Yet while the launch demonstrates that there is still life left in the print newspaper market, it is not massively significant in its own right. There are other, lower profile news items in the latest issue of Wessenden Briefing which tell us more about where the business is heading…..

The magazine ABCs show a business in flux with print sales dropping faster than digital editions can come on-stream. Subscriptions continue to grow their share of copy sales, but with Royal Mail looking set for big postal price rises for the foreseeable future, this direct-to-consumer channel is coming under increasing cost pressures, making publishers both refocus on retail sales and also accelerate their digital strategies. However, Future’s announcement that it has reached a digital crossover (the decline of its print products has been compensated, for the first time, by the growth of its digital brands) shows that revenue crossover is possible.

Looking to the middlemen, there is a great deal of distributor news, the main item being the sale of the US COMAG operation to the largest wholesaler in the States. While no one is suggesting that a similar move is about to happen in the UK, the development raises questions about the relative roles of wholesalers and national distributors in the UK supply chain which will have to find more economies over the next couple of years.

Tesco is gearing up to fight back after an unprecedented amount of negative PR coverage and its own admission that its core UK bricks-and-mortar operation has gone off the boil. Both competitors and suppliers had better watch out as the grocery giant is on a real mission and will be active in every channel: grocery, convenience, online….and anything else it can think of.

Yet if Tesco is a scary distribution partner, then what about Amazon? While the UK awaits the launch of the Kindle Fire colour tablet, US analysts estimate that each Fire being sold in the USA loses Amazon $3 per unit in manufacturing costs alone.

This loss leading strategy on the hardware is based on its assessment of the content revenue that each Fire user will generate in downloads, estimated to be around $135 per year.
Such a long-term, joined-up, lifetime value approach to consumer marketing should make every publisher pause for thought….much more than the launch of the Sun on Sunday.

“Bifocal management” seems to be the best description – trying to plan for a long-term digital future while still running the current business operation day-to-day. It is this constant “two tier thinking” which is creating real stress for many publishing executives.

Publishing Futures is run by Wessenden Marketing in association with PPA and InPublishing. From the pilot survey in 2009, the project has developed into an annual benchmarking of the key trends and issues in publishing, across consumer magazines, B2B operations, newspapers and digital publishers – 121 companies in total participated in this latest survey. This project is what we call “near futures” as it is “near” in two ways. Firstly, it relies on what the people actually working inside the publishing industry are doing and thinking and planning for their own businesses. Secondly, it looks no further into the future than one to two years from now. That is not to reject “future scoping” or longer-term “blue-sky” thinking, but it is to put it into perspective – the bright blue sky can be challenging and thought-provoking, but ultimately it is highly speculative and subjective and often does little to help executives do their “day job”.

The full report shows that the detailed picture varies markedly from company to company and from sector to sector, but the topline results give a sense of the overall direction of the industry. The first aim of the project is to give a clearer picture of how the business is performing now…

Book now for your place at Publishing Futures Live at the Institute of Directors, London

Turnover trends

Publishers were asked in each survey what their current turnover trend looked like.

* The 2009 survey caught publishers still on the downward track with the topline sliding for 40% of the sample and with the average being -1.1%.

* 2010 saw steady growth returning from the bottom of the trough with a +3.2% rise.

* 2011 sees a slight increase in the rate of growth to +4.2%, with a forecast for the end of 2012 of +5% growth. 61% of publishers are currently growing, with another 4% expecting growth to return in the next twelve months.

While the overall picture of strengthening turnover growth is very positive, it is not quite the bounceback anticipated a year ago. In 2010, the forecast for end-2011 was of +7% growth, which has actually turned out to be +4.2%. As with the general economy, the growth is variable from sector to sector and is still fragile, but is most definitely there.

Turnover profile

Publishers were asked to provide the profile of their revenue streams, both currently and what they are forecasting for two years out from now. These profiles vary massively from publisher to publisher and from sector to sector, but the topline trend figures give a real sense of what publishers are thinking about the future direction of their business.

While the overall picture is of rapid and fundamental shifts, it is not a throwing out of the old business model and starting with a blank sheet of paper.

Own Print Brands

Although declining in share, print remains the engine room of the publishing business, currently accounting for 66% of total industry revenues.

* Yet in two years’ time, publishers foresee a 7% percentage point drop in print’s share to 59%.

* The share of copy sales versus ad-funding, which now stands at 43:57 is predicted to edge slightly towards copy sales in two years’ time.

The key conclusions are that… Print is still massively important and remains the most profitable part of most companies’ operations. Print is declining fast, but it is not as fast as many commentators have been predicting. The level of digital activity ranges massively. Many publishers, particularly the smaller ones, look as though they are in danger of being left behind – for many, digital still remains more a theoretical future opportunity than a present reality.

Own Digital Brands

Behind the significant 6% point growth in overall digital revenues (from 17% now to 23% in two years’ time), there are some important shifts in emphasis:

* The importance of paid content is predicted to increase, but will still represent only 29% of total digital revenues in two years’ time, up from its current 25%.

* Adding ad sales and sponsorship together shows that digital will remain a largely ad-funded model (accounting for 65% of total digital revenues now and for 61% in two years’ time).

* Although growing, the rise of ecommerce looks very slow, showing that many publishers have still not yet really cracked how to sell extension products and services.

Customer Publishing

This revenue stream is an add-on activity within paid-for publishers. It is predicted to edge up slightly overall, but behind that there is a significant shift out of print and into digital.

Other Extensions

Often under-estimated in the great print vs digital debate, live events are a significant and growing element of many publishers’ activities.

Profit margins

Behind the rising turnover figures, the profit picture is much more mixed, but is still robust given the difficult trading conditions.

* 70% of respondent companies are currently in profit – the average profit margin for these companies is 11.6% of turnover.

* 19% of companies are breaking even and another 10% are loss-making.

Looking at the trend in profit margins…

* The number of publishing companies who are profitable has been slipping, but the respondents are much more optimistic about the next twelve months with 16% expecting to break into profit by the end of 2012.

* Secondly, there looks to be an increasing polarisation between the weak and the strong – the strong are getting stronger while the weak are getting weaker.

Headcount

It is clear that the industry took much of the pain in headcount reduction in 2008. The subsequent Publishing Futures surveys show the following trend…

* 2009 saw the industry steadying, with the majority of companies (54%) foreseeing a stable workforce over the coming year and with 20% already beginning to staff up cautiously.

* 2010 saw a major increase in confidence with 45% looking to headcount growth.

* The optimism of 2010 has cooled in 2011, with static workforces being in the majority again and with ongoing staff pruning becoming more widespread at 15%.

Interestingly, the use of outsourcing / sub-contracting has also moderated. In 2010, 36% of publishers saw this as being on the increase, whereas this has slowed down to 32% currently.

Digging into the detail

The full report zooms in on each of the following areas in much more detail to show what is driving these topline shifts in revenue and profit, listing key opportunities and threats in each area:

* International activity, which is growing in importance from 22% of total industry sales currently to a projected 25% in two years’ time.

* Advertising, where publishers are trying to hold firm on core yields while creating more sophisticated ad bundles and trying to enter new markets.

* Retail and subscription copy sales, where the balance continues to shift towards subs – 43% of companies see their subs sales outperforming their retail sales – but where there are significant threats to both channels.

* Marketing budgets are beginning to come back, but from a low base, rising from 4.5% of company turnover in 2010 to their current 5.4%.

* Digital and online activity, which is growing, but is creating all kinds of issues in terms of the structure and skill-sets of the organisation and is producing some very different strategies regarding paid content.

Managing the future

So, if all this is the context to what is happening in the marketplace at the moment, what are publishers actually doing about it in terms of shaping the organisation? The report details three distinct areas:

* Business streamlining – essentially cutting costs.

* Developing existing product and services – fine-tuning and refining what is there already.

* Developing new products and services.

The relative importance of each area continues to shift between surveys and from company to company.

What the future holds

In terms of confidence about the future financial success of their company over the next two years, on a scale of 1 to 10, the average industry score is 6.9, down from the 7.1 seen last year, but still ahead of the 6.7 of 2009. In addition, 47% claim to be more confident about the future than a year ago – this is down on the much stronger 64% from last year’s survey.

Behind all this, there lies a recognition that the underlying business model has already changed significantly, but that there is even more change ahead over the next year or so.

What does it all mean?

The mood of 2009 was one of panic and doom, with traditional publishers feeling that they were caught helplessly in the headlamps of the digital juggernaut. By 2010, the mood had changed as publishers started to grapple with the challenges, but were stressed by the pressures of deciding where to focus their resource and attention.

The current mood is different again. Stress and overchoice and resource are still big issues and the anticipated revenue bounceback has faded into a slow and grinding clawback, based on relentless cost control. Yet there is a real sense of emerging from the fog of the last couple of years into something that is beginning to have more shape, but which is moving and changing very, very fast: like stepping out from a sinking bog into the fast lane of a motorway.

Publishers clearly have more hope that there really is a future for them in the new digital world, but it is all raising new challenges… new platforms and channels, but ones over which they have less control… new opportunities, but ones that demand new skills, more investment and different business models. The publishing future feels more robust than it did a year ago, but it still looks very confusing and challenging. Yet the industry is actually looking better placed than ever to have a go at making the most of the challenges ahead.

Run by Wessenden Marketing in association with the PPA, the picture that emerges is of an industry increasing in confidence as it embraces digital change.

This infographic picks out some key points from the Publishing Futures 2012 survey.

Book now for your place at Publishing Futures Live at the Institute of Directors, London

Publishing Futures Live is a half-day workshop which runs through all the key ratios, benchmarks, trends, issues and forecasts. It will help you plan the future of your business with greater knowledge and direction and so improve your profitability and efficiency.

What the workshop covers

Publishing Futures Live will lead delegates through the detail of the survey, highlighting the key trends, benchmarks, ratios and issues. There will be plenty of time for discussion of each area.  The take-away of the session is a detailed checklist to help you maximise profits and efficiency.

Date:  Tuesday March 27, 2012.

Time:  9.30am to 12.30pm.

Venue:  Institute of Directors, Pall Mall, London.

Cost:  £295 + VAT (a free report worth £95 is part of the delegate pack)

Special offer to subscribers

Subscribers to “Wessenden Briefing” are eligible for a 25% discounted price of £220 + VAT.

Register your interest now

For more details or to reserve a place, contact info@wessenden.com.

“The core thrust is of a constructive agenda. The affordability of business rates, parking and the leadership vision are exactly the right way to go….The vast majority of recommendations are pretty closely aligned with our policy objectives.‖
Tom Ironside, British Retail Consortium

“An incredibly positive report….a very good job of telling it as it is. For too long, high street businesses have been treated as a bottomless pit by land-lords and local authorities.”
Jonathan James, Chairman, Association of Convenience Stores

“It’s been a good PR exercise, but smacks of someone who has realised that the problems are way beyond any of the answers she can provide. There are lots of micro solutions to a macro problem and the report ignores the huge structural shift in consumer habits, not least the huge shift to online.”
Dan Coen, Senior Associate, Zolfo Cooper

“There’s an incredible amount of bullshit in it. Not least, there’s this great myth in all this that by having lots of independent retailers coming into town centres, you’ll be selling lots of different stuff. All you’ll get is more retailers selling the same stuff more expensively. There is the delicious irony about all this coming from the woman who has been doing the PR for Westfield”
An unnamed supermarket source

For the full story read the latest issue of the Wessenden Briefing

The type of digital edition for sale ranges from page-turning facsimiles to bottom-up digital builds. The number of titles on Newsstand stands at just under 1,000 magazines and newspapers in comparison to only 127 for the Kindle.

The Apple Newsstand experience

Some of the publisher learnings to date:

•  The international dimension. The major pub-lishers are reporting that typically only 25-35% of total download activity is coming from the UK. The USA is obviously a major market, but there are some surprising pockets of overseas interest which vary markedly from title to title.
• The download volumes. These range massively from title to title, but with some specialist titles (presumably those with a limited presence through the traditional print supply chain) producing some surprisingly high download figures.
• The consumer offer. The most common practice to date has been to allow consumers to download a ―shell‖ app for free, then to offer a first, full issue free of charge before attempting the conversion to a paid sale.
• Conversion rates. Publishers report that the per-centage of initial free downloaders who convert into paying customers is ranging between 0.5% to 9.5% with the centre of gravity falling in the 2-3% range.
• Subs versus single copies. Again, this varies markedly, but looks to be averaging at around 70:30 single issue sales versus ongoing subscriptions. The standard subscription terms being offered are 3 months / 6 months / 12 months.
• Device. Where publishers have been able to gather this information (it is very patchy), it looks like the current split is roughly 50:50 between iPad and iPhone for the initial app download.
• Profile of purchasers. This remains the big un-known currently, but some publishers who have tried to match Apple Newsstand users against their own internal database of contacts are reporting that the match rates are very low – under 10%.

Last year’s launch activity shows that the market is still very much alive and is stabilising, but is seeing ongoing structural change, with fewer large launches.

Long-term trends in the total magazine market size

The graph (right) shows the total number of consumer magazines listed in BRAD.

The market moves in a series of growth spurts followed by cooling -down periods when there are title clearouts after periods of launch activity.

The most recent growth phase, more modest that the previous one, ran for five years from 2002 to 2006 and saw the market expand at the rate of +2% per year
in terms of title numbers. The market then turned into decline in 2007. This slide accelerated to the -11% slump seen in 2010 before slowing down significantly
in 2011 to -2%.

Yet is this latest ―cooldown period, already a much longer dip than in the past, part of a cycle or the start of a permanent trend?

Trend in regular frequency magazine launches 2005-2011

The graph above zooms in on the more recent cooling-off period and tracks the number of regular frequency launches in each year.

• In 2005, the market was still expanding, boosted by over 450 launches in the year.
• Then in 2006, launch activity dropped dramatically before stabilising over the next three years at around 250 titles per year.
• 2010 was a year of massive churn. The number of launches rose, but so did the number of deaths in what turned out to be a major clearout year. The net effect was the big drop in the total number of titles in the market seen in the top graph.
• Launch activity in 2011 is down on the previous year, but slightly ahead of the previous three years. Couple this with the fact that the number of deaths has reduced below the previous year’s levels, and the total market is looking more robust than last year.

A dazzling final week just before Christmas gave general retail sales a much-needed boost. Yet this does not mean a bounce-back for the coming year; more of a claw-back. However, there is modest growth in sight.

Even though the Advertising Association has written down its 2012 forecast for advertising revenues, there is still growth predicted for the year ahead nevertheless, with the prospect of a better 2013.

The latest issue of Wessenden Briefing is full of companies struggling with new business models. This is most pronounced in the newspaper market, where the process of managing the decline in print sales continues to create tensions in the supply chain.

Magazines are seeing a slower (but still rapid) migration into digital which has impacted on how the industry approaches new title launches.

The gloomy headlines from the Plimsoll report (a third of magazine companies at risk of closure with the possible loss of 4,000 jobs) seem a bit hysterical when the total industry is still in profit and revenues are beginning to come back. Yet all this will become clearer when the results of Wessenden’s Publishing Futures 2012 survey are released later this month.

The other links in the supply chain are also going through massive change at the same time. Wholesalers are running into trouble with retailers as they try to diversify their product range into non-press categories.

Retailers themselves are at the real cutting edge of all the consumer trends. The major retailers continue to develop their own multi-channel operations, fighting off Amazon as it extends into more and more categories - Tesco’s physical DVD + digital download offer on films is a fascinating move. Medium-sized retailers, such as Rippleglen and GT News are still struggling with their bricks-and-mortar estates. This leaves the beleaguered independent shop feeling powerless and abused at the  bottom of the food chain. And then the Government isstill thinking what to do, if anything, about the High Street in the wake of the Portas Review which showed that really strategic action needs to take place if town centres are to be prevented from slowly dying.

Balancing the short-term tactics against a long-term strategy is the key challenge for everyone at the moment: especially when trying to manage the very different demands and dynamics of the increasing number of channels to the consumer.

Is the future worse than the past? Or just different?

Whatever the answer, it is certainly more demanding, and faster moving. And, sadly, lower margin. But more of that in Publishing Futures………

DEPENDENCE

For those titles currently active with Tesco, Clubcard subscriptions account for 23% of the total subs file on average, ranging from 6% in the music sector up to 47% in the juvenile segment.

SEASONALITY

The graph shows the percentage of subs which are generated in each calendar month and demonstrates the very clear Christmas peak – November and December together account for over a third of the total year‘s sales.

DONOR SUBS

The level of gifting varies markedly by sector and by time of year, but is very significant.

Across the full year, gift subs average 50% of the total subs generated, ranging from 34% for General Interest titles up to 68% for Juveniles. The full year average of 50% rises to almost 80% in December at the peak of the Christmas buying.

RENEWAL RATES

The renewal rates for Tesco subs are on average 12% points lower than for normal cash-with-order (CWO) subs. Yet again, this average conceals
some major variations by title depending on how the publisher is managing these subs – some titles‘ renewal rates on Tesco are half their normal CWO figures.

The really significant figure is that where consumers are renewing the original Tesco sub, 76% are doing so with their Tesco vouchers again, so these renewals are actually being recycled through the whole Tesco machine, exposing the publisher to Tesco‘s commission once more.

For more analysis on Tesco Clubcard Subscriptions, see the October 2011 (no. 156) issue of Wessenden Briefing. Subscribe today