This is a story which should be on one of the nightly TV current affairs shows. The images would be of secret backroom deals, angry customers, children in tears and big business call centre staff more immovable than the great wall of China.

For decades newsagents have sold partwork publications – magazines which publish for a set number of issues. Newsagents are the only retail outlet for these. Current partworks include Funny Bones and Midsomer Murders. Newsagents love partworks because customers sign up for the series and these regular visits underpin the habitual visit which is crucial to the newsagent retail model.

Partworks are supplied to newsagents with colour brochures inserted encouraging newsagent customers to go direct to the supplier to subscribe. While newsagents have complained about this, the main partwork importer in Australia, Bissett Magazines, claims subscriptions account for less than 5% of total sales. Newsagents give over their real estate without charge and often actively promote new titles. This raises the profile for the Bissett imported product. It’s very cheap advertising. The pay off for newsagents is customers signing up to get issue #2 and so on. If only it worked out that way.

The problems begin with issue 5 or 6 of almost any partwork you want to look at. Supplies to newsagents are cut. Often dramatically. When this happens, Bissett Magazines and their Australian distributors, Network Services (part of PBL) and Gordon and Gotch, say this is because the title is far more successful than their trial (usually conducted in South Australia) indicated it would be. They claim to be surprised and embarrassed that they cannot service all the requirements. There are usually three or four partwork titles a year where supplies are cut this way.

Newsagents are left unable to satisfy firm orders from customers. Customers get angry – some call Bissett and subsequently sign up for a subscription while others vent in store and yet others let their kids throw a tantrum because the newsagent has let them down.

The problem with partworks is systemic and not operational as Bissett and Network claim.

I want to share one personal experience to illustrate the problem with partworks and prove that newsagents are being ripped off by an inadequate system or something far more serious.

Funny Bones has been very successful in my shop. I have orders for 12 customers. Firm orders. We can sell another 5 or 6 copies on top of this. Network, in their wisdom and with the assistance of their IT technology and access to my sales data daily for years, decided to but my supply. Yesterday I received 4 copies of the latest Funny Bones issue. There is no business case for such a cut. I know o other newsagents receiving more stock of Funny Bones than they can move and Network would know who they are because they, too, provide daily sales data. Regardless, the Network team and their massive computer system cut me back. I have 8 customers who will not receive their Funny Bones. Contact with network says, no, sorry, no stock left. That’s the end of the matter. An angry email to the Managing Directors of Network and Bissett found another 5 copies for us late yesterday. It surprises me, in situations like this, that they can be completely out of stock and then find stock to help when one complains to the right people.

I know from my own research that I can call Bissett and order a subscription to Funny Bones. Yet I cannot get current stock and back order stock for my newsagency. This makes me suspicious about the claim than only 5% of all partworks sales are subscriptions.

A conspiracy theorist would suggest that newsagents get plenty of the first few issues of partworks to build title recognition and that the real game in town is to win subscription sales as that is where the real money is made. I don’t believe that, or don’t want to believe that – the on going mess with partworks makes me wonder.

I would have thought that the Trade Practices Act would have something to say about getting newsagents to promote partworks and then drying up the supply so that newsagents cannot supply so the consumer goes elsewhere. It does not make sense to me when I can prove that I sell out every time and the ‘experts’ cut my supply. They are taking hundreds of dollars revenue away from my business and causing considerably upset for my customers. They are starving me of oxygen.

No one wants to own this problem. Bissett says it’s their distributor at fault. The distributor says it’s Bissett. Bissett also says it the South Australian test prior to national launch which has let them down. My customers blame me. Bratty kids blame their parents.

I have offered to review future partworks and place firm sale orders for the whole series. This was rejected. I have offered to bypass the distributor and pick up my supply direct since the Bissett office is a few minutes from my shop. This was rejected. It’s almost as if the faulty supply model suits Bissett and Network. But that’s too ridiculous to contemplate.

I am a retailer. The partworks supply model denies me the opportunity to be a good retailer. It makes me look stupid. It turns customers against me. The only people profiting are the magazine distributor and Bissett because the costs of calls, customer anger and attempting to get backorders eliminates the profit from the initial sales.

Bissett and the magazine distributors need to get this sorted out. They risk newsagents pulling the plug and that would hurt the model as no other retail channel would provide the high exposure real estate support (at no cost) of newsagents. Maybe newsagents should pull out of partworks anyway.

Sometimes you really have to break something before it can be fixed.

Reuters via Publish.com has this story about significant developments in this area. In the e-newspaper world there is no daily purchase, no opportunity for the newsagent to up sell the newspaper customer into candy, lotteries or magazines. I know the reality here in Australia is years off but that time will pass quickly. Newsagents need to make business decisions today as if e-newspapers are months, not decades, away.

The Online Publishers Association has published the results of new research showing that the Web is clearly a “mass media”.

NEW YORK, NY — June 6, 2006 — The Online Publishers Association (OPA) today announced the results of a new research project, “A Day in the Life: An Ethnographic Study of Media Consumption.” The observational media usage study is being discussed throughout the OPA’s 2006 Eyes on the Internet Tour, which will visit Atlanta, New York City, Boston, Chicago, Detroit, Los Angeles, Dallas, and San Francisco.

The unprecedented observational research tracked the real-time media use of 350 people, recording their actual activities every 15 seconds. The results show that the Web is now clearly a mass media — ranking right alongside other major media when it comes to reach and duration of use. And when it comes to at-work media use, the study found that the Web clearly dominates (with 54.6% reach, compared to television’s 21.1%), and is the only medium that ranks among the top two at both work and home.

It would be reasonable to read this as but another marker on the road of mainstream media disruption which is taking us to somewhat unknown places. It would also be reasonable to note that this is US research and that it’s a pity we do not have equivalent Australian research.

We’re insulated here. Our efficient newspaper distribution model delivers higher newspaper and magazine penetration. I would expect Australian research to show that while the web does not rival TV it is growing.

The research reflects my personal experience. I get most of my news online. The newspapers I read I read for perspective. The TV news I watch I watch out of curiosity.

The folks at The Guardian in the UK have decided to ride the wave rather than chase it as this report from Jeff Jarvis shows. The Guardian has announced that it will publish stories online before it publishes them in print. While they are not the first newspaper to do this, their decision is gain much attention and lead more online for news. It will help them navigate the future for their print edition in more proactive circumstances.

From a newsagent perspective we need to be aware of these developments because things will move faster here. While the US and UK are trail blazing and are a long way in front, we are catching up fast. Both Fairfax and News are investing heavily in their online news outlets and this will kick up the pace of change for newsagents.

Unfortunately, too many newsagents and those who influence them remain in denial about the impact of the Internet and mobile technology on newspaper and magazine sales. Our relevance is built around the daily/weekly newspaper/magazine purchase habit. It will not be enough to bring in other product. Newsagents need to bring habit based product with a frequency approaching that of the newspaper and/or magazine purchase. This is an extraordinary challenge for a disconnected poorly led and uninformed channel.

Further to my post last month about the May catalogue offer from Australia Post this month’s Relax…at Tax time with Australia Post catalogue. A review of the catalogue shows another 12 pages of, mainly, product not covered in the Postal Act: Books (including Andrew Denton’s Enough Rope); Computer printers; Printer ink; Printer toner; Anti virus software; Post brand calculators (made in China); Customised rubber stamps; White boards; Padlocks; Luggage locks; Dymo label maker; Post branded stationery (made in China); Pos brand blank CDs (made in China); Shredder; Copy paper; Laminator.

While chemists are busy fighting Woolworths and Coles, newsagents are fighting tough competition from Government owned Post Offices which have moved aggressively into traditional newsagency lines.

All but one page of the 12 page Relax…at Tax time with Australia Post catalogue is for non postal service items. See for yourself here.

A visit to any of the Government owned Post Shops will further prove that pursuing stationery sales is a key growth strategy for the Corporation, especially the sale of Post branded stationery made in China.

Australia Post is leveraging its Government protected and supported brand to compete more aggressively with independent Australian small businesses like mine. The playing field is not level and no one in the Government cares.

I’ll call them New Age titles even though some are not. Newsagents are being supplied these is growing numbers and they are not selling. Titles like Hard Evidence, New Dawn, Life Extensions, Strange Times, UFOlogist, Creation and Spheres. I have more than 25 of these ‘New Age’ titles on my shelves at the moment with a total value of around $1,500. A couple of years ago I would have had less than ten such titles.

So, why the growth in this ‘fringe’ category? Many of the titles relate to fear and conspiracy. They don’t do much for my shop and the area does not attract browsers.

My frustration is that someone somewhere is making a decision on ranging product which has nothing to do with the value of the product or how it may or may not suit retailers. This is why newsagents need a say in controlling new titles, from a ranging perspective. We need to develop a centralised function in association with the three magazine distributors to stop problems like I have with these ‘New Age’ titles occurring.

Our eight month old online ink and toner business, Inkfast, did ten times the whole stationery revenue of our decades old shopping centre newsagency in May. This is better than we expected. We created Inkfast to experiment and the learnings have been significant. Online you’ll find better margin business – certainly in the ink and toner category. People are browsing for a smaller range than you get asked about in your shop. Online you connect with more corporate and government customers than you get walking through the doors of your newsagency. By specialising on ink, toner and a few related products we can build better product knowledge and better pricing whereas in the general stationery department in a newsagency the stock turn is lower, customer theft higher and, as a result, your price offering less competitive.

Eight months in my feeling is that newsagents need to urgently re-jig their stationery offering. Newsagents bemoan the competition from Big W, K-Mart, Officeworks and Australia Post. The bigger challenge is from the unseen – online businesses. I’d bet that Officeworks online is getting close to 50% of online stationery business. This is traffic which newsagents just don’t see – traffic which they are not competing to attract.

This is their challenge – to get online and fast and in a smart way.

Newsagents have no one but themselves to blame for missing the online opportunity.

It was announced yesterday that newsagents can increase delivery fees charged for home delivery of Fairfax newspapers. However, the announcement was more spin than news:

– While the fee increase takes effect in NSW next month, Victorian newsagents will have to wait a year.

– Fairfax rejected a claim by newsagents for permission to charge a fuel levy.

– Fairfax will not pay any increase to newsagents who pay outside their credit terms.

– Fairfax rejected a claim by newsagents for compensation of late newspapers.

– Fairfax rejected a claim by newsagents that very heavy newspapers being delivered in two parts are classed as two papers for fee purposes.

– Fairfax refused to increase handling fees paid to retain newsagents for assembling Fairfax newspapers despite labour costs increasing in some of these outlets by more than 25% over the last two years.

By my reckoning newsagents lost 85% of their log of claims.

It’s unfortunate that newsagents are shackled by newspaper publishers – they have no control over wages and operational costs nor do they control the cover price for newspapers or the delivery fee charged. In fact, publishers discount home delivery offers and expect newsagents to take a commission cut as a result of their promotional campaign. Who would go for a business model like that?

Australia is regarded by many publishers as having the best newspaper home delivery model in the world. This is, in part, due to the thankless efforts of newsagents delivering day in day out for ever shrinking fees. The increase announced by Fairfax yesterday still leaves newsagents worse off than they were 20 years ago.

I’m told that Fairfax representatives at the annual newsagent conference last week made it very clear that they want newsagents to restructure their businesses. Restructuring in this context means newsagents selling their home delivery and distribution businesses to others. The benefits for newspaper publishers are fewer accounts, fewer delivery points and specialised newspaper distribution businesses. In the current situation a newsagency is part retail, part home delivery and part distribution. Some at the conference have told me that Fairfax even said additional commission could be on the table for achieving restructuring.

My understanding is that News Ltd is supportive of such a restructuring but is publicly less demanding on newsagents than Fairfax.

The publishers must be getting frustrated since they have been pursuing restructuring for several years. Newsagents have been slow to get to the table.

I am in favour of restructuring, freeing retail specialists to focus on retail and distribution specialists to focus on distribution. Newsagents need to move on this or risk the publishers taking control.

The challenge with restructuring newsagent businesses is how the exit from one side of the business is managed. Newsagents have, for the most part, paid premium goodwill – anything from 3 to 5 times net earnings where ‘net earnings’ is a figure including net profit plus owner wages and a bunch of ad backs. In some restructuring scenarios I have seen play out recently the seller has no choice but to take a hit on their investment.

The Federal Government, ACCC, newspaper publishers and newsagent associations – all parties to the 1999 deregulation of newspaper distribution – could/should have foreseen the restructuring and resulting financial hit of today. If newsagents were farmers or miners the government would have put a compensation package in place to ease the burden of change. Because newsagents are not farmers or miners their families will take the hit.

It is not too late for the Federal Government or the ACCC to revisit their role in the hardship being felt by small business newsagents today. Nor is it too late for Fairfax or News Ltd to reconsider how they might assist those under pressure to restructure their businesses.