Magazine publishing is focused on London. Not only is the vast majority of the UK’s magazine publishers headquartered in London, they also operate out of London. Magazines are created in London and the vast majority of employment in the sector is in London.
Eighteen of the top 23 publishers either solely operate out of London or have the bulk of their employment in London. Only two are based out of London: DC Thompson in Dundee and Future Publishing in Bath. Even these two have operations in London.
Magazine publishers face a very uncertain future as a result of the credit crunch. Their response to changing business patterns will form a significant part of how London tackles the current economic uncertainties.
There have already been some selective redundancies as some specialist magazines have closed. The wave of new graduates seeking jobs in magazines will find their quest harder than ever this summer. Existing staff will face a tight reign on their salaries, on the resources with which they have to produce magazines, and on their staffing levels.
Suppliers to the magazine industry are already reporting that their customers are delaying payment longer than in the past in order to retain cash.
In all, the magazine publishing sector expects a bumpy ride. The only question is, how bumpy?
Magazine publishing is part of the creative and cultural production industry which New Labour so proudly pointed to as a symbol of the New Britain. Magazine publishers had long ago shed their inhouse printing presses and now rely on outsourcing print to provincial suppliers. In this way they were unlike the majority of national newspaper publishers who kept their print works. Magazine publishers became producers of pure intellectual property: their products are marks on a page and light on a screen, both produced by creative teams and sold by commercial teams.
This reliance on intangible rather than tangible assets is clear in the balance sheet of the average magazine publisher. The average magazine publisher has £9.8 million in tangible fixed assets compared with £146.4 million in intangible assets, according to research by Keynote Business Ratio Reports reported by the Periodical Publishing Association (PPA). Tangible assets are things you can touch: computers, printers and the like. Intangible assets you can’t touch: they include that slippery accounting element ‘goodwill’.
As producers of pure intellectual property, they are very vulnerable to any downturn; just as they can benefit very quickly from any upturn. The real assets of the industry walk out of the building every night. The real assets are the people who create, publish, sell and distribute magazines. There is no large print workshop which has to be kept fed.
Costs can therefore be cut quickly by first delaying any replacement for staff leaving, then cutting levels of staff. All magazine publishers are now delaying recruiting staff to replace those who leave. Some are starting to cut staff levels. Even if they are launching magazines, they are not employing the same number of staff to run them as they did in the past. The fashion now is to share staff over many magazines, seeking some sort of economy of scale which does not exist in a people-based industry.
Readers of magazines may no see the affect of these staff limitations immediately. But over time they tell as the quality of publications can go down. Many editorial staff increasingly feel that their love of journalism and of the subjects they write about is being taken advantage of. Nobody enters journalism to make money. But the rates have remained low as inflation has chipped away at the value of salaries.
Publishers have to keep a tight reign on costs in order to generate profits from the £7 billion or so they earn a year in turnover. The average margin – the pre-tax profits on turnover – was only 9% in 2005/06, according to Keynote. Only 9p for every £1 of business can soon disappear if business declines, costs escalate or, worst still, both happen at once. And they are starting to happen at once.
The latest results from a UK magazine publisher are from Future Publishing. The majority of the UK magazine industry is now either in private hands or forms part of a larger non-UK operation. So Future Publishing is one of the few publicly-owned UK-listed publishers. Its latest results, out at the end of May, show the squeeze magazine publishers are in. Turnover for the half year was down 6.7% to £78.3 million; pre-tax profits were down 35.5% to £4.1 million.
Distribution costs are going up as petrol goes up. Paper costs are going up. Increases of up to 8% are expected in the next few months, printweek.com reported recently. Paper mills are closing capacity to push up prices.
About 49% of this £7 billion turnover is generated by publishers of business magazines; 41% by publishers of consumer magazines; and 10% by the publishers in the growing sector of customer magazines, according to the PPA.
Economic woes can rapidly be transmitted to magazine publishers from both sides of their business equation: supply and demand. The supply of advertising, crucial for almost all magazines, can fall off; demand goes the same way if consumers keep their cash in their pockets for more essential goods.
Some publishers have already felt the slowdown in advertising. This is especially true of publishers of business magazines and particularly for the finance sector. About a third of the income for business magazines comes from advertising. Even slight variations can result in happiness or misery, as Dickens had Mr Micawber say.
In November 2007 there were 237 magazines for the finance and financial services sector. Some specialist ones on mortgages so hard hit by the credit squeeze have already closed. Others are only hanging on. The near collapse of the job market in the City due to the waves of redundancies has stripped many of these 237 magazines of their profits. For many it is a matter of who can hold out the longest.
Consumer publishers are also experiencing the same cut backs by financial institutions. But consumer publications, particularly, face another threat at the other end of their business, from customers. Magazines are not essential: they are not professional journals. Whether business or consumer, magazines are a discretionary purchase. And in a credit crunch consumers may keep their cash for more essential purchases as fuel, food and transport costs rise.
The signs are already there in the circulation figures generated by the independent auditing operation ABC. The circulation figures for the last six months of 2007 were awash with red ink, showing marked declines in circulation. Only three of over 40 magazines for buying and selling goods and services registered increases in circulation: the largest rise was by 6.95%. In marked contrast the largest fall was by 44%. In the computing sector which has generated large profits in the past for Future Publishing and Dennis Publishing, to name two, there is also plenty of red ink. Over half of publications registered declines. In the entertainment and leisure guide sector the picture is much the same. And over half recorded falls in the general interest, home interest and leisure interest sectors. A lot of the Women’s lifestyle and fashion magazines fared quite well, but that seems to have been because they were new launches. Take a Break, Heat, Closer and Now! all lost circulation. Arena, Maxim, Loaded, Zoo and Nuts shed male readers. In all, there were few places to hide.
These results hardly give a strong platform for 2008. Consumer magazine publishers get 72% or so of their turnover from circulation: the cover price of the publication minus the costs of distribution. Falling circulations mean rapidly falling turnover.
Consumer publishers face a tough time with their leading distribution channel: supermarkets. Just under a third of consumer magazines are sold by supermarkets, according to research by Wessenden Marketing quoted by the PPA. Supermarkets are experienced price negotiators who will squeeze as hard as they can to turn a profit from the selves of magazines they carry.
The magazine publishing industry likes to put on a happy face, competing as it does for the revenue of advertisers and the attention of readers. ‘The past decade has been one of continued growth and development for the magazine industry. Indeed, this 400 year old medium has more than doubled in size in the last 15 years,’ says the PPA’s Magazine Media Handbook 2007.
But the data in the Handbook shows how the previous downturn at the start of the millennium hurt the industry.
The business sector, the largest sector on the industry, has not yet recovered from the previous downturn in terms of the number of magazines. The total number in the sector peaked in 1999 at 5,713. In the six years to 2006 the total went down in four of those years and up in only two. The total of business magazines struggled to 5,113 in 2006, according to the PPA Handbook.
Fewer titles mean fewer jobs. And more pressure on costs.
The consumer sector fell away as well in 2001: down to 3,120 titles from 3,275 in 2000. It bounced back to 3,445 in 2006.
There is some good news. A key indicator of the prospects for the magazine industry is how much publishers are willing to invest in training. The first thing often to be cut when storm clouds gather is training: and the first item on the training budget to go is training of editorial staff. So far editorial training looks strong in 2008, perhaps not as strong as 2007 but certainly not as dire as the latter end of 2001.
Some of this training is to get existing staff up to speed on digital publishing. In future all staff will be expected to have this experience or to have been trained in it. It is like training for pcs back in the 1980s: nobody does basic pc training any more, it is an expected skill.
The fact that Dennis Publishing and Haymarket, with a combined turnover of over £300 million, are privately owned may make it hard to see as clearly how they are doing as for publicly-owned and listed publishers. But there is an advantage for them: they have only one shareholder to please and he is rich enough already: Lord Heseltine and Felix Dennis. Both companies therefore often operate against the trend: they invest when others are cutting back.
Some will argue that all has nothing to do with an economic crunch and all to do with structural change. Paper is dead, they argue: online is the future. The credit squeeze will only do what was going to happen: bury paper in an avalanche of online publications.
There is certainly an internal structural change in the magazine industry. Future Publishing, for example, earns 19% of its advertising revenue from online advertising. And several publications in the business sector have moved online, closing their paper edition. Even more, several publications are only online, as with Dennis’ Monkey.
All of this, however, is still small potatoes compared with the £7 billion of the total magazine industry. And the industry had hoped that the revenue from online publishing would be in addition to the revenue from paper, rather than a replacement.
Even minor structural change combined with a short-term economic dip – now that’s bumpy.
Richard Sharpe is a visiting fellow of the University of East London and director of ETC, the publishing consultancy and training company.
© 2009
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