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Magazines - About To Reach A Tipping Point in the Australian Market?



Background to Magazine Supply, New Magazine Supply MediaScape & Q&A with Paul Dovas...

 

Long term magazine supply issues between publishers, distributors and newsagents seems to be reaching a tipping point with a submission to trial and measure the impact of much needed magazine supply changes put forward to the ACCC by the Magazine Publishers Association (MPA) and distributors.  

 

While some of the proposed magazine supply changes have general agreement, the ACCC granted a pre-trial conference where newsagents and publishers raised concerns including the lack of industry consultation, restrictions on early magazine returns and redistribution, uncompetitiveness with other channels such as supermarkets - and the overall direct impact of the proposal to their businesses.

 

Outcomes may have an effect on magazine circulation with some newsagents indicating changes will make the magazine channel unviable for their business (newsagents account for 50% of magazine sales). 

Paul Dovas, who recently departed his long term role as CEO of the Audited MediaMediaScope - Magazine Supply to Newsagents Association of Australia (Audit Bureau), shares his views on the implications of this proposed trial, particularly for niche publishers and the advertising trading sector. There is also a new MediaScape outlining the magazine supply workflow and links to further articles on this issue at the base of the page.

 

First, we look at some background points on magazine supply taken directly from ACCC submissions...

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- Supermarkets, petrol & convenience stores CAN select the range and number of magazines supplied to them by distributors.  Newsagents CANNOT select the range and number of magazines supplied to them by distributors. Newsagents are responsible for 50% of magazine sales, generally selling mainstream as well as niche, special interest and international titles.  Supermarkets etc generally sell mainstream titles.

- There are approximately 500 publishers contributing magazines into the Australian market - the majority of these are overseas publishers.

- The Magazine Publishers of Australia (MPA) represents the 3 largest Australian publishers. (Bauer, NewsLife and Pacific) The MPA members represent approximately 63% of magazine sales revenue and 7% of number of titles. MPA members have an estimated average sales efficiency of 67% (67% of magazines are sold), while all other publishers have an estimated sales efficiency of 41% (41% of magazines are sold). 

- There are 3 magazine distributors: Gordon and Gotch, Network Services (owned by Bauer) and IPS (owned by Fairfax). Distributors are paid on magazine distribution (this includes an allowance for magazine returns handling) for local titles and commission on sales for international titles. Gordon & Gotch and Network Services distribute 170million and 190million magazines respectively. 46% of these magazines are not sold.  IPS (owned by Fairfax) is not part of this proposed trial.

- Newsagents supply distributors with exact daily magazine sales data through point of sale software service XchangeIT. This software is owned and supplied by distributors to newsagents through an annual subscription.

- To overcome issues associated with magazine oversupply, newsagents 'early return' magazines to distributors prior to the close of magazine on-sale dates.  As newsagents are unable to select titles or number of magazines supplied this is the only lever they have to manage cash flow, labour and floor space. (Magazine allocation is paid upfront by newsagents to distributors and not reimbursed until returns are processed).

- One newsagent outlined "some facts on supply of magazines in my news agency".

  • In 2014 I was sent a total of 1,680 titles and 54,481 magazines from the 3 magazine distributors
  • The top 468 titles represented 90% of my sales at a sales efficiency rate of 67% (67% of supplied magazines were sold)
  • The bottom 10% of my sales were made up from 1,212 titles at a sales efficiency rate of 34% (34% of supplied magazines were sold)
  • A total of 304 titles recorded zero sales.
  • In total I returned over 21,000 magazines. (Some of these magazines - particularly those with long on sale dates - are redistributed to other newsagents).

- In November 2014, the MPA, Gordon & Gotch & Network Services (Bauer) proposed a ‘Proof of Concept’ Pilot with the ACCC with the objective of better managing magazine supply and measuring the impact of removing 11 million (3%) magazines from the current 360 million magazine distribution supply cycle. To achieve this the pilot (involving 40 newsagents) proposes a tiered system where distributors can supply magazines to newsagents achieving no less than an average 42% sales efficiency (42% of magazines are sold) - with restrictions on early returns. A ‘Code of Conduct' will be created & applied to magazine supply based on pilot findings. ACCC has issued an interim authorisation to begin building a framework for the pilot. After submissions from newsagents & publishers outside the MPA & ANF (Aust Newsagency Federation), the ACCC will soon deliver its final decision on allowing the pilot to proceed.

- Another newsagent outlines the issues for each stakeholder...

  • Each part of this industry has their own perspective on what they desire from the outcomes of the ACCC and the trial. Let’s keep it simple for everyone to understand -
  • -The average newsagency now works with approx. 750 pockets for mags (some more some less but the benchmark for us is now 750).
  • - If our returns ratio is 53-57% across the board then clearly, there is a problem from the newsagents’ point of view.
  • - If we early return mags because of room restrictions or inability to sell (our call surely) then the publishers have a problem.
  • - If we demand xchangeit use our information as it was intended (to control our supplies by giving our sales figures daily, to the distributors it would result in a much smaller distribution base which would then be of no interest to the distributors.
  • So the real questions should be HOW TO BENEFIT EACH OF THESE PARTIES? Less product means less distribution and could mean less sales for publishers. This is a real dilemma folks and someone (probably the newsagents) won’t win. The answer, of course, is negotiation and compromise.  

 

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What is your industry background and your current role?

I have over 16 years experience with the Audited Media Association of Australia,MediaScope - Paul Dovas
formerly the Audit Bureau of Circulations and Circulations Audit Board.  I did break away for 12 months or so in 2007/2008 to publish my own magazine, HA! Magazine and experienced first hand the complexities of distributing and selling consumer magazines through the Australian Newsagency network. 

In September 2014, I left the AMAA and launched Dovas Digital, a digital consultancy focused on managing and seeking opportunities from digital disruption.

I was also appointed recently to the Vice Chair, Oceania position for I-COM, a global forum for marketing data and measurement. 

What are your views on the current state of the general media and advertising market?

At a time when technology and innovation promises so much for media owners, advertisers and consumers, we are experiencing unprecedented disruption to the media and advertising eco-system plagued by paradoxes and disconnects.

Traditional media giants have made way for new barrons in the form of Apple, Google, Facebook and the like.  

The old adage of 'content is king' is under threat as more and more ad budget is going online and into programmatic buying systems, which chase eyeballs regardless of the content they are viewing.  

What should be a golden era for niche media with quality, well identified audiences is instead a challenging time, overshadowed by a lack of visibility and scale in a market that rewards volume, regardless of its quality.  

The traditional print model has evolved as mastheads touch audiences in many ways, however media owners are struggling to articulate the depth and intricacies of the new models. 

MediaScape of the magazine distribution model between publisher, distributor & newsagent.  PDF Copies are available.

Australian Magazine Supply Model MediaScape

What are the issues with the current magazine supply model?

The current magazine supply model is outdated and inconsistent, having evolved to serve a newsagent only monopoly that was deregulated in 1999 through the introduction of supermarkets, convenience stores and other retail outlets into the mix.

 

Newsagents are required to compete for magazine sales under very different conditions and restrictions to those afforded to supermarkets and other retail outlets.

 

Distributors are paid to distribute the total supply based on allocation modelling that does not take into account currents sales data, newsagents, who don't have a say in the allocation, are only rewarded for actual sales.

 

Like many industries, retail is undergoing incredible disruption as retailers and consumers move from bricks and mortar to online. The proliferation of the shopping mall has also killed many high streets, where newsagents held pride of place. I recall passing 4 newsagents on the way to school many years ago. I wouldn't go anywhere near a newsagency if I was to take the same walk today.

 

As magazine retail sales through newsagents fall, the cost to supply hasn't changed at all. When you are operating on tight margins already, such commercial pressures are unsustainable.

 

Who has suggested the new solutions which are currently under consideration with the ACCC and why are they disputed by many newsagents and publishers outside the MPA?

The MPA (members are Bauer, Pacific and NewsLifeMedia) is keen to pilot changes to the current supply process to newsagents to improve the issue of magazine oversupply in newsagents, reduce costs and make magazines more competitive.

The MPA has engaged the Distributors (Network Services is 100% owned by Bauer) and the ANF (Aust Newsagents Federation) who support the pilot, but both the MPA and ANF have been subject to criticism from publishers and newsagents due to the lack of consultation.

Newsagents, in particular, feel that changes don't go far enough and with the proposedMagazine Supply to Newsagents: Unsold Magazines blocking of early returns, will leave them even more disadvantaged.

 

The proposed changes seem to favour larger publishers with high circulation levels and better sales efficiency rates. Not only will they get to keep their inventory on newsagent shelves longer, the changes will eliminate many smaller, slower moving titles from this competitive space. At best, smaller titles will be charged a 'stocking' fee to participate in the newsagent network.

Smaller titles tend to be niche focused, serving small but loyal and highly engaged communities including dedicated advertisers. Losing access to the newsagent network may force changes to the publishing model or overall closure.

Magazine publishers would operate to the rule of thumb that a title needed 12 months or so for it to be deemed a success or failure. Under the proposed rules, a title that hasn't sold a copy in the first 3 months, will be removed from the network. It sometimes takes that long to understand the full extent of a title's performance.

 

The blocking of early returns is a sore point for newsagents, who use the process of returning over supply before its recommended return date to manage cash-flow.

 

What is the role of distributors and newsagents in the magazine circulation audit process?

The ABC paid circulation audit is primarily based on the systems, processes and record-keeping maintained by the distribution companies. The audit reports net paid sales, ie the net of copies supplied to newsagents and those returned as unsold.

While the process should not be impacted by the proposed changes, the blocking of early returns may impact the availability of final sales figures, which could delay audited circulation reporting. This will make it even more difficult for magazines to compete for ad dollars, when other media is reporting much more timely and frequent performance data.

 

The loss of smaller, niche titles from the newsagents network may remove the access to these niche communities for advertisers. While all publishing models are involving and expanding, print still plays an important role in the overall mix.

In your opinion, what do you see as a fair outcome for all stakeholders?

Advertisers chase eyeballs and publishers need to sell copies to reach eyeballs. Publishers and their distributors rely on newsagents to be, as the name suggests, their 'agents' in the process. Surely, it is in the best interest of all parties to work together to increase magazine sales through reform, training and innovation.

 

The focus on supply may save some costs for publishers, but saving costs won't necessarily increase sales nor readership.

 

Thank you!

Further Reading on the Magazine Supply Issue - currently in front of the ACCC...

  • What Newsagents Need to Know About the MPA Trial of Proposed Supply Rule Changes
  • Further Submission to the ACCC on Proposed Changes to Magazine Supply Rules
  • ACCC Listens to Newsagents Concerns Over Proposed Magazine Supply Changes
  • Magazine Body (MPA) Disputes Claim Distribution Changes Will Leave Newsagents Uncompetitive
  • Magazine Distribution Changes on Hold as ACCC Investigates Whether They Are Uncompetitive
  • Why & How the MPA Decided to Undertake a Trial into Magazine Processes 
  • ACCC Application and Submissions - from stakeholders including the MPA, independent newsagents and publishers

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Other Pages of Interest

  • MediaScapes - well-known guides mapping the entire Australian commercial media landscape - including digital media, television, radio, print, outdoor, media agencies & more.  MediaScapes appear on office walls throughout the industry!
  • Newsletter - stay up to date on media industry news and opinion by joining over 2,100 media and advertising 'influentials' who receive MediaScope's newsletter each Friday morning
  • What's On - we keep track of the most worthwhile events, training, surveys & awards for the media market.