The economics of newsstands – a rare insight into the mind of a ‘fringe’ magazine publisher

The publisher of The Perl Review, has blogged about the economics of retail sales of magazines, providing a rare insight into the mind of a publisher and what I’ll call a ‘fringe’ title. Fringe titles are those outside the top 500 or so magazines. They are the titles the major retailers (supermarkets, convenience chains, petrol chains) refuse to carry.

You’ll see from the post below how this publisher justifies losing money on newsstand sales on the basis of boosting subscription sales. This strategy has been a regular complaint of newsagents – that publishers push product to their shelves just to promote subscription sales. It’s a strategy vigorously refuted by publishers.

The words below from the publisher of The Perl Review speak for themselves. My comments follow.

The Economics of Newsstands
Powell’s Technical Books in Portland (that’s the one on 33 NW Park Avenue) is going to carry The Perl Review. It’s our first newsstand distribution.

I had to set a newstand price. The deal basically works like this: bookstores keep most of the profit. Magazines make money when the single-issue buyers turn into subscribers. After Powell’s cut, which we set at 40%, and my costs, $2 an issue, I have to figure out a price that also motivates people to give the money to The Perl Review directly instead of the book store. That’s why you see big discounts for magazines when you subscribe: that’s the real price, and everything else is markup. The Powell’s price ends up being $5, which is 50 cents more than the subscription price.

That’s not to say that newsstands are bad. It’s like better-than-free advertising since it sits on the shelf and I cover my costs plus a little more for every issue sold.

Forget about absolute numbers for a moment. At my price point, if they sell 75% of the copies, I break even. That would be fine with me because any copy sitting on the actual magazine display means people see that issue. Some might subscribe later even if they don’t buy it. Now that I have a price point, I have to figure out the right number of issues. That’s something I just have to guess.

I left 16 copies of the Spring 2005 issue, but I also have to consider that I sold about 10 at the Intermediate Perl book signing. We’ll see how that goes.

Now, a good magazine accountant has to keep track of the actual number of newsstand sales too. As much as I’d like to pretend that we sell every single copy, the Post Office wants to know where all the issues went to verfiy that we abide by all the periodical rules. It’s not enough for the newsstand to simply tell me what they sold. They certainly aren’t going to tell me they sold everything when they didn’t since that’s money out of their pocket. They can’t really tell me they sold nothing because that’s money out of my pocket.

If you’re a late night person living in a city, you might have seen a bunch of guys tearing off the front pages of newspapers and magazines. Instead of sending back the unused copies, they send back the cover (and they do that for books too). Every cover they don’t send back is a sale that they owe me money for.

You might think those unsold issues represent lost money, but they really don’t. They are a sunk cost, meaning that I would have spent that money regardless of the sales. That starts way back at the printers when I have to decide how many issues I want. That number includes all subscriptions, complimentary copies, samples to user groups, and all the issues I’ll need to fulfill orders for back issues. Not only that, but the more copies I print, the lower the incremental cost (the cost per each copy). Each printing job has a fixed overhead for the job preparation, machine set-up, and so on. That’s the make ready. I end up printing many more copies than I need, partly to amoritize the make ready. Not selling at the newsstand is slightly better than not selling while sitting in boxes in the office. At least people see them at the newsstand.

Remember that magazines make money on subscriptions, so that’s the goal. I don’t care about selling more at the newsstands. If someone subscribes because they see an issue on the newsstand, the profit from the subscription pays for about three unsold newsstand copies, so five subscriptions from people seeing the issue at Powell’s would make up for no sells. That’s just breaking even, and nobody makes any money. That also means I’m spending $6 to get a new subscriber.

If you’re already despondent, you don’t want to read about distributors. Most bookstores don’t want to deal with every individual publisher. They’d have to keep track of a separate deal for every magazine. Instead, they want to deal with a single source in the same way they deal with books. I know my costs, and I know the newsstands cut, and I have a price point that I can’t change to much because people won’t buy it at too high a price. If I use a distributor, perhaps to get into the big chain book stores, they are going to want a big cut too. I’ll end up either breaking even or losing money on every newsstand copy, and I’ll want to convert that to a subscription as soon as possible. That’s why you see so many wonderful subscription cards in the magazines.

So far I’ve just talked about money from sales. We can also sell advertising, which we do for the special friends of the Perl community. Since magazines know they are going to lose money at the newsstand, they make up the difference with paid advertising. Ever wonder why magazines such as Wired are mostly advertisements? That’s making up for the money they’ll lose on the newsstands. Remember when I talked about keeping track of the number of copies sold? Advertisers want to know those numbers. They don’t care how many copies the newsstand bought. They care about the number of copies that shoppers bought. That sets the rate at which the magazines can sell ads. More eyeballs equal more dollars. There’s a separate industry of companies that audit magazines to verify the numbers. That’s even more money that gets sucked away.

The short story? Subscribe to the magazines you like. It’s the only way they can survive.

Considering these comments from the publisher of The Perl Review in the context of Australian newsagencies, there is evidence to support his views. One only has to look at the number of subscription cards, placed loose, in magazines. Often three or four cards. Especially in the Special Interest magazines – crafts, hobby, science, cars, music etc.

Subscriptions are more lucrative than over the counter sales otherwise publishers of the fringe publications would not push them so hard. The magazine supply model in Australia provides a low cost low risk distribution channel for fringe publishers. They can get their titles into thousands of shops with the retailer carrying the risk of customer theft. It puts their masthead in the right interest category and in front of, potentially, millions of eyeballs. That exposure has to rub off. We know from the blog post that the publisher of The Perl Review would only do this to support subscription sales.

Newsagents don’t get any share of subscription sales. Nor are they compensated for the use of their real-estate or labour. While this is okay for the top 200 or so titles, it is at the other end of magazine titles that the publisher’s intent and strategy are crucial.

The magazine supply model in Australia was created back when the industry was regulated under ACCC authorisation. Someone forgot to reconsider the model when it was deregulated by the Federal Government under the watchful eye of the ACCC in 1999.

The golden goose (the newsagency channel) is suffering from an out of date supply model and under the weight of fringe titles being distributed by publishers who think like the publisher of The Perl Review.