Publishers: Continued Squeeze in '09 Will Drive Digital Growth

2008 has been a brutal year for both B-to-B and consumer magazine publishers—and, unfortunately, the signs for next year are pointing to more of the same.

On the cost front, paper prices have increased in each of the last five quarters, hitting publishers with cost jumps of up to 30% to 35% over the past 12 months.

This upward trend is expected to continue in 2009. Advanstar Communications, for example, saw paper costs rise 20% this year and has budgeted for another 20% hike next year, director of manufacturing services Keith Hammerback recently told BtoB Media Business.

Given the mills’ own steeply rising energy, transportation and raw materials costs (the price of wood from major supplier Russia, for instance, is expected to double next year because of hikes in export duties), plus pressure from their equity investors, price increases are a financial necessity.

Some production experts hope that decreased demand resulting from publishers being forced to cut trim sizes and page counts—not to mention shut down some print publications—could help restrain the size of price hikes next year. However, major suppliers continue to consolidate, shut down mills and cease production of cheaper papers that might otherwise be alternatives for hard-pressed publishers.

As for postage costs, the U.S. Postal Service's recent report that it lost $1.13 billion year-to-date and an expectedly steep $1.1 billion in its third quarter alone is likely to mean rate hikes of up to 5% to 6% for some periodicals next May—double the 2.9% average periodicals increase that kicked in this past May.

"Ideas include offering digital-only, or charging [controlled] print readers a low sub rate to cover manufacturing and distribution costs." Sylvia Sierra Access Intelligence

All of these margin pressures would be more supportable, of course, if advertising was not also suffering. In this year's first half, BIN reported B-to-B print magazine ad revenue down 6%. For consumer magazines reporting through PIB, ad pages and revenue were down 7.4% and 3.1%, respectively (on top of an 8% drop in newsstand units for audited titles).

Magna forecasting guru Robert J. Coen is now projecting total 2008 U.S. ad spend growth at just 2%, and 1% for magazines. His initial 2009 projection is for overall ad spend to see a slight improvement, to 3.1%, though traditional media continue to lag Internet and digital media growth.

After cutting trim sizes, reducing editorial pages, going to lighter-weight papers, striving to minimize postal costs through co-mailing and other techniques, and reorganizing to reduce staff, publishers have reached—or will soon reach—the outer limits of what can be done on the cost front.

What options are left, outside of more cuts that could undermine core infrastructure (and possibly erode consumer or advertiser demand for their products), or shutting down unprofitable or marginal publications?

For B-to-B publishers and consumer publishers with loyal, niche audiences, part of the answer may be adding digital editions or moving some magazines to digital-only.

"If there's a large economic message here, it's that making and moving printed pages is inefficient compared to putting images on screens," points out manufacturing consultant Alex Brown, writing in Publishing Executive.

B-to-B executives confirm that expanding digital is part of the plan for the year ahead. Access Intelligence, for instance, plans to add digital editions, senior VP-corporate audience development Sylvia Sierra told BtoB Media Business. "One idea is offering digital-only... [or creating] a low-cost subscription rate that covers the manufacturing and distribution, and offer it to those who really do not want digital delivery," she said, adding that direct mail offers will continue to decline in favor of electronic promotions.

"Digital will continue to grow, and we will probably see publications go digital to try to survive," agreed Kim Clothier, director of circulation at the Fabricators and Manufacturers Association.

Nor are B-to-B's alone in this strategy. Consumer brands that have dropped print to go all-digital recently include Ziff Davis Media's Games for Windows, Slap (for skateboarders) and High Times. Brands adding the digital subscription option recently include fashion title V Magazine, Wend (an Oregon-based adventure sports title), and 417 Magazine, a Southwest Missouri lifestyle publication.

DRG's Quilter's World, published through the House of White Birches brand, has a new digitally formatted, Web-based edition, and DRG will be adding such editions for its other eight magazines in the months ahead.

"The future of digital magazines belongs to content publishers who use them to capture a unique content niche, crawl into it, define it, dominate it, and attract a unique audience to it," wrote Folio: senior digital editor Dylan Stableford. "Once that audience is established, advertisers will follow."

Meanwhile, B-to-B publisher Tabor Communications—where all brands, including GRID Today and HPCwire, are already digital—"won't be affected" by next year's postal (or paper) hikes, Deb Walsh, director of audience development Deb Walsh pointed out to BtoB MB. Or for that matter, by such increases in 2010 and beyond...

"Oil prices aren't going to return to 20th-century levels, so this cost gauntlet we’re running through right now is not a drill," Brown stressed in PE. "New energy sources will rewrite our economic equations, but all the variables in the formula will change, too." -- Karlene Lukovitz