Business as Usual

by Rebecca McPheters
May 26, 2008

Business as usual is killing our industry. Richard Beckman, President of Condé Nast Media Group, recently noted(1): “If one year the market’s tight and you start throwing a fire sale to get the volume, the following year you can’t go back to business as usual.” Condé Nast is pretty much alone among publishers in its adherence to a published ratecard. For most other publishers, ever deepening discounts and an erosion in their ability to appropriately monetize the advertising value of their properties began long ago – and has evolved into “business as usual”. As the industry considers a move from a system of circulation-based guarantees towards one based on audience, it is important that publishers realize that the theoretical underpinnings of the ratecard are largely academic if they are going to continue to allow ad buyers to dictate their own prices. I say largely academic, because even if prices based on audience and circulation were the same, we would still expect there to be differences in the amount being given back to advertisers if guarantees are not met.

Discounting started in the women’s service category in the early 1980’s and, in time, spread to other magazine categories. Since then, the level of discounts has steadily increased. Data collected by Universal McCann’s Bob Coen, who has been carefully monitoring advertising spending for many years, indicates that the gap between actual ad spending in magazines and PIB revenues has doubled from 23% in 1997 to 47% in 2007. For most ad sellers, who entered the business after discounting became common practice, it is all they know.

Buyers have been conditioned to expect deepening discounts. Many have adopted the point of view that rate increases are only allowable when circulation increases – and have had some success in enforcing this view – despite the misallocation of resources that can result. In consequence, magazine prices have risen at rates significantly lower than those of television. As readers of my previous articles may remember, downward pressure on magazine rates has been coincident with an actual increase in magazine audiences and hence the value given advertisers.

By giving in to advertisers on pricing year after year, sellers have contributed to the continuing devaluation of a medium that should rightfully be perceived as increasingly vibrant. There are many factors contributing to this problem:

• Incentives for sellers focused on ad pages and page share, rather than profitability
• Ratecards that have been artificially inflated to allow for higher discounts
• Buyers who focus on cost savings rather than effectiveness, because savings are more readily quantified
• Built-in incentives for buyers to exaggerate the depth of the discounts they receive and the extent to which such behavior is widespread
  

The benefits magazines offer advertisers – i.e. the ability to deliver large, highly desirable audiences, which are both engaged and responsive – have become increasingly elusive. Magazine brands have enormous value, which publishers have an obligation to protect. To help end this downward spiral, publishers need better information on competitive pricing – such as that which SQAD offers for television and is developing for the web. But more than anything, we need tough negotiators who can sell value as opposed to price and who have the backbone to walk away from deals that damage the long term prospects for their brands.

(1) Mediaweek, April 28,2008

Rebecca McPheters is president of McPheters & Company a consultancy specializing in issues related to media measurement.  You can contact her at rmcpheters@mcpheters.com.