Newspapers and magazines are the frontline of traditional media tormented by changing times. New and not-so-new competition has reduced readership and savaged profits. How can they survive? Most publishers have two possible answers:
- Embrace digital media, especially through the iPad and other tablets
- ‘Consolidate’ in order to spread existing revenues more profitably among fewer publications and online services
But they are simply missing the point. It is not primarily the loss of readers but of advertisers that has broken the age-old business model for many newspapers and magazines. Readership, in many cases, is declining gently while advertising is almost gravitational. A 2011 survey in the US showed that print was still getting 25% of all advertising spend despite accounting for just 7% of ‘audience time spent in media’. So, the worst is yet to come.
The advertising decline exposes the extent to which advertisers have long subsidised uneconomic cover prices and subscription rates. Those too-low cover prices and buoyant advertising budgets served the good-times: attracting sometimes unsustainably large numbers of readers in order to justify higher advertising rates. But now they’re a killer. The growth of online advertising has been largely at the expense of newspapers and magazines. And even digitalisation is not an easy remedy for print-centric businesses in a world where advertisers increasingly want interactivity, accountability and costs geared to results. Falling circulations and “flat” advertising are not where it’s at. Even “guaranteed” free circulations are preferred by some hard copy advertisers.
Publishers have desperately tried to reverse the readership decline in a futile and costly bid to stop the advertising drain. Free and cut-price copies, retail promotions, expensive advertising campaigns, additional content and reduced ad rates are the expensive strategies. All in pursuit of increasingly-elusive readership targets for advertisers with better places to go. This is not a debate about digitalisation and hard copy. It is about accepting the inevitability of sharply-reduced advertising revenue; and the need to recalibrate costs based primarily on what ‘core’ readers are prepared to pay. A completely new model for many publishers, whether they like it or not.
But many newspapers and magazines have powerful brands, loyal readerships and distinctive content. Indeed, some are the very definition of ‘community’ so vital also to the success of digital media. Some publishers, hooked on bribing fringe readers in order to bolster the advertising sales pitch, would actually find it profitable to stop – especially if readers are prepared to pay more for content. And there are good reasons to work at it.
Take the case of Australia’s most successful magazine publisher (home of Australian Women’s Weekly, Cleo, Woman’s Day, Madison et al). It has just been rescued from the grip of private equity by Germany’s Bauer family, now the world’s largest publisher of weekly magazines. The former ACP Magazines (now Bauer Media Australia) is under the microscope of our billionaire friends from Hamburg. How might they stabilise copy sales and halt the slide in the company’s profitability?
Well, an estimated A$100m of ACP’s A$350m Australian revenue comes from advertising. And the costs of delivering on the promise to advertisers has been increasing sharply with shrinking circulations. Publishers have had to spend hard just to stand still and get the ad revenue – even at reducing prices.
For ACP, the total ‘opportunity cost’ of wooing advertisers may total at least A$60-70m, close to eating all the advertising revenue. That might be the cost of: people, promotion, extra copies and pages. Plus the forgone revenue from readers prepared to pay more for their favourite magazines if the publisher (freed from the fear of having a smaller but more committed readership) is prepared to push for it. The publishing economics of magazines, in particular, have come to be so strongly built round advertising. Changing the focus could change everything.
These are inevitably broad-brush average calculations and the financial impact would vary by publication. But some magazines and newspapers in many markets really could be consistently more profitable if they decided to forgo (or relegate) advertising.
It is reasonable to assume that ‘core’ readers (the ones who don’t have to be persuaded endlessly with cut-prices, free copies, promotions and special offers) would, over time, be prepared to pay more than fringe ones. If you’ve got the right content and costs, suddenly everything starts to look up. The opportunities for ecommerce, sponsorship and even advertising itself start to look like upside profit and not a desperate search for break-even.
The ACP example is even more interesting than it seems. Bauer has a record of being healthily preoccupied with readers’ needs to the exclusion (more or less) of all else. Indeed, when it first took the UK magazine market by storm in 1987, the company actually outsourced all advertising sales to an independent company. It even continued this throughout expansion into the US, Mexico, France and Spain before buying out the sales agent 21 years later.
That is why ACP’s new owner had no difficulty agreeing that Channel Nine’s “Powered” operation could continue selling integrated advertising deals across magazines, TV and online. And Bauer may well be receptive to handing over even more ACP advertising and sponsorship sales to its erstwhile TV parent – so it can concentrate on satisfying readers. An idea whose time has returned.
The point is that advertising revenues will not improve for most publishers. Clients will be paying progressively less for “flat” advertising and may even start demanding a digitally-inspired payment-by-results system: the revenue-cost equation will get more scary not less.
Forecasters see a continuing decline in hard copy advertising market share. And in most countries (other than Brazil, Russia, India and China) yields are dropping sharply: the news that Google’s own click-on yields have also started falling is a warning to the rest of us. But it gets worse. The UK-based Econsultancy has found that web site banner ads are much less effective for click-through reader response than either a button or text link. Advertisers will, therefore, conclude that banners (which have been publishers’ easiest digital revenue growth on web sites) are just another bit of “flat” advertising. More pressure on price.
It all means that many publishers must go back to basics and decide how primarily to fund a publication: readers or advertisers. A growing number (both hard copy and digital) will compete for advertising by being free and delivering “guaranteed” audiences at relatively low prices. Most of the rest will need to persuade readers to pay “realistic” prices. You can imagine why some publishers might be wary of putting their content to the test. But, then, this is the “real world” – and they can get some encouragement from other sectors.
Business information groups (and some consumer publishers too) can know all about relatively high prices charged for low-cost newsletters – with ‘must-have’ content. A post-advertising era of ‘substance over style’ can create real opportunity. In the UK, Emerald Street is a fascinating pace-setter. Published by Shortlist Media, the country’s best free magazine publisher, the daily email/app newsletter now has hundreds of thousands of regular readers, fast-developing ecommerce, and a pointed rationale: “We only write about things we genuinely like – we can’t be bribed. Ads and commercial offers are always clearly marked.” And there are plenty of American consumer newsletters across finance, health and travel. Some US publications, like Cuisine at Home, promote themselves as “magazines without ads”. Maybe just the start.
Publishers have agonised over the largely self-inflicted pain of free news and information on the web. But , for many, the problem is that – even if they convince readers to pay – the true-value price may just not be profitable. But, if readers won’t pay “enough”, then either the information is not worth it, or they are the wrong readers (!) – or the production costs are too high. Either way, traditional operators will need to change – or be decimated by new, low-cost operators, in hard copy or digital.
There is good news. The concentration on what readers will pay is clearly set to create some substantial new businesses, especially with the boom in mobile platforms. The US-based research firm Forrester forecast last month that the online paid-content market would grow by 65% to £8bn a year by 2017. It even predicted that consumer spending on digital news would leap by 77% to almost £250m. The number of people choosing to buy news content online will jump 68% from 4.8 million to 8.1 million, with 20% of tablet users choosing to do so by 2017. Forrester says: “While consumer research has for years reported that consumers claimed they wouldn’t pay for content, the forecast revenues indicate otherwise.”
But the buoyant predictions for subscription services bounce back to the future of advertising revenue. Forrester notes that the very services driving digital content growth will actually limit advertising opportunities: “Payment models don’t require brand advertising for revenue and … are driving the consumer appetite for more ad-free content.” Just as well.
Facing up to the real value for readers and advertisers is an obvious priority for publishers. The sums will vary but there can still be a lot to look forward to. International magazine brands may be increasingly able to exploit the centralised global media booking favoured by major advertisers. Specialist magazines may find it easier to sustain their current business models with narrow-cast advertising – and editors and readers who together share a passion. Some daily and weekly newspapers have, even now, got the revenue balance about right – even if they still have antiquated costs to change. We should expect more publishers to collaborate in order to maximise the cost-effectiveness of advertising sales generally. And there’s plenty of growth in sponsorship.
Ecommerce remains a potential game-changer. But this may be achieved only at the expense of the “flat” advertising revenue that has been crucial to newspapers and magazines for decades.
Publishers should look ahead, do the maths and make the changes. It’s time for radical thinking, before it is too late.