Why Magazine Publishers Are Set To Make A Comeback
Beyond the headlines and hype, there is nothing intrinsically wrong with the magazine business and most likely stage a strong comeback.
While no one can predict the future, the most likely scenario going forward is very positive for print periodicals (although not for dailies). Moreover, any problems magazines might have won’t be due to any digital threat. Whatever the future holds, publishers hold their destiny in their own hands. Any failures will be their own.
While I realize that this view runs counter to conventional wisdom, it is in line with both the fundamentals of the business and the data trends.
Why Advertisers Buy Magazines
While every advertiser and every campaign is different, it’s safe to say that most spending in magazines is due to a mixture of four factors:
Price: While efficiency varies depending on the market, in developed countries such as the US and the UK magazines are roughly 1/3 the price of TV on a CPP basis. Because magazines publishers evaluate their product in a very unfavorable way, they often don’t realize this. However, media planners do (even if they don’t let publishers in on the secret).
Audience: Magazines offer a discrete audience. There is no other media where you can be so sure of whom you’re reaching and why. This is especially true in the US where local broadcast markets dominate and national buys are difficult to implement.
Context: Publishers still insist on calling this “environment,” but the principle works the same in print as it does on Google. Relevant ads tend to be more effective.
Shelf Life: Magazine ads don’t whizz by. In fact, they stick around for a while. This makes magazines attractive to advertisers with long product cycles, such as durable goods, financial advertising and luxury products.
Magazines and the Business Cycle
Magazines work best as a brand building medium, rather than a “call to action.” That makes them more sensitive to the business cycle than other media. Two factors contribute to make the magazine business enormously sensitive to business cycles.
Inventory Overhang: In a recession, manufacturers are usually caught with excess inventory. They naturally are more concerned with emptying their overflowing warehouses than they are with building brands. Furthermore, because new product launches are curtailed, there isn’t much need to communicate advantages of new products.
When businesses are drowning in their own inventory, they tend to favor sales promotions over the brand advertising that magazines excel. As I wrote before, brands will become even more important in the digital age, so magazines will have an important role to play.
Consumers delay purchases: When economic times are uncertain, consumers will be more cautious with big investments (frugality is limited with consumer staples and services).
If someone usually buys a car every three years and starts to worry about financial security, the first thing that they’ll do is put off that purchase for another year. It’s easier to delay a long term purchase than to go without everyday needs.
Since magazines rely heavily on durable goods, financial services and luxury goods, they get hit harder than other media. It’s a bit worse this time around, because the recession is longer, deeper and had its origins in the financial sector.
Eventually, companies run out of inventory and need to fill the pipeline with new products. At the same time, people can only hold off on purchases for so long. Pent up demand combines with regular purchases to create a bounce in consumer activity. Advertising comes back and nobody benefits more than magazines.
A Quick Look at the Data
It’s important to mention that the details differ by market. However, it’s been my experience that the same narrative described above holds in most, if not all countries. .
First, it should be said that 1999 is most likely an anomaly due to a change in methodology. However, discounting that, the data fits the business cycle story very well. Magazines fell further and faster than other media in the last recession. They also took longer to recover. When the economy came back, magazines bounced and had strong growth for most of the decade.
This time around it looks like the same story. Magazines did worse than the general market in 2008 and, although I don’t have the data for 2009 yet, it’s clear that it was a disaster. Moreover, things probably won’t be much better in 2010 as magazines take longer to rebound.
For 2011 and beyond though, things look pretty good. It’s important to remember that since the web emerged in 1996, magazine ad revenues have increased, even discounting 1999. Even when you look at magazines as a share of the total market, the business has been stable, if not gaining ground, since the dawn of the internet.
The past is no guarantee of the future and it’s quite possible that for some reason it will all be different this time around.. Still, there is no real evidence not to be optimistic about the future of the industry.
Durable goods, especially cars, have been selling at below replacement rates for much of the past two years. That’s unsustainable. Moreover, as many have pointed out, some weaker magazines have closed during the crises. The survivors will probably get an even bigger bounce than usual.
The Overhyped Digital Threat
Many people think that magazines will be overrun by the digital media. In actuality, Digital media doesn’t pose much of a threat to magazines (although it does to newspapers). While advertisers look to magazines for brand building, digital media is primarily a direct response vehicle (as are newspapers). That could change, but it doesn’t show any sign of happening soon.
Of course, at some point, maybe people will lose their taste for paper but, as John Maynard Keynes famously quipped, “In the long term, we’re all dead.” For the moment, consumers seem more than happy to cut down millions of acres of rain forest each year for their reading pleasure.
If anything, the digital arena is a great opportunity for magazines. Duplication rates for sites co-branded with magazines are usually below 50%, so the web is a great chance to generate new audience and revenue streams. Magazine web sites, with influential commentary (i.e The Atlantic) are actively linked to and tweeted. Moreover, some publishers (i.e. Conde Nast, Time Inc, etc.) are starting to show genuine web savvy. In a growing magazine market, digital revenues are all gravy.
Magazines hold their fate in their own hands. The greatest peril lies not from a “great digital threat” lurking in the shadows, but from missed opportunity. It’s time magazine publishers stopped whining and started building new skills.
btw. pls RT thx:-)