Troubled by falling response and lower remit rates, publishers are turning from agents and going direct to the consumer
Publishers have taken on a new challenge: reinventing the way magazine subscriptions are sold.
Although most magazines enjoyed a lengthy stint of relative stability in maintaining their rate bases, the collapse of the giant sweeps mailers has forced publishers to find new ways to replace lost subscriptions, estimated by some sources at 50 million.
As Meredith Corp.’s vice president for consumer marketing and development Hal Oringer puts it, “We need to be bold. There is a greater sense of urgency to try new creative treatments, new package tests and to shorten the testing cycles and get things into production more quickly because everything in the circulation business takes too long.”
One of the biggest changes has been a swing away from the dependency on agent-sold subscriptions (those generated by stampsheet mailers like Publishers Clearing House, and by independent agents) to an aggressive effort to build and maintain direct-to-publisher efforts. Publishers say that D-to-P initiatives not only put the publisher back in control but produce a subscriber who renews at a higher rate and has a better lifetime value than one sold via a third-party agent.
In addition to the advantage of better control, some publishers no longer want to be beholden to third-party agents, especially those that have drastically reduced their remits (the money that goes to the magazine).
“There are people on the sidelines who are squeezing publishers unforgivably in terms of knowing that publishers will pay almost any price to get circulation,” says Jeremy Koch, senior vice president and head of consumer marketing for Time Inc. “Many publishers are not in a position to do anything about it. Some of us are, but it’s an ugly situation and virtually every agent out there is coming back to publishers and turning the screws on those who are desperate for circulation.”
Publishers Clearing House, for example, dropped its remit rate from 10% of the subscription price last year, to 5% and then down to 0% last month for at least some publishers, sources say. Other agents are charging negative remits.
Pete Pedersen, executive director for PCH publisher relations, admits that due to its financial situation, the company has lowered remits for the second half of 2000. The decrease begins with the second-largest mailing of the year, which hits the first week of July.
He says that prior to the negative publicity, remits had remained stable for about 20 years, ranging from a low of 8% to a high of 26%, depending on the publisher and a number of other factors. During those years, the company absorbed numerous increased expenses, including postal, paper and production costs, without lowering remit rates. But following the far-reaching, widespread attacks on PCH’s marketing techniques, the company reached a point where it could no longer absorb costs and had to drastically cut remits, adds Pedersen. Remits now range from a low of 0% to a high of 18%.
“We have to assume there will still be a backlash by consumers,” he says. “We have to assume that response levels are going to continue to be low and we have to react to that.”
Publishers are reacting by curbing their dependency on agent-sold business, which many feel they can no longer rely on. And while D-to-P direct mail subscriptions may be more costly than those sold by agents, publishers say that the more valuable subscriber is well worth the effort. “It may cost a little more to do direct mail the first year than it would to use some other source of business,” says Meredith’s Oringer, “but over time, that direct mail order is going to be more profitable for us than an agent order.”
Time Inc., which maintains Web sites for the majority of its magazines, has de-authorized all online agents in an effort to bring the focus back to direct selling. “We are trying to build the business ourselves without going through third parties,” says Koch. “If someone wants to buy Time online, we want them to come to the Time.com site.”
This tactic has begun to generate significant volumes of subscriptions, adds Koch. Last year, Time Inc. netted 150,000 online subscriptions and expects to double that number this year. “There is an increased focus here at not being beholden to agents because we just don’t want to be at their mercy. And if we can get this business ourselves without them, we’re willing to make the investments to do that,” he says.
At Money magazine, volume from American Family Publishers and PCH has dropped by 50%. And just as Money has moved away from third-party agents, it has also reduced its dependence on sweeps offers in its own mailings, “purely from an economical point of view,” says David Gilbey, vice president of consumer marketing for Time Inc.’s personal finance magazine group.
In 1999, a non-sweeps offer sent by Money generated more volume and better economics and demographics than its sweeps offer. The magazine – which is read by upscale men and women aged 30 to 50 – is now 100% non-sweeps. “We think sweeps as a direct mail tactic is proving less relevant to the audience we’re addressing,” says Gilbey. “It may seem less credible than a straightforward, less-promotional mailing.”
Commenting on the collapse of PCH and AFP, Gilbey adds, “It was a blessing in disguise. It forced us to be much more creative and attentive in finding new sources of subscriptions.”
At Meredith, Ladies Home Journal, also once basically sweeps-sold, has switched to a 100% editorial-sell format, “a hard, expensive process,” says Oringer. “We didn’t want to be locked into a sweepstakes offer so we started building an editorial-sell universe. We’re making an investment in the future.”
And while large publishers certainly have the resources to invest heavily in D-to-P efforts, smaller publishers are making the effort as well.
Fran Kane, circulation director at Archaeology magazine, replaced 75% of the agency-sold business she lost over the past 18 months with a variety of D-to-P efforts. In addition to revamping the agent-sold renewal series so subs renew directly back to the publisher, Kane also reinvigorated the title’s insert program. “For the first time in 18 months,” she says, “I’m seeing an upswing in my circulation and I’m breathing and sleeping again.”
To revamp the agent-sold series, Kane turned to cover wraps and dropped the price to increase renewal rates for the bimonthly magazine. She ran five efforts beginning with the third issue. The first two efforts offered a special reduced rate, the third and fourth increased the price and featured a Scarab magnet as a premium. The fifth offer reduced the price again to the introductory rate. “I wanted to make it appealing to renew directly back to me, even if they got the stampsheets,” says Kane. “And it has paid off tremendously.”
She also redesigned the magazine’s “stagnant” insert program. She went from a single bind-in card to a triple stack to promote gift subscriptions. The piece contains the standard one-year offer, a two-year offer or a one-year gift and renewal at a discounted rate for gift-givers. The creative was designed to match the look and feel of the newly redesigned magazine.
In addition, direct mail efforts for Archaeology achieved a “marked increase” in January, with well over 75% of the orders placed after two weeks. Riding on that success, Kane plans to increase direct mail volume this year by 50,000 to 100,000 pieces.
She also credits a beefed up Internet site – including a subscription slide show of strange archeological facts – with helping gain subscribers.
Although Archaeology continues to work with PCH and a handful of other agents (in small units that are producing minimal results), Kane has dropped the amount of agency-sold business on the title’s file by 15% over the past 18 months. And while she still considers agent-sold subscriptions an important source of business, “I don’t want too much agency business because no one knows when they’re going to go away again,” she says. “You’re once burned, twice mourned.”
Other efforts on the rise are package inserts, bind-ins, blow-ins and ride-alongs. “There seems to be a trend with more publishers using alternative media,” says Lori Magill-Cook, vice president, director of accounts, for American List Counsel Inc. in Princeton, NJ.
Interest in ALC’s largest alternative media property, BMG, has tripled over the past 18 months, she says. BMG offers 15 programs, including its ride-along that goes out with 5 million catalogs every two weeks, and its package inserts of 500,000 monthly product shipments. Although response to alternative media programs is typically lower than direct mail, the programs offer publishers the opportunity to go in with a harder offer at a lower rate. Alternative media plans range from $20 to $40 per 1,000, compared with traditional list rentals of $70 to $100 per 1,000, says Magill-Cook.
In addition, publishers are “finetuning” list rental segments for solo direct mail, she says. For example, magazines that typically rented broad segments, such as a monthly hotline file, are now renting the hotline augmented with a few selects designed to reach a narrower target.
Another trend among publishers is greater use of the professional courtesy rate offer. Usage has doubled over the past year, from 30 to 60 of the total 500 magazines tracked by Gordon W. Grossman, a direct mail consulting firm in Chappaqua, NY. President Gordon Grossman says the professional courtesy rate is an offer originally designed by Time and Newsweek.
Publishers are also making major efforts to strengthen their marketing partnerships and establish new ones.
Time Inc., for example, recently closed a deal with the Home Shopping Network to upsell its female-oriented magazines, like People and Instyle, at the end of inbound calls. A well-established partnership is already in full swing with Ticketmaster, which upsells appropriate magazines at the end of its inbound calls, such as Sports Illustrated for a sporting event. “We are generating not insignificant volume from these types of relationships,” says Koch.
Time is also tapping catalog companies and seeking partnerships with credit card companies and cable TV providers. And the publisher’s new relationship with America Online could lead to significant cross-promotional opportunities, says Koch. “We are looking at lots of ways that we can promote AOL in our magazines and in our promotions, and they are looking at lots of ways that they can promote our magazines,” he says.
New Services
Does all this mean the agent business is dead? Not quite, for over the past few years a new kind of agent has come onto the scene.
Organic Gardening is looking at Synapse Group Inc.’s newest venture, a multititled mailing called Dr. Sam (which stands for data-rich subscriber attribute mailings). It has already attracted hundreds of participating titles. Its initial test mailing is scheduled to hit mailboxes early in the second quarter, says Michael Loeb, CEO and co-founder of Synapse, formerly know as NewSub Services, in Stamford, CT.
The mailings are designed to reach “clusters” or specific target audiences – modeled on age, demographic and lifestyle data – with concentrations of titles around specific affinities, as opposed to the sweeps giants’ model of mailing huge volumes twice per year to a mass audience. “Direct mail has not exhausted itself as a direct marketing platform,” says Loeb.
Participants’ names are pooled in a cooperative “Publisher Alliance” database, which is modeled and maintained by Abacus Direct Corp., now owned by DoubleClick Inc. Loeb says the data is not repurposed in any way.
The initial tests of “hundreds of thousands” of pieces include a variety of offers, such as sweeps, nonsweeps, soft offers and premiums. “We’re going into this test with not a lot of perceived notions of what will work,” says Loeb. “We don’t expect an immediate home run. Therewill be lengthy and protracted testing.”
Dr. Sam thus joins four existing Synapse programs: NewSub Services, which channels magazine sales through credit card statements; Cap Systems, which allows customers to exchange frequent flyer miles for subscriptions; Magazine Direct, which upsells subs at the end of inbound catalog calls; and Synapse Connect, which partners with thousands of Internet sites to sell subs.
Last year, Synapse sold 25 million new subscriptions, compared with 15 million in 1998, according to industry sources.
Tammy Walbert, Organic Gardening’s circulation director, says the loss of subs from the sweeps mailers – in its heyday AFP and PCH brought in 344,000 annual subs for the magazine, a number that dropped to 68,000 last year and is still falling – prompted many publishers to test any opportunity out there that holds potential in reinventing the way subscriptions are sold. “Any new thing that comes up,” says Walbert, “I’m going to test it – because I have nothing to lose.”
