UK consumer magazines Two-tier market opens up Douglas McCabe +44 207 851 0910 [email protected] Thomas Caldecott +44 207 851 0914 [email protected] 31 July 2014 Executive summary • This is the first of a two part report on the UK consumer magazine sector – In the first part we focus on consumer demand for print magazines, genre analysis, magazine advertising and publisher performance – We also provide advertising forecasts in print and digital to 2018 – The second part of our report will cover the digital and innovation landscape including a case study of Good Housekeeping’s transformation strategy, which is being launched in Q4 2014 • Magazine circulation decline has accelerated, with paid magazine volumes falling 10% last year – about 1.6m magazines per week • Circulation revenue also fell 10%, as a result of the most intense discounting in the sector since 2010, offset by cautious price increases • Print advertising decline accelerated in 2013 to -8% while digital grew by 12%, the sector falling about 5% (£30m) in aggregate. Digital advertising (£91.5m) now represents about 15% of total magazine advertising • We forecast print advertising decline in 2014 of -6%, which assumes a strong second half • Digital editions are failing (only one title is selling to 20k consumers) and digital advertising rates are under relentless downward pressure. Importantly, they are generally measured by ROI, diminishing the importance of media environment and consumer engagement – a battle the industry has to take on more forcibly • Differentiated, upmarket, category-leader titles aimed at older demographics are increasingly outperforming across almost all magazine genres, both in terms of circulation and advertising trends – creating a two-tier magazine sector • Older demographics remain attracted to print, and are an increasingly important audience for many brands – though publishers need to spend more time persuading agencies and brands of these advantages • Publisher profits grew in 2013 as costs were taken out more quickly than income contraction, and a stronger economy should help in 2014 and 2015 – though the two-tier market will diverge the winners and losers UK consumer magazines: two-tier market opens up [2014-063] 2 Defining the attributes of the two tier magazine marketplace • Magazines are a hugely heterogeneous marketplace, with hundreds of • Nevertheless, there are common ingredients among successful and general and specialist titles across many dozens of genres unsuccessful magazines. Some very successful magazines have some of the negative attributes listed below, but none have all of them • Performance is likewise highly diversified, and the balance of consumer spend and advertising income varies enormously • The key strategic elements are • We are often asked about the relative strengths and weaknesses of a – Positioning and confidence title, a simple question that requires a fair amount of bespoke analysis to – Audience elicit a granular and useful answer – Barriers to print and digital competition Consumer magazine titles performance drivers Positive attributes Negative attributes Differentiation – market of one Poor differentiation in a pool of many titles Content tone is assured, confident Content tone is bland and inconsistent Upmarket – ABC1 readership Downmarket – C2DE readership Older readership – 40+ years Younger readership – teen to 40 years Timelines of content: not urgent (this month/week, but not this hour) Timeliness of content: urgent Subscribers Newsstand Massive industry / consumer interest Small industry / consumer interest Publisher investment Publisher running it for cash Female Male UK consumer magazines: two-tier market opens up [2014-063] 3 1. Paid circulation 2. Genre analysis 3. Advertising 4. Publisher performance UK consumer magazines: two-tier market opens up [2014-063] 4 Measuring circulation using ABC: our methodology • All circulation data in this report is sourced from ABC. However, Circulation per annum and circulation change (m) 3 reporting ABCs is optional. Thus, some titles begin reporting ABCs long 1200 after they have actually launched; some titles stop reporting ABCs even -17 -3 -63 though they continue to publish; and some titles may skip a reporting 1000 period (whether by accident or design) 800 • The chart top right breaks out annual circulation and how the 80m 600 1,173 copies lost across the industry between 2012 and 2013 break down 1,093 400 – Like for like: titles that reported ABCs in both 2012 and 2013. These titles lost a total of 63m in 2013, down 7% compared to 6% in 2012, 200 indicating a slight acceleration of the underlying fall in demand 0 – Closed: the closures of 11 titles accounted for 17m lost copies in 2013 2012 Like for like Closed Launched Other 2013 compared to 15m copies lost from 15 title closures in 2012. More!, [Source: Enders Analysis based on ABC data] Full House and Easy Living were the most high profile print titles to cease publication, accounting for for 80% of total copies lost from the market to closures – Launched: 17 titles began reporting ABCs as a result of launching in the last two years, adding 3m copies to the market. – Other: the remaining 3m copies were lost only on paper. These titles are still – and intend to remain – in publication, but did not report ABCs in 2013. Some publishers feel ABC does not sufficiently reflect the scale of their multi–platform audience and are moving to new, bespoke auditing solutions such as that developed by PwC. In other cases titles still registered with ABC have failed to submit their circulation data for the 2013 audit periods • Throughout the rest of this report, for simplicity, we do not break out circulation in this manner UK consumer magazines: two-tier market opens up [2014-063] 5 Circulation overview • Consumer magazine audited print circulation was 1,093m in 2013, down Circulation per annum (m) 7% on 2012 or a loss of about 1.5m copies per week 1,800 1,686 1,647 1,539 • The overall rate of circulation decline was flat on 2012, but only 1,600 98 106 1,478 100 because the growth in free (primarily, the first full year of Time Out) 1,400 376 96 1,262 393 1,173 continued to soften the accelerating decline of paid 1,200 371 361 94 1,093 83 210 82 – Free distribution rose 6%, 90% of which was provided by Time Out’s 1,000 215 224 first full year as a free publication 800 600 1,212 1,147 – However, UK paid circulation across all titles experienced 1,068 1,022 958 400 875 787 accelerating decline for the third year in a row despite an improving 200 UK economy, down 10% compared to 9% in 2012 0 • This pattern tallies with the overall demand for the UK press market 2007 2008 2009 2010 2011 2012 2013 which has decoupled from consumer spending patterns UK paid UK free International [Source Enders Analysis based on ABC data] – Data from ONS’s Q1 2014 Consumer Trends Survey shows that Circulation per annum, year-on-year growth (%) household spend on newspapers and periodicals fell by 9% from 5% 4% 2010 to 2013 while overall spend on culture and recreation increased by 6% 0% – As with newspapers it is clear that circulation patterns are now being -2% -2% -5% -4%-4% dictated by fundamental structural problems facing print rather than -5% -6% broader cyclical factors – and we predict the acceleration of this -7%-7% -7% -7% -10% -9% structural decline will be exacerbated by title closures in the five- -10% year horizon -15% Closure of Sky’s magazines -15% drags free circulation -20% 2007 2008 2009 2010 2011 2012 2013 UK paid All circulation All circulation includes free and international sales [Source Enders Analysis based on ABC data] UK consumer magazines: two-tier market opens up [2014-063] 6 Magazine frequencies • As the internet took more and more time away from magazines, slow- • Weekly and monthly magazines have each lost about a third of their moving monthly titles were disproportionately impacted volumes since 2007 (weeklies marginally more) • Since then the mobile revolution has kicked-in, making many weekly • However, the absolute decline of weeklies is a more substantial problem titles look more vulnerable – in total, weeklies are selling 6.5m fewer copies now than in 2007 • In 2013 the two frequencies seemed to converge, with rates of decline • There are two important implications in this hovering around 9-11% – Weeklies provide wholesalers and retailers with substantial volume business, and work harder at keeping retailer merchandising fresh – Supermarkets, which trigger more than half of newsstand sales and (across their business) are focused on rapid stock turn, are particularly conscious of this merchandising challenge UK paid circulation per annum, by frequency (m) UK paid circulation year-on-year growth, by frequency (%) 1,400 1,212 4% 1,147 2.5% 1,200 63 1,068 1,022 2% 55 958 238 48 1,000 227 47 875 209 44 787 0% 197 40 800 184 2006 2007 2008 2009 2010 2011 2012 2013 176 38 -1.5% 160 -2% 600 -3.8% 911 -4% -4.6% -4.5% 400 865 810 777 729 659 -4.0% -6.1% 589 -6% -5.1% 200 -6.4% -5.8% -6.5% 0 -8% -7.8% 2007 2008 2009 2010 2011 2012 2013 -9.1% -10% -9.6% -10.7% Weekly Monthly Other -12% Other includes fortnightly, bimonthly and infrequent publications [Source: Enders Analysis based on ABC data] Weekly Monthly [Source: Enders Analysis based on ABC data] UK consumer magazines: two-tier market opens up [2014-063] 7 Publishers cautious about price increases • Five years since the onset of the 2008 consumer recession publishers 2008-2013 basic cover price % change 23% have remained cautious with their pricing strategies. Only mid value 25% CPI inflation titles have raised their prices above inflation and increased use of 15% 15% 10% 12% discounting has fed through to decline in consumer spend 4% 5% • Low value (<£1): This pricing category is made up of Women’s weekly and TV titles with little scope for aggressive BCP rises.