I have received a few calls this week from small publishers and people outside the newsagency channel wanting to talk about the problems with the magazine distribution model. I thought it might be worthwhile putting together a summary…
A brief history
For over 100 years, newsagents had a monopoly over the distribution of newspapers and magazines. That changed in 1999 when the federal government engaged the ACCC to oversee deregulation. The deregulation opened access to newspapers and magazines for other outlets but failed to address the supply model which had been created to serve the monopoly arrangements. Newsagents were poorly represented through this deregulation process. Newsagents were left with a more competitive retail marketplace but without the levers necessary to enable them to make competitive business decisions.
What is wrong with the current magazine distribution model?
Newsagents are treated differently to other magazine retail channels – petrol, convenience, supermarkets and majors.
Newsagents have no control over the titles received nor the quantities received. Our competitors do have this control.
Newsagents are provided some titles with an extended, three months and beyond, shelf life. Our competitors rarely receive titles with more than a 20 day shelf life.
Newsagents have to pay to return unsold magazine stock. Many of our come=petitors do not have to do this.
Newsagents are forced to follow time consuming and accident prone processes for handling the return of unsold stock. Most of our competitors do not have to follow these processes.
Newsagents only make money from sales, our margin is 25% of cover price. Many of our competitors receive other financial compensation which takes them beyond the 25%.
Recent magazine cash flow studies I have undertaken indicate that 65% of all magazines sent to newsagents are cash flow negative once we take into account the cost of retail real estate, labour and returns costs. This significant financial burden disadvantages newsagents against our competitors.
I have evidence from many newsagencies where magazine distributors have supplied stock on the basis of a sell through at 20% or even less over a long period of time, knowing that the newsagents will absolutely lose money on such a supply volume.
How would I like it changed?
If newsagents are to be accountable for paying their magazine suppliers on time, we MUST be given the ability to control the level of indebtedness we incur. This means we must have control over the titles we receive and the quantity of each title we receive.
If we are not given the ability to control titles and volume, we must be compensated for use of our stores as a warehouse and our cash to fund oversupply. I would suggest a fee based on sell-through. If a title has a sell through of less than, say, 60%, newsagents are compensated with a fee to reflect the cost of real estate, labour and cash used to support the oversupply.
Why is nothing done?
Magazine distributors make money by trucking stock out and processing unsold stock when it is returned. There is little or no financial incentive for them to do anything other than to ship out as much stock as possible. This makes newsagents financially responsible for the distributors wanting to keep their trucks full.
While newsagents could use collective bargaining to negotiate more equitable terms, the distributors have demonstrated little appetite to engage in such commercial discussions in the past. Further, newsagents have had poor leadership for many years and this has led to a decline in newsagent support for representative bodies.
What we should do
Newsagents need to present evidence of gross over supply to appropriate government authorities like the ACCC. The more evidence from individual newsagents the greater the opportunity for getting appropriate attention.
We ought to also look at state based bodies which could help. In New South Wales for example, individual newsagents could easily bring a case to the Consumer, Trader & Tenancy Tribunal. In Victoria, newsagents could engage with the Office of the Small Business Commissioner.
Why we will do nothing
We are tired, weak and scared.
Dear Mark
I wonder whether a Subagent at 12.5% makes more profit than a Retail Newsagent at 25%. Most of the points you make about competitive advantage apply to Subagents:
– They only get a subset.
– They only get stuff that sells
– They can determine what they get, but controlling newsagent only sends out what they think subby can sell
– they dont pay for returns, controlling newsagent generally picks them up
– with weeklys they only pay for items sold as returns go on the next weeks bill.
They generally dont get any pubs with shelf lives greater than ’20’ days.
Everything is a cash sale (no home deliveries)
Sounds like a good deal to me.
Tony
Mark, I think there’s another part to the ‘do nothing’ statement.
Many will (and have already) taken the ‘do nothing’, further, by simply closing their accounts, thereby doing ‘something’.
The magazine distribution model itself is the major contributing factor in forcing many Newsagents to reduce space allocation to mags. We are heading down the path of only stocking top selling weeklies and monthlies because everything else is becoming unsustainable
Collective negotiation has been approved by the ACCC on a few occasions, as I understand it however the distributors have failed to meet with the State groups or the national group. The ACCC process appears to be missing a stage, the one that enforces negotiation in good faith.
Good summary Mark and one worth keeping in mind for those out there contemplating buying a Newsagency. In my view this is the biggest problem for any Newsagency. Colleagues in other businesses are in disbelief when I explain the magazine supply model to them.
Not being sarcastic but where are our so called industry representativs on this most important issue? The silence from them is deafening!
Apparently they’re always at a ‘sensitive’ point in negotiations with the distributors…
Y & G,
I think that means the publishers have us by the sensitive point.
harassment lawsuit usually follows when there are issues with “sensitive points” right? hehe
The blog for retail
news etc (who sent
an email offering their site)is another site that seems to be by Mr No Name. Does anyone know who it is (a publisher maybe) and why do we need another blog for our industry when this one is so good.
I think whomever it is should be open and transparent about WHY they think another newsagency blog is so necessary.
Transparency is something Mark Fletcher has always
adhered to and I think there might be some hi-jinks going on somewhere.
Tony, as a subagent that has gone half direct I disagree.
-Our contolling newsagent only sends us quantities they want us to sell, the increase in sales with our direct supplier is proof of this
-If we only get stock that sells as you state then there is no cost of returns issue and we are very efficient for the supplying agent on this basis.
The weekly bill we pay is for stock not paid for by the suppling agent for up to six weeks, we finance them to a large degree.
-stock shrinkage is covered by sub agents on a margin that means it takes 8 sales to recover an item lost to theft
-Sub agents are often in high rent locations so our main costs are higher than the suppling agent.
The move to direct supply is a huge gain for us in everyway, would you change your trading status to that of a subby? I dare guess not.
In our case i take a commercial view of it and reduce the pockets and space i allocate to magazines.
I have gone from 1500 pockets down to 1000 pockets in the space of 12 months.
Our monthly account is lower, our cost to return is lower, and i have gained extra sales of higher margin product where the magazines used to be.
Network and Gotch are the losers !!! Now if everybody did the same thing based on their data from their point of sale systems, then commercially, Network and Gotch may sit up and listen.
We need better terms and conditions immediately,otherwise both publishers, distributors and newsagents will suffer commercially.
Chris
reservoir
Chris,
we are actually in the process of converting 1 whole row of magazines (180 pockets) to greeting cards.
question for you, how did you manage to get the distributors to lower the amount of titles they send you based on your available pockets. they have never asked us how many pockets we have and just send stuff to us.
Like Chris we have reduced our magazine capacity by 500. Lots of hours on their websites, a few dozen phone calls, a email or three and lots of early returns later we have stopped them from sending us 250 of those titles. It’s a great system!
HI ED,
USING THE TOWER SOFTWARE I RAN A NON PERFORMING TITLES EVERY 6 MONTHS AND PDF IT TO GOTCH AND NETWORK AND DEMANDED THEY CANCELL THE TITLES WITH NO SALES OVER THAT PERIOD. TO MY AMAZEMENT THE AMOUNT OF TITLES WITH NO SALES WAS ENORMOUS.
AS THE BILL STARTED SHRINKING, I STARTED SHRINKING THE SPACE ALLOCATED TO MAGAZINES.
CHEERS
CHRIS
RESERVOIR
Another way to look at this issue is from an envirornmental view. the absolute waste that the model perpetuates is an absolute disgrace.
Consider the cost to the environment of overseas magazines being sent out to a counrty/suburban newsagent via warehouses, only to be early returned and sent back to the distributor without it even sitting on a shelf for sale.
Craig,
After they are returned they are then sent on to another country for sale, that is ofcourse the ones that aren’t topped.
Craig see this post on your point: http://www.newsagencyblog.com.au/2010/09/01/why-the-magazine-distribution-model-should-concern-politicians.html
A succinct summary Mark. I am in NSW and had never thought to complaining to the CTTT. Great idea.
Would it be possible to start a class action against the distributions so we get them into court. How many newsagents would tip in $1000 each to get something started?
Richard, a range of options are being looked at. I know that at least one state association is looking at what can be done and I also know that some individual newsagents are doing the same.
I have good data which I am discussing with some parties on a way forward.
i like the direction you are pointing to richard. =)
put me in for one gorilla ($1k)
it would only take a few months of “proper” distribution to regain that amount
Mark would you stand for the and or a state association. Based on what I read from them they could do with someone like you driving them.
Chris, to cancel titles do you send it to customer service or do you have additional contacts? We have just had NDC send an automatic msg saying they are sending us replenished stock although we still have ample copies on the shelf (& the mag is near its end of life….
here we go again , yes same here i have received SBR stock for an old issue after the new one come out , makes sence
Mark as a small independent publisher I share your frustration but also acknowledge that I get money from advertisers whereas you and yours only make money from sales.
I know I can improve my position by shipping more stock. No I don’t do that. BUT, I know of publishers who,sending product on a never ending cycle to newsagents and back again.
Your contribution to this debate is a compliment to you. Keep it up. Eventually people have to listen.
The system for the publisher and distributor because the people who buy advertising space use circulation figures as a means of gauging exposure. There is no incentive for them to create a environmentally sound or commercially sustainable model for the newsagents.
Why don’t the associations instigate an education campaign for advertisers and show them what they are really paying for (magazines sitting in the store room or just early returned). They can then demonstrate to them how to get better return for their advertising dollar by looking at the sales based or circulation after return figures. Both sets of information are available from the newsagents already supply to their distributors.
Its hard to convince companies to change when not changing actual works in their benefit. Nothing motivates companies to act then the bottom line.