Wholesalers are not dying… they are committing suicide
July 24, 2007
I just came back from my usual weekly magazine purchasing tour in Memphis, TN. I bought 105 magazines and spend over $500.00. The price of the magazines ranged from $1.59 to $19.95. Some were $1.99, some were $2.99 and some were $5.99. Different prices for different magazines. The average cover price for a new magazine last year was over $6.50. Why the lengthy introduction? Very simple. The media lately has been filled with news that magazine wholesalers are pushing publishers of low priced magazines to cut draw and raise the price of their magazines. Some say that wholesalers cannot make any money on any magazine priced less than $2.50. In fact this week Mediaweek carried an article (read it here) by Lucia Moses titled
“Wholesalers Pressure Magazine Publishers to Up Cover Prices, Cut Draw.” John Harrington’s The New Single Copy editor repeated the findings of a study sponsored by Magazine Information Network. The study “reported that it was not possible for wholesalers to earn a profit on publications, no matter what the sale or retail sell-through percentage, on publications with prices of $2.50 or under.” The study drew a sharp response from Michael Duloc President and CEO of Kable Distribution Services, a national distribution company. His response to the MagNet study (and John Harrington), published in The New Single Copy this week states, “Relating to your (John’s) recent comments on this subject, your viewpoint, in our estimation, continues to be very slanted. It would appear that the major wholesalers (or perhaps another weekly celebrity publisher) are contributing beyond normal subscription rates to keep the issue of lower cover price, yet highly efficient titles on the radar screen. The question is, where would wholesalers be without this additional $450 million in annual retail sales? From your writings, one would quickly assume better off. I’d like to see audited numbers, versus the fuzzy number which have been used to substantiate this claim.”
It is amazing that the only publisher who revived single handedly the single copy sales, and I mean Bauer Publications, is now forced to kill what would have been their fourth weekly because of the “single copy market climate.” In the good old days, and in most of the world, magazines that sell are rewarded with better placement and good publicity. The wholesalers in their recent attempt to force Bauer to increase the cover prices of their magazines, and those of the rest of the publishers of low cover priced magazines, is gasping for their last breath of air. Those low priced magazines are needed to bring the traffic to the newsstands and to maintain the unit sales of their “bread and butter.” What type of logic is this that bites the hand that feeds you? It does not take a researcher or a Ph.D. (although I claim to be one and do have a Ph.D.) to see the flow in the wholesalers logic. They are digging their own grave and they are digging it deep. When you hear people say that the wholesalers are in trouble, check and see if the trouble is from their own making. Wholesalers are not dying in this country, they are committing suicide. They have buried their head so deep in the sand that they can’t differentiate between friend and foe.
As a matter of fact, do you know that four of the top ten revenue-generating magazines on the newsstands are Bauer magazines and are all priced under $2.00. If they, as publishers, can survive and make money from this single-copy driven model of publishing (unlike many other advertising driven publishing models), I cannot see or understand how the wholesalers cannot make any money unless the price is over $2.50. Wholesalers deliver magazines as a whole (in boxes) and not by single units and titles, and the average cover price of all magazines distributed (old and new) is almost $4.95. The magazine distribution channel is indeed broken, but the low-priced magazines that they are selling are not the cause of the problem. In fact if wholesalers do not want to commit suicide they need to force other publishers to lower the single copy prices of other magazines to be equal or close to that of the subscription prices. I cannot believe that they see fault with a magazine that sells at $1.99 and has almost a similar price for subscription, but they do not see fault with a magazine that sells for $5.95 on the newsstand but sells for less than 50 cents by subscription. It is a world gone mad. By the way, none of the covers shown above are from Bauer. I just wanted to show the proliferation of the low-priced magazines besides Bauer. They include respectively Meredith, HFM, Time Inc., Penny Press and Hearst. If those publishers did not see the wisdom of the low-priced single copy sales in reviving the single copy marketplace, a practice that Bauer has adopted since its inception as a company in this country in 1981, I do not know why they are doing it then! I am not going to second guess Bauer and their decision of not publishing Cocktail Weekly, but I am going to continue to give them credit for saving America’s newsstands, and the wholesalers, from a sure death. They maybe the only company that can help bring the wholesalers from the brink of death. Time for the wholesalers to hit the brakes and rethink their collective stand against the low-priced magazines. Rethink now!
Mr. Magazine 
Husni,
I think it would be worthwhile for you to spend some time going through John Harrington’s white paper on low cover priced titles. You are of course right that magazines are delivered in a box (tote), however they are received individually by title, they are picked (using perfect pick technology) individually by customer they are merchandised at retail by title and display and the returns are individually scanned by copy in our return centers. Why should we subsidize the cost of getting a publication to market? What’s in it for us?
I agree that there are issues concerning deep discounted subscription pricing, howver that is different from the low cover price issue of delivery product to market at a loss!
Samir: Respectfully… do you seriously believe what you have written? What consideration have you given to the actual costs that exist to perform the operational functions necessary to place a magazine on the shelf at over 15,000 newsstands (Anderson group) nationwide? If it takes $0.42 to deliver a letter to a mailbox, why would you believe a magazine can be processed, picked on an tieline, delivered, and merchandised for $0.10 – $0.12?? – dk
The economic realities of the single copy business have forced magazine wholesalers to understand their cost drivers better than they ever have. The issue lies not with one publisher, but with all low cover price, low discount titles. Title economics can not be simplified by cover price alone. They are a function of multiple variables including cover price, discount, size, weight, galley, and sales efficiency. As an example, the low cover price puzzle titles are actually covering their fair share of distribution costs.
The consumer price index (CPI) increased 26% in the last ten years. That translates into higher costs for labor, warehousing, fuel, trucks, etc. At the same time, magazine retail sales have increased 8%. Wholesalers are compensated in the form of discount from retail sales. At best, wholesaler gross profit has increased 14%. Put another way, wholesaler compensation is not keeping pace with inflation. By the way, US Postal rates have increased 28% over the same time period. Unfortunately, wholesalers are compensated with an outdated reseller model rather than for the logistical services they provide. Some publishers are exploiting this misaligned system to their benefit.
Titles priced under $2.50 currently represent over 25% of our distribution activities yet contribute less than 15% of our gross profit. This disparity continues to grow and must be addressed. We can argue about how to best attribute overhead based on totes, copies, bundles, pockets, etc. That issue is largely irrelevant, because many of these titles do not even cover their direct costs let alone contribute anything to fixed expenses.
There is no doubt that the low cover price titles have been successful in recent years. Unfortunately, that success has been subsidized by other titles and the wholesalers. We welcome a solution that addresses how to make low cover price titles good for all participants of the supply chain.
If magazines were sent to us in nice, neat boxes of mixed titles that are in the right quanitity per the store’s historical sales trends and do not need to be checked in or out at the back door, perhaps your scenario would work. But that is not wholesaler reality. Add to that the noise of pre-billing weeklies (product delivery delays from the printing plant which causes shortages & rebills, upc errors that cannot be fixed due to pre-billing etc.) and you have a substantial amount of costs to account for with margins that do not support it on low-priced titles.
If there was a cheaper way for a title to get to the newsstand market outside of the existing wholesale channel, I believe it would have been tested by now. There simply is not another delivery model that can make the math work. It’s time to understand the economics so all members of the channel can become healthy.
Samir,
I agree that consumers have proven that they like low cover priced titles. Sales of celebrity titles, many of them with low cover prices and weekly frequencies, are the major reason why the industry’s unit sales are up over the last two years or so. What the White Paper on low cover priced titles illustrated is that wholesalers can’t make a profit handling these titles under the current economic model the industry uses. I am sure that wholesalers would be willing to continue to distribute low cover priced titles, including new ones like Cocktail, as long as they were fairly compensated to provide all of the basic services, like merchandising and the added services like galleying. I don’t know of any other industry where wholesalers are forced to handled product that don’t provide a return on their investment. Wholesalers are attempting to change an antiquated system.
If wholesalers force publishers to sell magazines with cover prices above $1.99/$2.49 there will be nothing to distribute. The top 10 newsstand magazines make up 23% of all newsstand sales according to the latest ABC data.
The average price paid for those 10 single copy titles is $2.97 and the higher priced titles are seeing declines in their newsstand sales. So all you’re doing is asking the titles that are selling to not sell as much. That makes sense. The consumers have found a price point they’re willing to pay. It’s up to the wholesalers to figure out how to deliver it. If they can’t, well then they better find another business to be in because they won’t make money off magazines that don’t sell.
Let’s assume that at a $1.99 the wholesaler can’t make money. Then I suppose the solution is for the wholesaler to charge all publishers of $1.99 magazines more. (They can try to reinvent themselves or go out of business but it’s easier to charge more.) The publishers should be reluctant but willing to pay this increase from their other sources of revenue otherwise they will have to take a hit on newsstand sales. This will affect circulation and advertising revenue. They in turn will need to increase subscriptions. To get a subscriber is very costly. The choice is pay the wholesaler or pay the marketing cost to get a subscription.
As an aside- there are too many magazines. It’s just too easy to produce a magazine and put it on a retail shelf. This then raises the question – Is a bad magazine at $5.95 better than a good magazine at $1.99?
The answer is obviously not. However, the wholesaler would be willing to let a poor seller onto shelf-space and take off a good seller because it didn’t make any money for the wholesaler/distributor. Not good business sense for the retailer or the publisher.
Retailers are not managing the shelves with enough energy otherwise they wouldn’t allow some of the low selling magazines into their stores in the first place. That would solve the issue. The area that’s in control of this channel is the retailer. If the retailer can make money on selling a $1.99 magazine, then the distributor should also. If it’s not direct profit, then its cross-sell profit or loss leader or some other thing that pulls in the customer. This all works so long as the item sells.
The consumer drives the retailer, the retailer drives the wholesaler / publisher.
My conclusion: $1.99 does work- only if the sales are good (definition to be decided). Get the publishers of high volume $1.99 magazines to pay more for distribution. Get the retailer to throw in a bit. Don’t make everyone pay higher fees to support low priced good selling magazines. Get rid of the scrap magazines that don’t sell.
My business partner and I are a small, independent, single title publisher. Our monthlhy magazine and daily web site, DiversityInc, is a business publication written for line management. We have no outside investors and no corporate debt.
We abandoned newsstand about 18 months ago because we found it was eye-poppingly expensive and wholesalers held themselves unaccountable. Sales results were months late and we were placed in inappropriate newsstands. We put the newsstand money into online advertising and promotion.
We also switched from ABC to BPA and now serve free (qualified) subscriptions to anyone with a education, military, government or not-for-profit email address. Those folks show up as bonus circulation over our rate base on our rate card. However, they add significantly to our online traffic which has doubled over the past 18 months is now approaching 1 million uniques per month. We partially monetize that traffic via our online career center. Those subscribers receive a digital edition of the magazine (on-line), not the print edition.
We’ve doubled our margin to 30% and from that perspective I will give you my opinion that just about every “tried and true” business practice in the magazine industry is outdated. The newsstand is dying – I travel every week and look carefully at all the magazine racks. I don’t see people buying magazines. Unlike 10 years ago, I do not see them reading them in the cabins of either planes or trains either.
People are fiddling with blackberries, watching video on laptops and playing with PsPs or like game devices.
The $1.99 price point makes sense in the overall entertainment value received per hour when compared to the cost of the electronic entertainment devices. All other pricing discussions are irrelevant.
Having worked in executive positions of some of the largest wholesalers in the US and also running my own “small distributor”; it is nearly impossible to make any profit on low cover price magazine based on the general “model” the National Distributors utilize.
The “independent” wholesalers unfortunately no longer have the clout with Natl Distrs or publishers anymore to make a precedent. It’s too late. Wholesalers like SORC, HN, Andersen or NG have to make a stand; will they? NEVER. Reason for this, there too many side deals and other ventures polluting the system.
The remaining wholesalers should use an idea, that’s used outside the US, particularly in certain parts of Europe and Asia. If the wholesaler feels they cannot make a profit on the net sale of a low cover price title or new title, they should create an option for fee based distribution. The fee based model allows the wholesaler to make their fair share of profit. And why shouldn’t they? They’re assuming most of the risk aren’t they? From overhead costs to the A/R risk, who is most at risk?
Will this ever happen in the US on a large scale, doubtful. The Natl Distr’s system by far is antiquated and feeble in this day and age.
There is change in the air, though; will the independently owned wholesalers ever have any financial gains, no; but stockholders will.
Distrubution in itself is like one man carrying a pyramid with the farthist point wieghing the most. It is awquired at first but than you adapt. The problem I see in single copy distrubution is the wieght continues to go to the farthist point, the publisher makes money through circulation, the retailer has the guarrented sale and the distributor has all the risk and expense. The balance has to come from proper proportioned participation by publisher and retailer. How often does the retailer return expired or battered publications and why does the publisher have to be so strict on the expiration date of returned publications to mention a couple items. Overall where does it go from here?
I am looking for independent wholesalers from across the country that service urban markets. can anyone assist.
tiffanychiles@DONDIVAMAG.COM
I also am looking for independent wholesalers from across the country. That service pet markets. Please advise.
massivmedia@gmail.com
attention retailers, i have solutions on isle anthonty saluto
magazines, half the sales are from check lane titles, move them through the chain distribution systems. out with the computer system, a simple spread sheet can indicate draws and returns for proper adjustments to satisfy all publishers. most titles will be allocated by full, bundles. let a national book jobber ship in the new releases and bestseller books. eliminate the magazine mainlines, for now and add fewer titles in a complete make over. let stores dress the check lanes as they arrive. i am available to to transform you to chain store direct. buy direct at 40-50 off, and do your own allocations. anthony saluto productions,chain store magazine and book services. gosaluto@bellsouth.net 309-824-9176
If a wholesaler can not even cover the cost of distributing a magazine due to a combination of its low cover price, low sell through and/or marginal discount why should the wholesaler be forced to continue to distribute it at a loss?
Just because a magazine can turn a profit for the publisher does not mean the whoelsaler must handle that product at a loss.
Buzz Kanter
http://www.MagazineCircus.ning.com
How can magazines of higher value succeed in a market where distributors and wholesalers demand the same percentage margin as a low price, low value publication!!!! A magazine that has a cover price of $9.99 gets just the same service as one for $2.99. when a national distributor wants 58% off cover price and wholesaler wants say 50% off, yet the actual cash amounts are vastly different… Retailer % differs hugely on the cover price yet just does the same job. They don’t have to buy these magazines unless they sell them, they can’t treat magazines like bread and milk, there is no investment on their part and no risk!!! If a distributor wants 58 or 60% off the cover price on a high value magazine, where is the investment on their part??
The reality is your publication gets handed back with high returns and any sign of payment way off down the line.. 180 days after the off sale period !!!!! See how far you go with cashflow like that…. So lets all aim at the lowest common denominator; low cost mags, low value for wholesalers, whatever the demand and worst of all low quality for the consumer!!!! It will all end in total mediocre book stands with product that the consumer does not want and has a declining interest in. Oh yes we are there!!!
If you were producing a high quality t.v show why would it cost any more money to air it than a low quality one?? The fact is you would be paid for it prior to publication and you’d get more than you would for a cheap crap one, except distributors don’t pay for magazines do they… Well not until they are sold and a long time after that, pretty safe really. Flood the market, force them where they are not wanted and don’t fit, who cares/ Not them they won’t incur a cost!
If supermarkets had to pay for each magazine not only sold but supplied, like their other products, they would order more carefully… Quality might then be looked at… Looking at net profit over percentage might be very important… Magazines have a shelf life just like bread, what good are they beyond that? If you offered bread on sale or return you would expect the retailer to reduce margin so that you gained sales… You took away the element of risk for them, isn’t capitalism supposed to be a risk reward environment..
What has the price of postage with USPS got to do with magazine distribution and sales? They have a guaranteed price for a job done, no returns, payment up front and a wholly ineffective performance justified by a virtual monopoly created by volume and government support.
Are Wholesalers delivery companies or wholesalers? if they are just delivery companies, just charge a flat rate… Stop making higher value titles subsidize cheap ones..
If Distributors are just that and not agents then buy what you order, if you are agents then do what is best for your clients the publisher and get it where it needs to be without wastage and earn your margin.
If retailers want date sensitive product then join in the risk and pay for it if you get the order wrong. If not reduce the reward..
I don’t see USPS saying ” we couldn’t deliver your mail, so we want paying all the same and bye the way, we destroyed it because the stamp was out of date…