The Year's Top Worry: Circulation Economics

AS THE INTERNET AD THREAT FADES, PUBLISHERS REFOCUS ON TRADITIONAL ISSUES, OUR READER POLL INDICATES.

Suddenly, the Internet's threat to print doesn't seem so overwhelming anymore. The recent collapse of many dot-com companies has publishers focusing on the traditional thorn in their side, circulation economics, and grappling with a new challenge, the integration of print and digital media--the two major issues facing the publishing industry in 2001, according to a FOLIO:-commissioned survey.

Last year, 55 percent of publishers named the Internet's growth in gaining advertising marketshare as a top concern for 2000. But only 15.2 percent named that as a top issue for 2001. "Now it feels like the competition is among traditional print. Who's going to offer the most creativity for advertisers on their Web site?" says Diane Blazek, group publisher of Green Profit.

"I think clients are budgeting a certain amount for the Internet now, and they're not encroaching on the overall print ad budget," adds Donna Palmer, publisher of The Atlantic Monthly.

At least one publisher feels a battle may have been won, but the war over advertising turf is far from over. "I get the vibe that General Motors is still going to do as much online advertising next year. I'd still want the Internet on my radar screen [as a concern], big time," says Business Week publisher Bill Kupper.

One headache whose intensity hasn't dissipated is circulation economics. Last year, 42 percent of publishers named it as a top issue for the coming year. That figure grew to 61 percent for 2001. "Based on who they are trying to reach, all publications have to come to grips with, What is my circulation level?" says Context publisher Ned Fry. "We've always felt we have to grow our circulation to charge more for ad pages. But I think that, as an industry, we've started to turn the corner and realize we can't keep raising our circulation."

So what are publishers doing to help offset reader acquisition costs and grow their businesses? Increasingly, they're seeking out new revenue streams. A full 67 percent say that is how they will change their business models in 2001, based on the current state of circulation economics.

However, the reliance on advertising doesn't seem to be diminishing, according to one survey result. A full 91 percent of publishers say the advertising outlook is an indicator they rely on most often when planning for the coming year, while 70 percent named their competition. Most expect the flood of advertising seen in 2000 to dry up a bit. According to one forecast by Robert Coen of Universal McCann, national advertising in all media will rise by 6.3 percent in 2001, compared to a projected 11.8 percent in 2000.

"Everybody's taking a deep breath right now and waiting. I get the sense that more advertisers don't have their budgets approved right now, compared to last year at this time," says Fry of Context.

Business Week's Kupper expects an advertising downturn. "You can see it already," he says. "Last year at this time you had 17 dot-coms advertising for the January Super Bowl; this year you have five."

The dot-com demise may mean less competition for print but, on the flip side, it also means magazines will miss the advertising some Internet companies provided in 2000. "You had to look at it as a wonderful opportunity, but not as a long-term play," notes Stacy Bettman, publisher of Victoria.

Despite the loss of dot-com advertising, 61 percent of the publishers polled believe that their ad pages will grow moderately over the next six months, while one-third feel they will remain flat.

One survey finding underscores how the Internet is increasingly becoming a part of life for the magazine audience. When asked how much of their readers' time is being lost to the Internet, 24 percent of publishers answered "none" last year, while only 6 percent answered "none" this year. But there are still some who discount the Internet as a competitor for their readers' time. "It doesn't affect us because we don't compete in the sound bite arena," says Palmer of The Atlantic Monthly. "We get long-term readership through in-depth articles."

As for their own Web sites, publishers generally feel that they are just around the corner from profitability. Fifty-five percent say they foresee their Web sites being profitable within the next two years, while 15 percent say they are profitable now. And two-thirds of publishers say they will devote more money to their online businesses in 2001 than they did last year. "We'll be managing those expenditures very wisely, but it's still an area of increased expenditures," says Business Week's Kupper.

Publishers also recognize the critical need to attract and retain talent--including key executives--in today's economy. Forty-two percent named attracting skilled employees as one of the top-two issues facing the publishing industry in 2001. Many plan to institute new workplace benefits such as telecommuting, which was named by nearly half of those polled. "I think it will be helpful in recruiting," Fry says. "We already have a virtual office here. I work out of my home and most of our editors do, too. With such things as e-mail and teleconferences, I don't see why publishers aren't going to be doing more of it."

Finally, the impending 9.9 percent postal rate hike on third-class periodicals is a concern, but publishers don't expect it to be devastating. Seventy-three percent say it will "somewhat affect" their business. "It will affect us somewhat, especially with the heavier paper stock we'll have in our February redesign," says Palmer of The Atlantic Monthly. "But it's not going to change the way we do business."

WHAT ARE THE TOP ISSUES FACING THE INDUSTRY FOR 2001?

This year, the continuing problems with circulation economics have supplanted last year's major concern--competition for ads from the Internet. While 55.3 percent of publishers named Internet competition as their major worry last year, the number this year has dropped to 15.2 percent. Last year, fewer than half of respondents saw circulation as the big worry, while this year almost two-thirds name it as issue number one. The Internet is still casting a shadow, however; last year, just 18.4 percent of respondents voiced concern about attracting and keeping skilled employees; this year, the number is 42.4 percent.

CIRCULATION ECONOMICS                  60.6%
INTEGRATION OF PRINT AND DIGITAL MEDIA 54.5%
ATTRACTING SKILLED                     42.4%
EMPLOYEES
INDUSTRY STRATIFICATION                18.2%
BROUGHT ON BY
CONSOLIDATION
INTERNET COMPETITION FOR               15.2%
PRINT'S AD MARKETSHARE
OTHER                                  15.2%

HOW MUCH OF YOUR READERS' TIME DO YOU BELIEVE YOUR MAGAZINE(S) ARE LOSING TO THE NET?

There's no doubt that the Internet's popularity as an information provider has soared. In 1999, 23.7 percent of publishers maintained that their magazines were not losing any reader time to the Web. In 2000, that confidence level dropped 17.6 percentage points, with only 6.1 percent of respondents still sure that their readers are not being lured away by the Web.

1-5%                 27.3%
6-10%                30.3%
11-25%               18.2%
MORE THAN 25%           3%
DON'T KNOW/NO ANSWER 15.1%
NONE                  6.1%

WHEN DO YOU FORESEE YOUR WEB SITE BECOMING PROFITABLE?

Sometimes, optimism is all in how you slice the numbers. While 33 percent of respondents say their Web sites are either profitable now or will be in a year, over half (51.6 percent) expect to have to wait from one to five years to see the red ink turn black.

1 TO 2 YEARS         36.4%
3 TO 5 YEARS         15.2%
WITHIN 1 YEAR        18.2%
IT IS PROFITABLE NOW 15.2%
6 TO 10 YEARS         9.0%
NO ANSWER             6.0%

IN 2001, WHICH OF THE FOLLOWING DO YOU EXPECT TO IMPLEMENT IN AN EFFORT TO ATTRACT AND RETAIN QUALIFIED WORKERS?

Reflecting publishers' growing concerns about finding and keeping skilled staff, respondents list a number of changes and adjustments to employee benefits. Top on the list: the telecommuting option; a close second: a new salary structure. Hardly registering at all: an increase in time off.

TELECOMMUTING OPTIONS 48.5%
NEW SALARY STRUCTURE  39.4%
STOCK OPTIONS         27.3%
JOB SHARING           24.2%
IMPROVED              21.2%
HEALTH BENEFITS
NO ANSWER             18.2%
INCREASE IN            9.1%
VACATION TIME

WHAT INDICATORS DO YOU RELY ON MOST OFTEN WHEN PLANNING FOR THE COMING YEAR?

The ad market once again tops the list of publishers' tools for financial planning--not such a good indicator, perhaps, with national advertising in all media expected to grow just 6.3 percent this year, compared to 11.8 percent last year, according to Robert Coen of Universal McCann.

ADVERTISING OUTLOOK 90.9%
COMPETITION         69.7%
PAPER/POSTAL TRENDS 45.5%
STOCK MARKET        27.3%
JOB MARKET          15.2%
OTHER               12.1%

HOW MUCH WILL THE POSTAL RATE INCREASE AFFECT YOUR BUSINESS?

Perhaps it is the vanquished specter of a double-digit increase in the postal rate (projected at one point to be as high as 15 percent) that has almost three-quarters of respondents saying that they will be only "somewhat affected" by the final figure--a 9.9 percent increase.

GREATLY AFFECT     18.2%
AFFECT VERY LITTLE  9.1%
SOMEWHAT AFFECT    72.7%

HOW WILL YOU CHANGE YOUR BUSINESS MODEL BASED ON THE CURRENT STATE OF CIRCULATION ECONOMICS?

For the second year in a row, publishers are banking on new revenue streams to offset poor circulation economics and, this year, a slower growth in ad revenue. Interest in converting part of the circulation file to controlled is also up: last year, 5.3 percent of respondents saw this as an option; this year, it's 9.1 percent.

SEEK NEW REVENUE STREAMS 66.7%
RELY MORE                33.3%
ON ADVERTISING
OTHER                    24.2%
LOWER RATEBASE           18.2%
CONVERT PART OF FILE      9.1%
TO CONTROLLED
HOW CONFIDENT ARE YOU IN THE ECONOMIC
CLIMATE FOR 2001?
NOT AT ALL CONFIDENT                   6.1%
SOMEWHAT UNCONFIDENT                  33.3%
CONFIDENT                             60.6%
IN THE NEXT SIX MONTHS, WILL YOUR
NUMBER OF AD PAGES:
GROW STRONGLY                          6.1%
REMAIN FLAT                           33.3%
GROW MODERATELY                       60.6%

Publishers are an optimistic lot. Despite problems in circulation and forecast increases in manufacturing costs, nearly 61 percent say they expect the good times to continue; 66.7 percent believe their ad pages will grow.

IN 2001, WILLYOU DEVOTE MORE OR LESS MONEY TO YOUR ONLINE BUSINESS THAN IN 2000?

Damn the torpedoes, full speed ahead! The recent shake-up of the dot-com economy won't deter publishers from investing more in their online communities. Only 3 percent plan to back off in their spending.

METHODOLOGY:

Proximity Marketing, under the supervision of Intertec Planning and Research, faxed surveys to 327 "FOLIO: First Day" subscribers. Respondents sometimes checked off more than one choice, resulting in percentages that exceed 100 percent. Results were tabulated by Intertec Planning and Research.

INVEST LESS    3.0%
NO ANSWER      3.0%
STAY THE SAME 27.3%
INVEST MORE   66.7%

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