The magazine newsstand is an American icon, a pleasure in itself to visit and browse. The channel, as we know, is compromised: what happened? John Harrington of Harrington Associates opened the Magazine Innovation Center’s Act 6 with an explanation and summary of the history of the magazine distribution
For 40 years the old system of magazine distribution supported hundreds of wholesalers, who received their publications via national distributors and distributed them to regional retail chains. It was a profitable system, although one which passed along only 27% of the cover to retailers. As retailers grew more powerful and were able to demand higher discounts, and the power in the distribution system shifted to retail, the economic viability of the system was compromised, and remains compromised today.
To understand the degree to which this system has been compromised, Harrington took us through the history of the channel. In 1994 sold 2.1 billion magazines, at a value of almost $4 billion at retail, with a sell through of 41%.
Eleven years later, in 2015, we saw a sale of only a quarter of those units, fewer than a half a billion copies. Despite cover price increases, we saw a loss of 40% in revenue, commanding only $2.5 billion at retail. Efficiency has dropped to 26%, creating huge economic pressures on the system that handles the publications.What happened? At the same time that the market shifted incrementally and over time, there were three major events: the great disruption of 1995, the Anderson News ext of 2009, and the Source Distribution collapse of 2014. At the same time, digital and mobile information delivery grew.
In 1995 retailers threw out the old rules. The power they accumulated through their consolidation forced consolidation on wholesalers as pricing and service were reconstructed in ways mandated by retailers. The distribution channel was reconstructed and reconfigured as wholesalers lost their economic vitality, and most went out of business. By 1999,four wholesalers accounted for 90% of the business.
Retail chains had changed their footprints from regional to national, giving them more power and the need to work with fewer, and consolidated, vendors. More magazines were published, at the same time the mega-titles on which wholesaler profitability was based were disappearing. With more publications to handle, the profitability of each was considerably reduced.
In 2009, when Anderson News went out of business, 25% of the distribution channel vanished literally overnight. At the same time, the Great Recession resulted in a loss of the discretionary income that supports the impulse buy that drives sales of magazines at the newsstand.
In 2014, Source Distribution collapsed, leading to an overnight loss of 30% plus of sales, leaving two major wholesalers and one direct distributor.
Today we face a recession hangover, where consumers grew used to living without their magazines; many who depended on print now receive their information via digital media. Publishers shifted their focus to digital expansion and grew increasingly disenchanted with traditional channels. And the business has become fundamentally unsound.
How can we as an industry reverse or repair these disastrous trends? Or is this once-profitable channel to disappear entirely? These are questions we’ll explore throughout the coming days of Act 6.
And you can click below to watch John Harrington’s presentation at the ACT 6 Experience: