So What's Different This Time: Part 2

Update: I recieved the following note from a former wholesaler last week and in between family reunions and jury duty, I never got around to posting it until now:

"In regards to your blog of today (7-10), I find it interesting that we are considering selling on a non-returnable (outright) basis.  There are a few comments that you might find interesting.

 Putting the product out and cutting the price until it is gone is appealing.  We function in a system where the defining indicator of value is that the product is not out-of-date.  And then we turn around and put a date on the front cover.  I find that odd in the discussion of inefficient sell-through.  Are we trying to solve a problem of our own making?  Who of us has not read a six month old magazine in a doctor's office?  Earlier this week I read a four month old Car and Driver while having my SUV's oil changed.  I read it because there was little else to do while waiting.  What was important in that issue were the articles on Porche, Lamborghinni, Ferrari, Mercedes, etc.  You know, the fantasies I will never attain.  I didn't look at the issue date.   It didn't really matter.  I wonder if it matters to John Q. Public.  It seems to me the content of most publications is more important the issue date.  On the other hand, timliness is also important.  Given the speed of today's technology and the instant gratification demands of our society, I really doubt that any printed publication is really timely.

So, if we cannot compete in the timeliness arena, then where do we compete?  Can we compete profitably?  Each publisher has to weigh the factors and decide what is in it's best interest.  I am fairly certain that the distribution structure under which Backwoodsman operates would be different then the one for Cosmopolitan.  God help us if they each would need a different kind of wholesaler.  Two wholesalers on one rack was a bad idea last century and would be in this one too.

One thing is for certain - RDA has no place in anybody's scenario."

Editor's Note: Music to accompany this post it brought to you by the Department of Obvious and The Alan Parsons Project.

http://www.youtube.com/watch?v=SLi7Ljcy6n8

At it’s best, Source Interlink was an interesting amalgamation of ideas and retail services that never quite worked exactly as its creators and executives expected. Many of us from the other side of the desk were not surprised.

Source is now gone from the picture. That's too bad. The pool of independent magazine wholesalers is fewer than twenty. The systems of checks and balances that held this magazine distribution system together unraveled years ago.

So what’s next?

A colleague reminded me: From the late 1950′s to the early 1990′s, the magazine wholesaler system worked primarily because of the power that TV Guide and a few other “must carry” magazines wielded over most mass market retailers. If your local supermarket or discount store or drugstore wanted TV Guide or one of the “Seven Sisters” or Playboy or Penthouse (Yes, prior to the Meese Commission you could find Playboy  in supermarket checkouts), and that store was located somewhere in the Holyoke, MA service area, then the retailer could get those magazines from the Holyoke News Company of Holyoke, MA. There was no other alternative. Holyoke News was the only full service magazine wholesaler for that market because TV Guide and the major publishers wanted it that way. That was the system.

But as local chains morphed into national chains and the power of those mass market titles waned, well, the world went up for grabs. Magazine wholesalers who often never strayed beyond their area code were suddenly trying to do business in places they had only visited while passing through on their way to somewhere else.

Talk about having to grow up fast.

The system that provided these wholesalers with their territories and profits now decided, for better or worse, (mostly worse considering the results) that they didn’t want to adapt to the new reality. We’ve had a mass sell off of once profitable businesses, several major financial collapses of large wholesale operations and a consolidation of national distributors. And here we are: Two big wholesalers, one much larger than the other, neither reportedly making any money.

Sure, sales are down because: digital. Or whatever. Or Netflix. Or Hulu. Or mobile. Or all of the above. But I think you could make the case that sales are depressed even further because the system we now operate under is not conducive to sales.

So what is next? What is different, this time? Can this be better?

What's not different is how closed mouthed industry professionals are about how they’d like to see the system restored to profitability. Is it because we’re so close to it that we can't see the way out? Or perhaps because we don't want to say something heretical and then have to do a mea culpa or two while we continue to work within the existing system.

Not surprisingly when I asked newsletter purveyor and futurist Bob Sacks of “BoSacks” fame what he thought was the best way to get us to profitability, he was not concerned with offering his take on the situation:

“I’m going to offer some heresy,” Sacks said. “Go non-returnable.”

This isn’t a new idea. One Source out of Denver, CO has supplied with magazines on a non-returnable basis. One of my clients serviced an overseas chain non-returnable. My former publisher, Athlon Sports used to sell their sports annuals on a non returnable basis right up until the late 1990′s. But a whole system devoted to non-returnable?

“From a production persons’ perspective,” opined Sacks, “it’s costly to make so much product, and then not sell it.” Sacks’ background in the publishing industry was in production and distribution.

It should be noted that the current average mainline sell through for many magazines is 30% of all copies sold (or often less). Sacks also points to China where magazines stay on the racks at increasingly discounted prices until they are sold.

Would this work? I honestly don't know and I've been a little too busy to even try crunching some numbers. What do you all think?

The balance of the other industry professionals I spoke with did so with the understanding that they remain anonymous. This is not surprising considering how volatile the current arrangement we operate under is.

What I did find fascinating was how close everyone was with regards to what was suggested.

The solution most frequently proposed was a trip to the "Way Back" machine and the suggestion that we move to "Fee for Service".

The idea of "Fee for Service" has been around for a long time. Most iterations of "Fee for Service" suggest paying a traditional wholesaler on a sliding scale of fees depending on volume, sell through and the services the wholesaler is requested to perform on the publishers behalf.

Almost every professional I spoke with, with the exception of those who had worked at one time or another for a wholesale operation, felt that "Fee for Service" in some form or another was the way to go. Many industry professionals also suggested that this would also be an ideal time to get rid of RDA.

In one case, where it was clear that the interview subject had spent much time thinking about this, the "Fee for Service" wholesaler was co-owned by the publishers/national distributors and treated like a public utility. To my mind, this scenario makes the most sense because it is the most fair to publishers of all sizes. But it's not going to happen.

People who had worked within the wholesaler system at one time seemed to like the idea of "Fee for Service", but recognizing the reality of thin profits, they also liked the idea of hanging onto all or most of their current discounts. That's pretty much where we are now.

What's different this time is that most of the chains are switching service providers more quickly. As a result, we see copies are being shifted more quickly.

That is, of course, provided the publisher has signed off on TNG's new pricing terms.

What's different this time is TNG's new pricing terms.

There's already been an enormous amount of back channel chatter about the terms of the indemnification clause. Yes, it wasn't elegantly written. But I'm guessing that TNG just doesn't want get sued (Who does?). Didn't like the language? Many publishers submitted a revision.

The rest of the terms make sense from a wholesaler's perspective. Especially if that wholesaler is interested in making some money distributing magazines. And should we begrudge a company its desire to make a profit?

But here we are. For better or for worse, we're going to be distributing magazines to the reading public with the system that was created, evolved, stagnated, crashed, got up, crashed again, got up, crashed again.

We will go through this again in a few years? I would imagine that no one wants to.

So maybe the question should be, "What has to be different this time?"

We have to look at pricing parity between newsstand and subscription. Why would you charge 1/5 or less of the newsstand price for a subscription? Do you have that little confidence in your editorial content?

We can't print tens of thousands of copies of a magazine, toss it out to the newsstand and hope that someone walks by and suddenly wants to buy a magazine? True we have a lot more data available to us about what the distribution looks like, but we're still mostly spitballing.

We are starting to see publishers utilize more sophisticated methods of moving their audience into stores to get magazines, but we have to move on this more quickly. It's a frustrating process and the inertia that exists in publishing houses to simply have a meeting, say "That's a really good idea" and then move on to the next meeting is very great.

In a June 30th guest editorial in "The New Single Copy",  Taunton Press VP Jay Annis suggests a concerted effort on the part of publishers to visit with retailers and sell the message of how magazines can help engage the retailers customers.

Sign me up.

But we'd better make sure when we walk into that retailers office that we have something in mind and that our publishing partners are ready to pull the trigger on the program. And it would help if we include our wholesaling partner and they are ready to make the delivery and perform the appropriate merchandising.

As Annis wrote in his editorial:

"...In each case, at least from a publisher's perspective, there were two consequences; publishers eventually were forced to pay more for distribution, and instead of the promise of more...space, better placement, more checkouts, the opposite occurred...Yet I, as a publisher, am asked to have faith in how the system works. The system is in worse shape today than at any time in the last 5 years."

So how do we fix this?

One More Thing: I'm interested in hearing what you have to say. Drop me a note or leave something in the comments section. How can we fix the distribution system? Because all our other efforts will come to naught if we can't get to market, to the right market, in the right quantities, and in a way that a profit can be generated.