Media Fortune Fame & Folly

UK magazines in crisis

For evidence that Covid-19 has accelerated systemic media trends, you need look no further than the UK magazine market. In the first three months of the year, newsstand sales (which account for the large majority of UK magazine circulations) were 8% down on 2019. Lockdown pushed the year-on-year decreases to 20-25%. There are a few bright spots, with puzzle and home improvement magazines growing strongly. But these are eclipsed by even larger losses among women’s weeklies and teenage magazines.

Even supermarkets, which have benefitted from strong grocery sales, have been selling many fewer magazines. Social distancing and reduced in-store browsing hasn’t helped.

UK magazine sales have now decreased year-on-year at the rate of 10-18% for 10 consecutive weeks (and worse in supermarkets). For many shoppers, the magazine buying habit may have been broken.

Magazines have long been important in the UK. It is almost 300 years ago since a posh Brit called Edward Cave coined ‘magazine’ from the French word for ‘storehouse’. His pioneering The Gentleman’s Magazine was a miscellany of content including commodity prices, Latin poetry, medicine, and parliamentary reports by one Dr Samuel Johnson.

It survived until 1922, just before the launch of Radio Times, the world’s first listings magazine. The country has been mad about magazines ever since. For the last 50 years, the UK has had something like half the number of consumer magazines as the US, which has five times the population.

They grew strongly during the second half of the twentieth century, fuelled by the advertising boom which helped to keep cover prices down. It was a virtuous circle – until the internet burst into life.

Given the role of advertising revenue in reducing their dependance on readers, it is no surprise that many magazines (and newspapers) initially reacted crazily to the internet by providing – for free – content for which print readers were still paying.

The eventual revenue losses were compounded by the belated realisation that digital success would depend on much more than just pushing print-style magazines online. Most publishers could never decide whether the web was ancillary to print or a genuinely new media channel, so they carried on believing in the invincibility of their legacy brands. They’ve been living with the consequences ever since.

For all the fact that many magazines are admired and trusted media brands, the business models are (mostly) broken.

What else explains why UK magazines have been losing advertising and circulation revenue remorselessly for the past 10 years – despite the continuing growth of advertising expenditure in most other media? Or the surveys showing that readers trust magazines (almost more than any other media) but fewer and fewer people buy them?

The trend continues. In 2019, magazines had £654.5m of advertising which was 8.8% down on the previous year in a market which had grown by 6.9%. Only regional news brands did worse. More significantly, 40% of magazines’ advertising was digital but even this part of the revenue was 2.3% down compared with 17% growth for all digital display.

UK magazines (in print and digital) now have only a 2.5% share of all advertising. It was 11% in 2008. Forecasts for UK adspend in 2020 show that only the locked-up movie theatres will be performing worse than magazines. Copy sales have fared even worse, plummeting by 70% in the past 15 years.

It makes the point that that, for many UK magazines, the business model has been wrecked by its conflicted dependence both on copy sales and advertising. They simply could not exist without both revenue streams. The loss of advertising has been more disastrous than the loss of copy sales. But it has happened during times when readers have increasingly been disinclined to pay much or anything at all for the content they may once have valued highly.

The trouble is not just that advertising dislocated the relationship with print readers, but also that the industry was hooked on the sugar-rush of news-stand sales, and failed to make longterm investment in postal subscriptions. The result is that copy sales have been falling as quickly as they had once risen. Newsstands still account for 70% of all UK magazine sales: think of them as relatively small businesses that don’t even know the names of most of their customers.

Magazine sales everywhere have suffered at the expense of digital. But in the US, for example, the business model involves low-cost postal subscriptions and profitability generated principally by advertising revenue. Few Brit publishers can afford to be as single-minded. But they still can’t shake off the urge to hype circulations to attract advertising. And, while they have been ramping up subscriptions during the Covid outbreak, for many magazines it is too little, too late.

With continuing Covid restrictions on shopping and travel, UK publishers are suffering not just from their fragile hold on paying audiences but also from their dependence on retailers which themselves are fighting for their lives.

The greatest fear of many UK publishers is that WH Smith, the country’s largest retailer of newspapers and magazines, will be forced to substantially reduce its operations. The 228-year old company (which is the world’s oldest retail chain) has a 15% share of UK magazine sales through its high street and airport-railway outlets. Even in changing times, it is the magazines specialist and sells many publications that are scarcely available anywhere else.

The trouble is that, pre-Covid, the company had been generating some two-thirds of its profit (and by far its best margins) from high-density travel outlets. By contrast, profit from the magazines-rich 576 high street shops has shown no growth for the last five years.

After the lockdown (during which most WH Smith shops have been closed) the £1.4bn-revenue company will be under pressure from investors to sharply reduce its high street retailing – after years of trimming. This could threaten the viability of hundreds of UK magazines and deny them the “opportunity” to regain sales lost during the Covid cutbacks.

It’s a nightmare scenario which might also increase the power (and 41% share) of the country’s five major supermarket chains. One German-owned discount chain has already stopped selling magazines in the UK. Might others follow, or will supermarkets eventually restrict their shelves only to a relatively small number of the best-selling magazines?

Some publishers are gloomily predicting a 10-15% reduction in the 2,250 magazines currently published in the UK, presumably including many of the estimated 100 brands which had suspended print editions during lockdown. The country’s four largest magazine publishers are bracing themselves:

Future Plc is busy digesting the £140m acquisition of TI Media which makes it the UK’s largest magazine publisher, by revenue. But its success (at least 50% of profits come from the US) owes as much to e-commerce and pureplay digital media as to its magazines heritage. The game-changing acquisition, agreed pre-Covid, is expected to lead to some consolidation particularly the merger of related magazines (say, in boating, homes, and country sports, where TI has multiple brands) and the scrapping of at least some print to create all-digital brands. The Independent’s success as a digital-only “newspaper” may have encouraged Future to consider this strategy in markets where it has established brands but weak business models (for example, with its three traditional women’s weeklies).

Bauer Media Group has long claimed to be the world’s largest magazines group. The 145-year-old, Hamburg-based publisher had built an unrivalled circulation-led magazines business in Germany, the UK and US, before it struck out with the acquisition of the diverse EMAP in the UK and, then, ACP Magazines in Australia and New Zealand.

EMAP had grown rich on the back of young women’s celebrity and specialist weeklies but their post-digital decline was overshadowed by the soaring success of its radio stations. Having expanded networks in the Nordic countries, Bauer is now Europe’s largest radio group, and the second largest (to Global) in the UK. It has changed everything.

In 2018, the parent company had flat revenue of €1.6bn, 46% of which was derived from copy sales. But the €440m (28%) of radio revenue might have generated more than 50% of the total Bauer Media Group profit. Some €110m (7%) of revenue came from the growing price comparison sites which have more than 10m users in Scandinavia and Eastern Europe. For all its promotion as a group with 600 magazines, it is easy to believe that all Bauer’s growth and most of the profit will soon be coming from radio/audio and price comparison sites.

The signs of a shift in strategy for the family-owned company – once famous for never making sudden moves – are its abrupt closure of the New Zealand subsidiary which only last year had made profits of A$11m. Next may be the rumoured sale of its Australian magazines group for a price of, perhaps, 20% of the A$750m Bauer has “invested” during eight painful years in the AsiaPacific.

Once it quits Australia, only €128m of revenue from the US stands in the way of Bauer becoming exclusively pan-European once more. And, last month, it announced the closure or sale of no fewer than 10 of its 100 UK magazines including the iconic music brand Q and Golf World. Time was when Bauer never sold or closed any magazines anywhere. Big change.

Immediate Media is the company which was spun-out of the BBC in 2011. It has grown profits largely through maximising the profits of the Radio Times, the premium-priced weekly that (even more than other listings magazines) is declining but very slowly.

Radio Times (45% of whose 520k copy sales are postal subscriptions) may still account for some 50% of Immediate’s £40-50m operating profit. But Immediate is no slouch at developing pureplay digital services, events – and has more subscriptions than any other UK magazines group.

Burda acquired the publisher from private equity for £270m in 2017. Last year came the reality check of a £40m offer for its strongly-growing Hitched wedding media group – which was accepted by Burda only four years after Immediate had acquired it. While the weddding divestment followed the parent company paying an estimated £30m for the powerhouse BBC Good Food brand, the sell-off shook insiders. But that was before they realised Immediate’s 2018 profit growth had slowed to just 7%. Payback.

Hearst Magazines last made a mere £4.6m operating profit from £146m revenue in the UK. We might not expect too much more rationalisation (yet) of magazines from the privately-owned US company that has demonstrated its longterm commitment to modernising (not abandoning) the newspaper and magazine brands on which the $11bn-revenue corporation was built. This is the company which, far from furloughing or laying-off any staff, paid them all a Covid bonus.

But Hearst’s considerable US investment spending is now concentrated on 1) business information services 2) broadcasting-streaming and 3) pure-play digital. So we may expect game-changing B2B investments in London, perhaps especially relating to the media, marketing, advertising and research sectors that would fit well with the traditions of Hearst Corp‘s Cosmopolitan, Good Housekeeping and Elle.

In some ways, of course, those media companies are reminders of the history of magazines where large companies exploited scale economies across a wide range of print publications. The sheer diversity of 21st century media dictates that such efficiencies are now much more likely within specific subjects or audience groups i.e. related to content and relationships. That’s why, arguably, the more exciting magazine-centric performances may increasingly come from specialist companies – or from semi-autonomous specialist units within large companies.

Take the £200m-revenue Dennis Publishing. For all its once-strong tech and auto magazine brands, the 46-year-old, private equity-owned company is now essentially two specialist media businesses: news and current affairs led by The Week, which will, presumably, come to include more audio and perhaps even radio and TV; and its fast-growing online car retailing.

UK-based focused media companies as diverse as The Economist (with 740k subscriptions), The Spectator (91k), and Slimming World (494k) remain successfully print-centric.

Arguably, the difference is that the heyday of consumer magazines was based on exactly Edward Cave’s 18th century ‘storehouse’ approach to content. In the post-digital era, where so much ho-hum content (and even some valuable reading-viewing) is free, the most durable brands will be those with content you simply can’t find anywhere else. How many of the women’s brands that comprise almost 40% of UK magazines revenue could possibly claim that?

The longterm expansion of specialist or lifestyle media must increasingly be based on:

  • A direct relationship with readers-users-viewers, as members or subscribers
  • Providing services “for enthusiasts, by enthusiasts”. Authenticity.
  • A truly “platform-agnostic” approach to the provision of products, services and platforms
  • Interactive services which encourage the “glue” of intra-membership community relationships
  • Ownership of exclusive information for and about the market
  • Collaborations, alliances and partnerships to enhance versatility and expertise

That approach is, of course, the antithesis of the monolithic media company which claimed it was the best publisher of, say, car magazines simply because it had hundreds of other, unrelated publications.

This need for specialisation has propelled the best of the B2B media companies to longterm growth where there were once only printed magazines. Specialised ‘narrow but deep’ expertise enables ‘new’ media companies to build durable relationships through the provision of exclusive content and services.

It has taken the Covid virus to disrupt consumer magazine sales and (perhaps) to wake publishers to the urgent need for transformation. The 2020 magazines earthquake is changing the landscape for ever.

Additional research by Wessenden Marketing