Magazines Today and Tomorrow: Distribution Executives Air Views

What are the key priorities and opportunities as the magazine category positions for a post-recession future?

Here are highlights of distribution executives’ views, offered during two newsstand panels held recently at the Magazine Publishers Association’s Magazine Innovation Summit in New York and Distripress in Phoenix.

The panels: 

* MPA  Moderator: Michael Sullivan, president/CEO, CoMag Marketing Group LLC; panelists: Ronald Clark, president/COO, Hudson News Group US; David Parry, president, The News Group US; Alan Tuchman, president, Source Interlink Distribution

* Distripress   Moderator: Lisa Scott, executive director, Periodical & Book Association of America; panelists: Chris Argentieri, SVP operations, Source Interlink Media; Shawn Everson, chief commercial officer, Ingram Content Group; John Dorman, president, Newsways Distributors; Jerry Lynch, president, International Periodical Distributors Association; Jim Roberts, COO and EVP, Kable Distribution Services

Where the Category Stands

The executives agreed that a distribution interruption such as the one that followed the closure of wholesaler Anderson News in February must, in Parry's words, "never happen again." But several also said that the channel structure has emerged in better shape.

“The disruption was painful, but it cleared the path,” said Source Interlink’s Tuchman. “My view is that the least efficient of the [four major] wholesalers went out of business...and once we get through this [recession], I think the path will be wider, too. There’s still tremendous opportunity.” At Distripress, Source Interlink’s Argentieri noted that channel restructuring after Anderson’s demise has resulted in reducing some of the retail servicing redundancies across wholesalers, which should improve operational efficiencies.

Both the distribution event and the economic downturn “underscored the agility of the channel, as we scrambled as an industry to regain distribution in about 55,000 retail locations—and also renewed publishers’ and retailers’ appreciation of single-copy sales,” observed CMG’s Sullivan.

Several wholesaler executives said that the category needs to work hard and cooperatively to rebuild relationships with retailers in the wake of the distribution disruption. 

All concurred that wholesalers, national distributors and publishers need to continue the critical work begun by the Magazine Retail Growth Initiative (formerly One Voice) of cooperatively and consistently conveying the category’s true profitability and value to retail management.

Equally important, “We’ve got to find ways as an industry to be a solution provider for the retailer,” stressed Sullivan.

Similarly, Tuchman emphasized the need to make the category "easier for the retailer," specifically mentioning scan-based trading as "necessary." He also stressed the importance of testing new approaches for driving sales.

Retaining perspective about the short term and optimism about the longer term were common themes.

Sullivan pointed to the huge growth of the celebrity category in recent years and major launches such as Everyday With Rachel Ray, Cooking With Paula Deen and the Food Network Magazine as evidence of the “continued vibrancy” of magazines. “We should not forget that magazines present new and unique offerings in each and every issue, whether weekly or monthly,” he added. At the same time, “the consumer votes on each and every issue, so getting the right product to the right place at the right time, as well as display and merchandising, have never been more important than today.”

“The economic downturn has hit every category in every retailer,” stressed Tuchman. Noting that Source Interlink is also a distributor of CD's and DVD's, he contrasted the fundamental paradigm disruption going on in the music business, as it struggles to cope with having let the "genie" of free downloading out of the bottle, with the magazine business. “Magazines are a tremendous value for the consumer, and...the consumer does vote every day. We produce a new product every time, and that just doesn’t happen in other industries. That's very strong and compelling. So I’m very bullish.”

Speaking as a magazine publisher as well as distributor, Tuchman emphasized that it is in publishers' own best interests to continue to invest in the newsstand, because it represents their “gateway” to consumers. "Content drives everything," he added, but publishers also need to drive the alignment that's needed among the players in the channel by "putting more emphasis on newsstand sales."

Parry pointed out that magazines are generating over $4.5 billion in sales in “one of the worst economic times in the nation’s history,” and despite an accelerated “onslaught” of competition from beverages and other categories for space at the front end. He also said that magazines will continue to thrive as digital devices and communication modes proliferate, just as they did through the advent of movies, television and computers. “Through it all, we’ve continued to sell millions upon millions of magazines,” he said.

Argentieri noted that reduced retail traffic and consumer spending has impacted impulse items, including magazines, in virtually every area of the world, and that all types of categories are being affected as retailers change strategies and planograms in response to consumer behavior shifts. “Most large chains put a lot of energy into the magazine category and are very supportive of it,” he said. “We just need to be on the same page with what our message is and deliver some good news.”
 
“Retail is in the midst of a perfect storm, and some of the category changes we're seeing are part of changes in the retail environment in general—changes driven by economics,” agreed IPDA’s Lynch. However, he reemphasized the need for the industry to correct common retail misperceptions about the category, drive home its profitability and benefits over competitive categories, and help retailers tap still-unmined category sales and profits.

“For example, a grocery store’s cost for handling a magazine is two cents, versus the overall grocery average of over eight cents,” Lynch said. “And there’s a huge opportunity gap. Magazines are used by 80% of households in the country, but the average category volume in grocery is under 1%. The category is way, way underpenetrated, and that’s true across classes of trade."

Opportunites to Grow Sales, Profits

Opportunities and priorities identified ranged from product development and marketing to improved operations:

* Higher-priced newsstand-only specials.  Argentieri welcomed publishers' embrace of higher-priced, newsstand-only specials.

These products can command higher prices because of huge short-term demand and generally larger numbers of pages than a standard issue, and the pricepoints and use of repurposed content make them profitable to publishers even without advertising, he noted.  

In addition to specials covering Michael Jackson’s death (at least $55 million in incremental sales), Barack Obama’s election, and sports events, magazine specials are riding on trends like hot books and movies.

“There have been more and more of these products in the U.S. in the last year and a half, and especially in the last few months,” Argentieri said. “It’s a sound economic model for publishers and it’s created a growing revenue stream for the entire channel. This is exactly what retailers have been asking for for a long time.”

Time Inc. excels at specials, but many other publishers are also in the game, he noted, mentioning bookazine or specials examples such as extensions of the Dan Brown novel phenomenon (Solomon’s Key) and the “Twilight” franchise (The Sexy Stars of Twilight). “A few years ago, we wouldn’t have seen nearly as many Jackson specials,” he added. Rolling Stone, for instance, which had a very successful Jackson special, “would not have played in this sandbox” years ago, he said.

Hudson News’s Clark noted that in timely or trendy scenarios, magazine publishers’ core strengths come into play to the whole channel’s benefit. “Michael Jackson died on a Wednesday, and we had product out on the street by Sunday,” pleasing retailers clamoring for such product, he said.

* Niche titles. The health and fitness category is one that has continued to perform well even through the recession, and niche titles in areas such as yoga and pilates tend to carry higher prices, Argentieri said.

Enthusiast titles in general should continue to show strength in the long term because of audience’s loyalty to them, he added, acknowledging that Source is a publisher of such titles. “However, if mainline space starts to shrink, lower-priced titles will be an even bigger piece of the pie, which has been a huge factor in wholesaler economics."

“Consumers will pay for a good product, across categories, and niche publications are often of higher quality,” maintained Everson of Ingram, which direct distributes many special interest titles. “International titles sell, despite their much higher prices, because of the quality of their content” and their value-addeds, and U.S. crafts and hobbies titles outperform higher-volume, more general interest women's titles in net sales terms for Ingram and its retailers, he said.

* Expanded marketing and promotions.  Some wholesalers on the panels encouraged publishers to find ways to offer more pricing promotion support and/or newsstand premiums like DVD’s. Dorman of Newsways Distributors noted that World Wrestler recently had success with a 7-Eleven promotion that offered a poster premium with the purchase of a magazine, for example.

Argentieri also encouraged publishers to invest more on magazine category or specific brand marketing. While TV commercials might not be financially feasible in the U.S. model, he noted that some U.S. magazines are experimenting with less expensive media like billboards, trading ad pages in magazines, and commercials being shown in the back of New York City cabs (InStyle is one title currently trying this last concept).

IPDA’s Lynch said that publishers generally support the idea of increased marketing programs, but are currently using tight promotion budgets for programs such as potentially scalable price promotions. He noted that, following a successful, cross-publisher price promotion with Meijers last year, a second, expanded promotion was conducted with all retailers serviced by Harrisburg News during this year's back-to-school timeframe.

*  New approaches.  Kable’s Jim Roberts reported that using zip code analysis and subscriber demographics to identify geographic areas where expanding newsstand distribution should lead to increased sales has resulted, in tests with wholesalers, in significant increases in both dealers and sales for specific titles.

In addition, identifying wholesaler groups with the highest percentages of waste and then working with wholesalers to correct inefficiencies retailer by retailer—what Kable terms “bucket analysis”—is enabling redistribution of copies from retailers where a title is not selling (zero-copy sellers and sometimes one-copy sellers) to those more likely to sell them.

On a different front, Argentieri suggested that mixing up the selection of magazines available at different checkouts within a store, in some cases as part of themed promotions, might encourage consumers to browse and buy magazines from closed checkouts.

* Expanded retail reach.  Several speakers suggested that publishers would benefit from focusing on reestablishing the magazine category at convenience stores and smaller stores no longer served by mass wholesalers. Penthouse Magazines Group VP, circulation Joe Gallo, in attendance at the Distripress panel, estimated there are at least 100,000 C-stores not carrying the category, each of which could sell perhaps $250 to $500 in magazines per week, given the proper assortments.

* Operational efficiencies. Hudson News is reevaluating its processes and investing in more automation and robotics in its operations, according to Clark. Source Interlink has been taking costs out of operations and investing the savings in increased field services and other sales-drivers, “and it’s made a difference,” Tuchman reported.

National distributors have been investigating reducing redundancies in non-competitive functional areas, and Parry suggested that if such savings can be realized, these could also be rechanneled back into promoting the category. --K. Lukovitz