FINANCES AND REVENUES

In 1990, there were 14,049 consumer and trade magazines in the United States. By 2001 that tally reached 17,694, up 25.9%. Yet this statistic is mis- leading. Magazine publishing sustained declines in the late 1990s, and the total number of books dropped from a high of 18,606 in 1998 to 17,694 in 2001, off 4.9% in only three years.

Revenue Streams

Consumer and trade magazines generally have a number of revenue streams: (1) paid circulation; (2) newsstand circulation; (3) advertisements (classified and display); (4) mailing-list rentals; (5) reprints; (6) book spin- offs of articles; (7) advertorial sections (i.e., an advertisement with the look and feel of regular editorial material in the magazine); (8) special issues; (9) trade shows (especially in the b-to-b segment; (10) exports; and (11) fran- chising the magazine to foreign publishers (who might translate the U.S. editorial content and insert their own ads).

A number of b-to-b titles rely on a controlled (i.e., nonpaid) circulation strategy, insisting their readers qualify (e.g., fill out a card indicating income, job title, etc.) to receive the title; these magazines dependent solely on advertising revenues. A small number of “Sunday newspaper” magazines (e.g., Parade, USA Weekend, etc.) are provided free of charge to purchasers of

a newspaper; these magazines rely on advertising and fees paid by the pa- per to the magazine.

Advertising

The advertising-editorial (ad-edit) ratio is an important barometer of a consumer magazine’s economic health (Ha & Litman, 1997). In the early-

GRECO

to mid-1990s, the percentage of editorial pages were higher than ad pages: 1991, an ad-edit ratio of 48.6% (ads)–51.4% (edit); 1994, 48.1%–51.9%; 1998, 48.3%–51.7%. By 2001, consumer titles had a 45.1%–54.9%, indica- tive of a flattening of advertising revenues in 2001 (off 8.2% from 2000) and a crushing decline in advertising pages in 2001 (dropping 17.2% from 2000). Major advertisers curtailed ad budgets in 2001, with the technology sector leading the way (–28.8%). Other sectors that reduced their ad place- ments included automotive (–2.5%), media and advertising (–15.7%), the finance, insurance, and real-estate area (–16.6%), and retail (–16.45). Other advertisers posted rather modest increases in ad budgets, including ap- parel and accessories and transportation, hotels, and resorts. Table 6.5 de- scribes these trends.

Fourteen of the top fifteen magazines (based on total gross dollar revenues) rely on three revenues streams: paid circulation, newsstand circulation, and ads. The exact ratio between these streams varies (Summer, 2001; Vakratsas & Ambler, 1999). For example, People depends heavily on advertisers (62.1%) rather than paid (18.8%) or newsstand dollars (19.2%). TV Guide is split almost eventually between advertising (42.1%) and paid subscribers (44.6%). Business Week counts on advertising for almost 91% of its total revenues. Overall, the majority of all consumer and trade magazines

TABLE 6.5

Magazine Advertising Revenues and Advertising Pages for Measured Magazines: 19902001 ($ Billions)

Advertising Percent Change Year

Advertising

Percent Change

From Previous Year 1990

Revenues

From Previous Year

may not add up to 100%. Reprinted with permission.

6. THE ECONOMICS OF BOOKS AND MAGAZINES

depend primarily on advertising revenues; and the impact of the ad revenue declines in 2001 and 2002 impacted severely on almost magazines in the United States. Only two titles in the top 15 magazines posted a positive increase in 2001 over 2000 in advertising pages: Power & Motor Yacht (+6.5%); and Transworld Skateboarding (+17.5%). Six titles were up on the ad dollar column, although four were in the single digit range: Modern Bride (+2.4%), Vogue (+1.7%), In Style (+2.9%), and New York (+1.6%). Table 6.6 outlines these trends.

Business Model

Magazines sell advertisers access to readers, and the very successful magazines provide advertisers with direct access to desirable demographics (women 18–49; men 25–39, etc.; Batra & Ray, 1986; Englis & Solomon, 1995; Hall, 2002; McCracken, 1993; Ohman, 1996). Ad rates are based on the cost per thousand of readers (CPM), and publishers guarantee advertisers a base readership.

An analysis of Business Week (a consumer not a trade magazine) high- lights its advertising strategy. This title offers an exceptionally strong de- mographic base to advertisers in terms of its readership’s age, educational, occupational, and income levels. It guarantees advertisers a North Ameri- can subscriber base of 950,000, and it delivers on a weekly basis about 971,756 subscribers (95.02% are paid subscribers, effectively negating the vagaries of weekly newsstand sales). Business Week offers advertisers national, regional, and metro-area editions as well as special ad sections, guar- anteeing (and exceeding) rate bases every edition. In 2002 the standard one-page advertising space rates for black and white ($64,100), black and one color ($83,700), and 4-color ($94,800) advertisements are rather high, but discounts are available for multiple insertions. Business Week also pub- lishes international editions (Asia and the South Pacific, China, Europe, Latin America, the Middle East, and Africa). Other magazines completing in this same niche must offer attractive rates and demographics as well as effective editorial content that rivals or exceeds what Business Week offers, not an easy task.

Clearly, most of the major magazines (including Time, Jet, Latina, Forbes, etc.) developed similar strategies regarding national, regional, or international editions, Internet based sites, and global connections, especially as markets converge and transportation hubs increase in efficiency.

Financial Issues

The major financial indices (1997–2001, the last year data was available) and the events of 2001 and 2002 indicate a conundrum (Veronis Suhler,

TABLE 6.6

Top 15 Magazines: Advertising Pages and Advertising Revenues: 20002001 ($ Million) Magazine

Advertising Pages

Advertising Dollars

2000 Percent Change Fortune

Percent Change

476848553 –30.0% Bride’s

128437896 –0.68% Business Week

723914428 –9.4% Modern Bride

198254506 1.7% In Style

231820743 2.9% TV Guide

450406442 –13.7% New York

66571615 1.6% Power & MotorYacht

24563932 12.9% The Economist

69413551 –11.7% Transworld Skateboarding

16543106 28.5% PC Magazine

6. THE ECONOMICS OF BOOKS AND MAGAZINES

2001a, 2001b, 2002). This business posted gains in all of the major categories between 1997 and 1999: revenues +2.31%, operating income +21.63%, operating cash flow +20%, and assets +10.14%. Revenues continued to increase in both 2000 and 2001, but, as the data revealed in Table 6.5, concerns mate- rialized regarding ad pages and revenues. Ultimately, business conditions unraveled. Operation income sank horribly in 2000, off 94.52%. By 2001, conditions worsened and negative dollar totals were recorded. Similar pat- ters emerged in operating cash flow in 2000 (–15.97%) and 2001 (–10.86%), and these declines were mirrored in unsettling tallies in operating income margins, operating cash flow margins, operating income return on assets, operating cash flow return on assets, and asset turnover. Table 6.7 outlines these dismal results.

The prognosis for the rest of this decade is disconcerting. This industry slipped, and it will take a number of years before magazines rebound to their pre-2000 levels, a situation that prompted some Wall Street invest- ment bankers to eschew backing too many magazine mergers and acquisi- tions in these uncertain market conditions.

FINANCES AND REVENUES