending is helping to keep magazine prices down. Many cover prices have not been increased for several years and, despite that, publishers are frequently having to discount prices and add promotional value to minimise copy sales erosion at a time when advertisers are already moving away from their shrinking audiences. And, if the cuddly News International decides in three years to abandon the wholesalers which currently supply newspapers and magazines (as is believed), that too will hit magazine publishers very hard. Only then will magazine publishers realise the extent to which they have traditionally benefitted from the (now declining) strength of UK newspapers.

Like the newspaper, the conventional paid-for consumer magazine is, to say the very least, having difficulty adjusting to digital times. Magazines certainly are able to secure a role in the new world on the back of their traditionally strong relationships with readers. But the business model will have to change. Like newspapers, magazines have been happily hooked on two inter-dependant revenue streams, advertising and circulation. Now, the chemistry has changed and the model has broken. Which is why the industry’s five biggest magazine publishers are, together, just about making the profits once earned alone by the leader IPC Media.

Those halcyon days seem so recent (excuses!) that many magazine publishers seem still to be awaiting their return. But the recession is just a sideshow: the change for magazines is systemic and life-threatening. Trimming staffing levels and cutting promotional budgets are not what is primarily required to address fundamental market changes. Editors and Publishers have to show how well they really understand their readers as they seek to build new business models that address, among other things:

  1. Changed reader perceptions of value. Readers expect to pay less (or nothing at all) for information and entertainment. But they would pay more, relatively speaking, for ‘pinpoint’ information that is exactly what they require. Many readers will be content with low-cost “good enough” editorial rather than premium-priced “very best” content. Time is tight and information is everywhere.
  2. The potential of free magazines. Shortlist Media’s pace-setting 400,000-circulation weeklies (Stylist for women and Shortlist for men), and UTV’s Sport are examples of a new wave of magazines. They are strong brands with high-quality content, relatively low-cost production and (mostly) very effective free distribution. Conventional paid-for magazine publishers will ignore this exciting seam at their peril. Expect London’s legendary Time Out to follow suit.
  3. Transformed advertiser options. Many publishers of paid-for magazines will have to learn to prosper with much less advertising than traditionally. Their only way to compete for advertising with interactive media will be to create novel promotional packages built round ‘reader clubs’, possibly events, and retailing…
  4. The new world of ‘mediatailing. Some magazines are toying with product sales through web sites. But this is no ancillary market: ‘retail needs to become media and media must become retail’. Many magazines need to abandon their dreams of magical web site profits from banner advertising – and get down to capturing the home shopping of their readership communities. Branded editorial can provide a strong context and calling-card for online shoppers.
Publishers over the years have dined out (with advertisers) on research showing cash-strapped women putting back food items and keeping their favourite magazines, when caught short at the check-out. Reader relationships with magazines are often very strong. So these major brands really have got something to play for. But they have to change to compete. For all the tears of readers when a famous title comes to its last issue, magazines have no God-given right to survive. Publishers must find imaginative new ways to make money from their inheritance. Or else.
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