Magazines need a Solution not a Bail-Out

Magazines and Newspapers are finding the recession very tough mainly because of a sharp drop in advertising, which co-incides with a shift in advertising budgets towards performance-based digital advertising. Advertising Age has an informative article which tries to analyse some of these trends and put some numbers on the digital revenues that magazine companies are achieving. According to the Ad Age figures, Time Inc is one of the magazine companies that is most successful in attracting digital ads (c. 10% of advertising revenue across the group comes from digital), and Conde Nast is one of the worst with only 3% of ad revenue coming from digital. But these successes are modest and the real problem with the major magazine companies (especially in the US but to an extent in the UK) is that they have pushed for advertising revenues at the expense of circulation:

A big part of the problem -- and the current pressure for change -- stems from the prevailing emphasis on building ad page sales and increasing ad page rates. Conde Nast practically fetishized ad pages for many years, but almost everyone played the game. Pushing circulation as high as possible, though, undermined subscription prices and ran up costs for marketing, paper and distribution. (Nat Ives: Ad Age 19/1/09)

In effect the magazine business has been experiencing an advertising bubble which has been expanding ad pages, but shrinking circulation revenues for over a decade. The music has stopped and the advertising budgets are popping. This is not a temporary problem, as Ives puts it: "And whatever relief arrives whenever the economy recovers from the recession, nothing suggests that magazine ad page sales will reclaim their previous heights." The magazine industry has a real challenge and is facing a tectonic shift. It has to get more digital and it has to replace advertising revenues which will not come back quickly. I would not be completely gloomy about the prospects for magazines acquiring new digital advertising revenues in due course. Magazines really have to have solid digital audiences before they can expect promising growth in digital ads.

All of this says that magazines must look at the options for building circulation revenues, including digital circulation and digital subscription revenues. There are straightforward and effective ways of doing this, for example with the Exact Editions platform for digital subscriptions. The banks have to go to the government for a bail-out, but the magazine industry can solve its own problems by building digital circulations. Digital subscriptions are clearly part of the solution, and it is extraordinary that many of the largest and most successful magazines have not yet seen this.