Media Fortune Fame & Folly

What can The Economist do?

The Economist is an unusual publication. It was founded 177 years ago by a struggling Scottish hatmaker who had turned to politics and banking. He launched the magazine to oppose England’s nineteenth century Corn Law import duties. It is now 43% owned by one of Italy’s richest families but its independence is guaranteed by trustees in London.

It advertises its elite worldwide readership: “90% of 1%ers are subscribers”. But the weekly magazine that calls itself a “newspaper” is not the bastion of political conservatism that its founder may have intended to engage “in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress.”

The magazine with its distinctive red nameplate carries no by-lines, giving it a single, often radical voice. In 1961, it was calling for the privatisation of state companies, a full 20 years before most mainstream politicians. In succeeding decades, it was out-front in advocating gay marriage (1996), the legalisation of cannabis (2014), and assisted suicide (2015). There’s plenty that’s surprising about The Economist, including that it is more about politics than economics, but much more than that.

It talks to powerful people and their electorates with unmistakeable authority. You can bet that many politicians will have nodded sagely at its assertion this week that “Worried voters may well have less of an appetite for the theatrical wrestling match of partisan politics. They need their governments to deal with the real problems they are facing.”

The Economist is one of the world’s most influential magazines and outsells most of its challengers. Its fans also include fellow publishers who admire the magazine’s treasured combination of journalistic independence and a robust business model.

The ownership structure might sound a bit like a charity but The Economist consistently gives shareholders 90% of the profit in dividends. It’s been yielding 5-6% for years. The always-profitable magazine has been able to manage the flip of 60% of its revenue from advertising to readership by increasing its average revenue per copy from £1 to £2.50 in the past 12 years. It has managed this while investing heavily in digital services and marketing. And this is one traditional publisher which hasn’t suffered the waves of print-centric job losses.

The Economist’s 1.7m global circulation (54% % in print) is some 55% in North America and 30% in Europe. Total circulation is 50% ahead of 2006. It’s become a significant digital player, with 9.6m monthly uniques, and more than 2m podcast listeners. It’s big on social media with 24m followers on Twitter, 10m on Facebook, 9m LinkedIn and 5m Instagram. Its documentary and interview films have over 500k subscribers on YouTube. And it emails 37m newsletters every month.

The Economist Group (which includes the £65m-revenue Economist Intelligence Unit research and consulting) has increased like-for-like revenue by 20% during 2015-19. The £333m in 2019 marked the fifth successive year of revenue growth. Indeed – with the exception of the 2011-13 advertising boom – it was the best revenue for 15 years. It was 70% ahead of 2005.

But that’s where the story gets a bit more messy.

In 2017, the company’s annual report noted that the proportion of revenue from advertising had fallen from 23% to 18%. It recorded a change in circulation strategy with an increased subscription price of 20% to reverse a longterm pattern of cut price subscriptions.

The following year, it reported a 35% increase in marketing costs to £50m – doubled since 2013. But the net increase of just 36k subscribers meant that the cost of acquiring new subscribers had risen by an average of 22%. The company’s chair declared starkly “… for the circulation strategy to succeed in the long term, this cost must be tightly controlled.” By 2019, with marketing budgets increased again, by 14% to £56.4m, the number of subscribers increased by just 13k: “This is less than we had hoped…”

The financials are illuminated further by its ABC circulation figures for July-December 2019. Some 910k of the 1.7m circulation is print. But no fewer than 9% of these copies (78k every week) were distributed free. The magazine’s claimed 5% increase in circulation was solely due to those free copies. But equally troubling for a publication which is spending so heavily on subscription promotion is the fact that a full 19% of the circulation comprises casual retail sales, multiple sales, and free copies.

That is the other side of a high-quality subscriptions marketing operation with systematic nudging of new subscribers to ensure they make the most of a substantial magazine many of whose readers, presumably, do not have the time to read it all. The publisher gives subscribers “risk free” access with a money-back guarantee if they change their mind at any time.

For all the achievements of readership revenue growth, The Economist made an adjusted operating profit in 2019 of £36.1m (9% margin), the lowest for more than a decade. The profit margin had been 17% in 2015 but has been falling ever since.

The profit pressures have driven the private company’s notional share price down by 23% since 2016 when longtime 50% shareholder Pearson sold out, partly to the Agnelli-owned Exor. It underlines the familiar vulnerabilities of print-to-digital transition.

Like so many publications, print (and, with it, most of the remaining £50m of advertising revenue) delivers the profit. The Economist does as much as anyone else to tie it all together by offering the printed magazine for £10 per three months to digital subscribers and vice versa. This might, of course, be slowing the decline of print. But, then, The Economist bundles everything for subscribers: the weekly magazine, the daily Espresso newsletter, podcasts, films, and digital content.

It is a brilliant package. But, just like the free copies that pad the advertising sales story, the marketing budget is struggling to justify itself. The mere 10% of The Economist circulation in, say, the AsiaPacific is underweight (by comparison with the 85% either side of the Atlantic). But perhaps the magazine is reaching its limit. What’s just as likely, though, is that this fine old publishing institution is having the same trouble as other publishers in holding an audience (perhaps especially young readers) in an impatient, bite-sized world.

The Economist’s strategy has been to produce its “mind-stretching journalism” across all media for all subscribers. But, like even the New York Times‘s stunning success with its separately-sold daily crosswords, it’s really all about increasing subscribers for its ‘compendium’ publication, in print or digital. That’s a 21st century hangup of publishers everywhere. For audiences that may always have been challenged by the sheer quantity of weekly reading (a bit like The New Yorker), The Economist has added a bundle of additional products and services – and at a time when readers may want less. Is its swollen promotion budget trying too hard to push water uphill?

For all the distinctiveness of The Economist, it is easy to believe that this weekly magazine will – like almost all traditional publishers – eventually have to offer its prospective readers much more flexibility and choice in what they pay for. That may mean unbundling ancillary digital products and services. It might involve joining its audio and video into full-scale online ‘radio and TV’ channels in order to attract new audiences. But it may also mean providing ‘pick and mix’ selections of the magazine content for those interested in specific geographies, subjects or sections.

The idea that Economist readers not interested in subscribing to the whole “newspaper” could be permitted to pay only for selected slices of multi-platform content might be heresy for the publication that “Attracts Magnates”. But that’s the challenge.

Meanwhile, the well-funded, independent, straight-talking weekly is pedalling hard just to stand still. But The Economist will find the way. Eventually.

The Economist