With Advertising and Circulation Dwindling, Diversification Is Continued Imperative for Mag Industry
A study conducted by consulting firm PwC confirms what a many publishing leaders already know: As advertising and circulation revenues decline, diversification becomes a business imperative. “Advertising for print is down. Circulation is down. Revenues are projected to be flat,” says PwC partner Greg Boyer. “To make up for these declines, magazine publishers need to innovate in a variety of ways.” In particular Boyer sees mobile and video as a bright spot for the publishing industry.
According to the Global Entertainment and Media Outlook 2017-2021 report released in June, the compound annual growth rate (CAGR) for magazine circulation and advertising revenue over the next five years is 0.19%. In terms of dollars, that’s a mere $300 million increase, approximately, in industry revenue.
PwC predicts that print advertising will take the biggest hit, with ad revenue for consumer magazines dropping from approximately $13.5 billion in 2017 to $6.7 billion in 2021. For B2B print ads, revenues are projected to decline from approximately $3.4 billion to $1.9 billion over the next five years. Digital advertising will offset these revenue losses, keeping ad revenue flat. PwC predicts circulation revenue will continue to decline for consumer magazines at -0.61% CAGR and grow for B2B publishers at 3.69% CAGR.
If this picture seems dire, Boyer says that he expected worse and is surprised at print’s resiliency in the face of disruption. “I thought that the revenue drops for print circulation and print advertising would have been a bit more severe,” says Boyer.
It’s clear that those streams alone do not spell growth for the industry. Instead, publishers need to drive revenue from a variety of products including video, mobile applications, and live events.
And though publishers are already well on the way to diversifying their revenue streams, it’s hard to get a read on how “alternative” revenue streams are tracking. Many industry revenue reports focus on print circulation and advertising, and digital advertising, but not taking into account where diversification and growth is occurring. Ultimately this approach paints the industry in a more dour light than may be the case if all business lines were taken into consideration.
Boyer says that PwC plans to expand the revenue streams it measures in the coming years. “Every year we evaluate the report for the next year. We will continue to add new revenue streams particularly because we have so much disruption in the industry.” That change in reporting is critical to publishers’ understanding of where to direct their diversification efforts.
In the following interview Boyer shares his biggest takeaways from PwC’s Global Entertainment and Media Outlook Report as well as advice for publishers looking not just to survive the next five years, but thrive.
What is the biggest takeaway from the PwC report for publishers?
I think the biggest takeaway is that everything is really seeping into a mobile and video type of work from a digital perspective. . . That means responsive content. That means making their content more available via mobile, digital-first type of content, and really try to capture video on their platforms to pivot in that direction.
Although overall print revenue isn’t growing much -- print advertising will decline for B2B and B2C publishers -- circulation seems to be holding steady.
Yeah, it’s obviously declining, but it’s not declining at such a precipitous rate that publishers can’t maintain print operations. While it’s a very challenging environment, we’ve seen much bigger drop-offs in other industries. Music would be one example. I think my biggest surprise is that we don’t see as big of a drop-off in customer sales, but I think that is in part due to the diversification that’s already been occurring on the consumer and trade magazine side.
What type of alternative revenue streams should publishers pursue?
I think that consumer magazines should follow what the trade magazines have done around the event side, where they can create events, like Fashion Week or things along those lines. That has been very effective on the trade magazine side. I think marketing and promotions are also areas that they can diversify in. We also discussed diversifying in digital around mobile and video. Our sense is if you think of yourself more as a media company and less as a publisher, and all that entails, that will provide them with a more diversified revenue stream.
As publishers diversify, how does the role of the print magazine change? Does it become more of a brand awareness vehicle?
I think for consumer magazines, print will become more of a loss leader approach. Print can give you a brand profile; you will be able to attract eyeballs to not only the print version but also eyeballs to digital or other sites and other events that are part of an overall mix.
You saw in the music industry, artists used to perform shows to sell CDs. CDs were how they made the bulk of their money. In the music industry today, they make their money from touring. They produce music to drive people into the doors and monetize around a variety of things -- tickets, live event t-shirts, and albums.
It’s similar in the magazine business because as print circulation and advertising decreases, you want to be able to drive those readers to other brand extensions. I think that print becomes the flagship sort of brand profile that can bring people in.
You can think of events as an example. If you have a brand that has a very significant niche focus in one area, and that publication drives awareness to a series of events where they can get people to pay, to get them to attend one event would surpass what even an annual subscription would amount to. It’s much more profitable to get a consumer to an event where they would probably spend money not only to attend the event, but they’d probably spend a bit of money at the event.
Publishers need to be able to look at themselves as fully diversified media companies that have many types of services to offer and to use publications to drive brand awareness and drive them to these services.
Are you seeing a shift away from digital advertising, in light of ad fraud and ad blocking, toward digital subscription?
I think you need both strategies. I don’t think we’re at a place and time, frankly, where we can say one works more efficiently than the other. Digital subscriptions provide a more stable revenue flow than advertising models, so I think you’ll see a lot of publishers prefer to have a subscription-based model, but at the same time I think we have a long way to go, and the best strategy at this point seems to be a dual strategy of subscriptions and advertising.
What advice would you give to publishing executives over the next 5 years, given some of the trends highlighted in the PwC report?
I think it’s absolutely imperative that they look outside of their traditional business model and focus on diversifying their revenue streams. If I were to focus on two areas, I would focus on mobile and video. You have to be able to engage consumers in the way that they want to be engaged today, and I think that’s no longer primarily your glossy print, though it can be. I think people still get consumer magazines. They like flipping through them, but they catch up on all their news online. I think it’s imperative that they create dual strategies for print and online and be very bold and innovative when it comes to the video and mobile space. Every data point we collect points to growth in those area.