By Rebecca McPheters
Media Industry Newsletter
June 8, 2009
In the not so distant past, increasing ratebase was not only a sign of strength or “circulation vitality”, but a way to justify higher page rates and increase profitability. But for many publishers, the circumstances that led to past increases no longer apply – leaving them with circulation significantly in excess of optimal levels. In these cases, a ratebase reduction is needed. While the present economic realities can make a decision to reduce ratebase more obvious than in the past, establishing the optimal level is less straightforward. The success of a ratebase reduction strategy is dependent not only upon establishing an appropriate level for the new ratebase, but in achieving this level with consumer marketing strategies that will enhance the magazine’s overall profitability – not just its circulation margins.
When appropriately implemented, a reduction in ratebase improves profitability by reducing costs while also positioning a publication to compete more effectively for advertising. In a best-case scenario, a ratebase reduction is accompanied by:
- Reduced page rates
- Increased readers – and revenue – per copy
- Enhanced circulation quality
- Improved efficiency (i.e. lower CPMs) among more desirable audience segments
Yet relatively few publishers approach the task of ratebase reduction with the rigor needed to maximize their odds of success. Instead, many take the opportunity to get rid of their more “expensive” sources of circulation. These sources can be disproportionate drivers of demographic quality and reader engagement – key components of both advertising value and revenues.
Identification of optimal circulation levels requires a sober analysis of the prospective and relative contributions of circulation and advertising to future profitability. Maximization of circulation margins can result in reduced audience quality, and consumer marketers have historically been given objectives that conflict with the maximization of advertising revenues. The goal should not be to maximize one or the other, but rather the combination of the two. There are few situations that require closer co-operation between consumer marketing and ad sales than plans for reducing ratebase.
To identify the optimal levels, publishers must limit their circulation to only those portions that at the very least do not lose money at the margin when both advertising and circulation revenues are taken into account. This requires not only an understanding of circulation economics, but an understanding of the audience implications of each element in the source mix, combined with a rigorous analysis of the relative value to advertisers of various audience segments. When decisions regarding source mix take into account estimates of overall profitability for each copy distributed based on both circulation and advertising revenues, decisions regarding source mix will differ substantially from those that would otherwise be made, and will result in a more profitable publication.
Rebecca McPheters, the former New York Times Magazine Group group executive and Simmonspresident, now heads McPheters & Company. The company specializes in strategic planning and research for brands and for companies in media-related fields, including media owners, advertisers, and ad agencies. She can be reached at RMCPHETERS@MCPHETERS.COM.
