Update : Newsweek just launched its brand new site today. Story on the Editors Weblog.

Very few industries are tempted to drastically and willingly reduce their base in order to increase each customer’s value. The magazine sector is one such industry. This month, Newsweek gets its strategic turnaround under way: a redesigned magazine, less news and more added value content – coupled with a deliberate plan to shrink its reader base.

This deserves watching: Newsweek’s moves epitomize the fragmentation the news business, a trend that will force magazine and newspaper publishers to take decisive steps.

The magazine sector is suffering even more than the newspaper industry: its bigger dependence on the advertising market makes it even more vulnerable to the economy’s downturn and to the shift towards the internet. Here is the picture for the American market, based on Q1 2009 vs. Q1 2008 (source: Magazine Publishers of America, numbers have been rounded).

In gross advertising dollars, the overall market lost 26.1 % over a year after a loss of 11.7% for the full year 2008. Here is a sample a European audience can relate to:

As we see, Condé Nast is taking a hit. Inside the executive suite, in Condé Nast’s New York building, the ambiance must be gloomy and the dreariness must cascade all the way down. This is awful. The afflicted magazines are great journalistic vectors and most of them are global brands and franchises.

Let's turn to newsmagazines:

Watch the last line: The Economist has been able to build on a smaller circulation -- but with enjoy steady growth while others are loosing readers; a small increase in revenue in 2008 as others bleed; but, like everyone else, a serious erosion in the first quarter of this year. And here is the best part: even for the mediocre first quarter of 2009, The Economist has been able to generate an advertising revenue per reader 48% higher than Time Magazine and 55% higher than Newsweek (again we are talking gross revenue not net -- expect a 35%-40% discount between the two, but the comparison remains valid).

In a nutshell: everyone in the newsmagazine business would like to be The Economist.

US News & World Report will have much trouble realizing this very dream as it is bleeding fast: the US n°3 newsmagazine will switch to monthly publishing, downsizing its newsroom and its ambitions.  Time (the magazine) seems to be lost in internal politics and remains stuck at the elaboration stage of a strategy.

Which leads us back to Newsweek, part of the Washington Post Company, with decisive management and solid corporate governance. Newsweek's strategy can be boiled down to one concept: retracting and migrating the audience towards a more monetizable elite. Speaking to the New York Times, Newsweek's CEO Tom Acheim said: “For us, mass is a business that doesn't work. I wish it did, but it doesn't. We did it for a long time, successfully, but we can't anymore".

Therefore, the most decisive instrument in Newsweek’s strategy is a major cut in circulation. The goal is to lower the base rate, which is the minimum level of circulation guaranteed to advertisers. Here, we are not discussing a minor adjustment: Newsweek plans to slash over 1.6m readers within the next year to reach a level 1 million. This is not the first time such tool is put to work: in 2007, Newsweek reduced its circulation from 3.1m to 2.6m. To understand this, we must keep in mind that delivering the magazine actually costs way more than what the net circulation revenue brings in. This because of the huge discount granted to subscribers. The price to subscribers goes all the way down to 30 cents; this does not cover increasing postal fees and others logistics costs – without even mentioning marketing expenses to acquire new subscribers or to retain existing ones. When the advertising market keeps shrinking down, a level is reached where there is no longer a point in maintaining a large circulation. In addition, we witness an erosion in the public’s interest as shown by Newsweek’s newsstand sales (a tiny amount of the total circulation, but a good indicator): they dropped by 43% over the last four years. Hence the only -- but bold -- option: raising the subscription price in order to lower circulation and to increase per copy revenue. Newsweek strategists are betting the farm.

To make sense, this move must be supplemented by major changes in the publication’s editorial content. This is the rocket’s second stage. Newsweek plans to capitalize on what magazines -- and newspapers -- are good at: long, well crafted, high value-added stories; in-depth analysis and strong opinion pieces with prestigious bylines; great pictures portfolios; all packaged in a sharp layout. In other words: everything the internet cannot deliver. And something much closer than, yes, the Economist (except the photos).  In the process, newsrooms will contract further as less (but more qualified) people will be required.

This calls for two remarks.

1 / As it turns out, more or less openly, everyone is struggling with the same thoughts. Newsweek is the first to open the Pandora’s box of deliberately shrinking audiences and focusing on "affluent people". By the way, this is exactly what Le Figaro, a French daily, pitches to advertisers. Magazines will be the first ones to go for the niche strategy because they are more like swift-boats than battleships, but major newspapers in the US or in Europe will have no choice but to follow suit. Privately, people at Le Monde acknowledge such move is under way. There, the rationale is a small number of readers willing always be willing to pay a hefty price for the paper—and, at the right price,  advertisers will be happy to address them. Currently, Le Monde sells for €1.40 at newsstands.

As noted recently by Bertrand Pecquerie, director of the World Editors Forum, the German press epitomizes this trend: between 2000 and 2007, the newsstand price of several newspapers has increased three times faster that the inflation. Such a move had a positive effect on their operations: their circulation went down by 20% between 1993 and 2006, but their revenue rose by 17% between 1997 and 2006.  Conclusion of the WEF chief : "The elite press priced at 2 or 3 euros per day indeed has a bright future".  We can safely add this: within a few years, many of those newspapers will only publish two or three times a week...

2 /  For any integrated media group, such focus on an elite’s solvency only makes sense if other components of the news stream are also well managed. The bulk of daily news will soon become an inexpensive commodity, to be made available for free on the internet, supported by advertising. The multitude will create the revenue stream as it will do for all other users-involved content.

This combined strategy will emerge as the only way to preserve brand names, notoriety and market positions. And, even more important, as the way to ensure the survival of quality journalism that crowd-powered media -- for valuable and interesting as it can be -- is unable to provide. —FF

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