Long Live the Reader
Breaking magazines’ dependence on advertising
Consumers have long defined themselves through their affinity
for powerful brands: Yankees vs. Red Sox, Coke vs. Pepsi, Apple
vs. PC. The same is true in the world of magazine publishing:
Glamour vs. Vogue, People vs. Us Weekly, Sports Illustrated
vs. ESPN The Magazine. Yet as magazine subscribers become few
and far between, and subscription prices are practically free —
26 issues of Forbes for $30 — there is an approach that publishers can take to maximize revenues from traditional print audiences.
It requires quantifying the value of readers.
Imagine a world where tickets to professional sporting events are practically
free. Even the New York Yankees, in
their new stadium, offer all their seats
for less than $5—because they always
have. Many years ago, signing a lucrative television contract, the Yankees
pledged to supply a sellout crowd for
every game, so the cameras would never pan empty seats. To fill those seats,
the Yankees turned to a guy from the
neighborhood known only as ChainLink, whose recruits sell $5 Yankee
tickets and pocket the proceeds.
You’d think fans would be thrilled.
But over the years they’ve come to
equate the price they pay with the
value of the experience. “Go to the
Bronx? We can watch for free on TV.”
Worse, the Yankees don’t have any
money for free agents, and are on the
brink of bankruptcy. Now TV ratings
are eroding, concessions and merchandising sales are plummeting, and
pundits everywhere talk about “the
death of pro sports.”
The Death of Print
When a magazine
Welcome to the world of magazine
publishing. Many subscribers to glossy,
two-pound fashion magazines pay less
than $15 a year, which doesn’t even
cover the costs of printing and mailing, much less content generation.
That’s the price because that’s always
been the price—because magazines’
deals with advertisers involve circulation targets known as rate base. To
meet rate base, publishers turn to lowprice deals and subagents. Everything
else follows accordingly. Subscribers
undervalue the experience, magazines
teeter near bankruptcy, staffers lose
jobs, advertisers suffer disappointments, and pundits mourn “the death
of print.” With advertising down 24
percent in 2009, it’s a downward spiral
that can end only in its self-fulfilling
prophecy.
But is it really the death of print?
Or is it a series of misaligned incentives and failures to reap full value
from transactions? Figure 1 illustrates
identifies a true
fan through vigilant analysis of
lifestyles, rather
than knocking on
random doors and
appealing to school
spirit, the process
becomes a foundation of the magazine’s profitability.
FIGURE 1: The evolution of publishing strategies
Business
strategy
Integrated sales
and marketing
Media
sales
Event
sales
Advertiser
Relationship-based
• Traditional print
• One-on-one
sales tactics
• Title-focused sales
force with some
corporate support
Key
drivers
Circulation
Channel-based
• Digital sales (web, mobile)
• Combination of one-on-one
and ad networks
• Digital sales force
• Direct effectiveness measures
Placement
Consumer-targeted
•
•
•
•
•
Experiential or event revenue targets
Connectivity through social networks
Integrated effectiveness measures
Multi-platform sales and marketing teams
Consumer-centric revenue objectives
Connectivity and access
Source: A.T. Kearney analysis
the evolution of publishing strategies—from relationship- and channelbased to consumer-targeted.
We’ve Always Done it That Way
Magazines’ consumer marketing departments have a solitary goal: to hit rate
base. Focusing on this short-term target—rather than seeking to maximize
long-term content-related revenue—
results in two counterproductive practices: publishers set prices too low for
direct-to-publisher sources (a trend only
exacerbated by the growth of free
online content), and they have an
undisciplined reliance on subagents.
The most disreputable subagents
transport crews of door-to-door salespeople from town to town, using
shoddy business standards that have
led to scandals. But even the most
honorable subagents—whether they
are school fundraising programs or
ethical telemarketers—take a commission ranging from 35 to 100 percent of
the subscription price. Indeed, publishers sometimes even pay subagents
more than a 100 percent commission
in a mad dash to meet monthly circulation targets.
In a business environment where
magazines continually constrain their
budgets for circulation marketing,
subagent commissions are typically
not viewed as an expense, but as a
deduction from gross revenue. This
sleight-of-hand creates a vicious cycle,
because the agent commissions still
represent lost revenues. Thus budget
cuts beget reliance on subagents,
which beget reduced revenues, which
beget budget cuts.
On a more strategic level, subagents symbolize publishers’ selfdefeating outsourcing strategy. Subscriber acquisitions should be among
a publisher’s core competencies. Somebody who would pay $15 for a year
of fashion magazines is looking for
some entertainment—but someone
Magazine publishers have to shift
their focus beyond
circulation management to multifaceted
revenue and profit
management.
who would pay more is a real fan of
fashion. And when the magazine has
identified that fan through vigilant
analysis of lifestyles, rather than knocking on random doors and appealing to
school spirit, the process becomes a
foundation of the magazine’s profitability. While there is likely a role for
subagents, the current strategy creates
confusion and sabotages the brands
publishers have built.
are often limited to the cash value of
the subscription.
What if magazines decided to use
an LTV model to quantify the total
value of a subscription, in a forward-
Somebody who
would pay $15 for
a year of fashion
magazines is looking
for some entertainment— but someone who would pay
more is a real fan
of fashion.
Breaking the ChainLink
Most companies—such as telecommunications, consumer packaged goods,
and retailers—can discuss at great
length the value of their customers,
because they’ve quantified that value
using lifetime value (LTV) models.
The most sophisticated LTV addicts
are direct-marketing organizations
such as financial institutions, cable
providers, and catalogers. Magazines
use direct marketing—but rarely comprehensive LTV.
At most publishers, LTV models
exist. Subscriber value is measured,
and sometimes used in budgeting
decisions. But most publishing executives lack real-time access to that data.
Instead, they do circulation planning
using backward-looking metrics that
looking environment? The magazine
would require a new mindset: don’t
just model circulation targets, but
identify methods of maximizing profits
(see figure 2). The LTV model would
need to allow for changes in market
and internal dynamics such as acquisition rate, acquisition cost, renewal rate,
and price. But it would provide:
• A holistic view of the subscriber across
all acquisition channels over time
• An understanding of how to allocate resources to maximize consumer revenue
• The ability to sensitivity-test scenarios by adjusting assumptions.
New Notions of Value
LTV models are mere tools, but they can
help smash the traditional limited view
of subscriber value—by forcing publishers to consider revenue sources such
as brand extensions, licensing arrangements and associated product sales.
The changed mindset can also
affect decisions about subscriber acquisition channels. For example, by modeling the long-term impact on both
cost and revenue of transferring subscriptions from one acquisition channel to another—say, from subagents to
direct mail—decisions can be dictated
by strategists rather than budgeters.
FIGURE 2: Parameters of lifetime value models
Budget
Determine budgetary constraints by channel to ensure calculations do not
|over-allocate to one channel
Channel penetration
Account for changes in acquisition costs and rates based on incremental
channel penetration
Support (resources)
Quantify additional resources (required to increase channel volume) by headcount
and material costs
Time constraints
Estimate timeline for customer acquisitions (for example, subagents needed at the
last minute to meet rate base)
Advertising constraints
Determine all requirements imposed by advertisers in addition to rate base
(such as channel mix)
Market trends
Address economic factors that might facilitate or inhibit customer acquisition
Source: A.T. Kearney analysis
When LTV calculations include
other revenue sources (such as list
sales of subscriber names, promotional events, branded items, and multimedia or social networking “add-ons”),
they help circulation departments
develop plans to diversify revenue,
reducing dependence on advertising.
When these plans succeed, they create
the opportunity to reduce rate base.
Suddenly the vicious cycle is broken,
and quality replaces quantity. Now the
magazine can reconfigure its advertiser
value proposition, offering not merely
X number of eyeballs, but a relationship with a defined, measured, and
motivated audience.
Shifting Focus
Today, there is widespread fear that no
magazine can survive the attempt to
shift away from the advertising-depen-
dent profit model. The fear is wellfounded. The process will not be easy,
and not all companies will succeed. Yet
it starts with a simple goal: shifting the
publisher’s focus beyond circulation
management to multifaceted revenue
and profit management. And the first
task is equally simple: providing consumer marketing departments with
tools to facilitate the move.
Authors
Jim Singer is a partner in the New York office and can be reached at [email protected].
Greg Portell is a principal in the Chicago office and can be reached at [email protected].
Lisa Tan is a consultant in the New York office and can be reached at [email protected].
Kimberly Capp is a consultant in the Chicago office and can be reached at [email protected].
A.T. Kearney is a global management consulting firm that uses strategic insight,
tailored solutions and a collaborative working style to help clients achieve sustainable
results. Since 1926, we have been trusted advisors on CEO-agenda issues to the
world’s leading corporations across all major industries. A.T. Kearney’s offices are
located in major business centers in 36 countries.
A.T. Kearney, Inc.
Marketing & Communications
222 West Adams Street
Chicago, Illinois 60606 U.S.A.
1 312 648 0111
email: [email protected]
www.atkearney.com
Copyright 2009, A.T. Kearney, Inc. All rights reserved. No part of this work may be reproduced in any form without written permission from the copyright holder.
A.T. Kearney® is a registered mark of A.T. Kearney, Inc. A.T. Kearney, Inc. is an equal opportunity employer. 11-09