Magazines and periodicals inform and entertain consumers on particular areas of interest and also provide academics and professionals with up-to-date information relating to their work and specific markets.
These publications target specific areas of interest or demographic groups, which can make them an attractive medium for advertisers. The magazine publishing industry is expected to generate revenue of $2.1 billion in 2010-11, with gross copy sales of ABC-audited consumer magazines estimated at 210 million; the retail value of consumer magazines is about $1.0 billion. Magazines account for about 7.0% of total media advertising revenue in Australia.
Despite these high figures, revenue of the magazine publishing industry is forecast to decrease at an average annualised real rate of 1.7% over the five years through 2010-11. Industry revenue growth slowed in 2006-07 and contracted in the years through 2009-10 due to both increasing competition from other media streams (online and TV) and weak economic conditions. There is expected to be a small increase in industry revenue in 2010-11 of 1.0% due to a moderate rebound in economic activity, which will promote growth in copy sales and advertising revenue. The industry is expected to experience growth in the next five years through 2015-16, averaging a 1.5% annual increase. However, industry performance will continue to be hampered by intense competition from other media.
The magazine publishing industry aims to entertain and inform. The extent to which the industry fulfils these aims will greatly influence the readership and advertising activity for magazines; the industry’s future course is dependent on these trends. Revenue is forecast to increase at an average annualised real rate of 1.5% in the five years through 2015-16. While efficiency gains will keep industry costs down, savings from these initiatives will likely be counteracted by real declines in unit selling prices. There will be competitive pressures from alternative media, which will negatively affect sales volumes and place pressure on both magazine cover prices and advertising spend. A previous trend toward fragmentation of magazine and periodical titles may continue in the near future, which could add to industry costs.
The level of economy-wide advertising expenditure in Australia is sensitive to economic activity. The rate of real growth in the Australian economy for the five years through 2015-16 is expected to be faster compared with the forecast rate of real economic growth in the previous five years through 2010-11. Growth in consumer spending will also pick up and this should promote advertising spending and periodical sales. However, there are still risks of a significant rise in interest rates and a decline in Australian housing prices. If these risks are realised, consumer spending will be adversely affected and economy-wide advertising spending will weaken; such scenarios could have a particularly adverse influence on specific magazine markets such as home improvement and fashion titles.
Australia’s population is expected to grow at a slower pace compared with the previous five years. There will be sluggish growth in the population of younger adults, which includes age cohorts that represent major market age groups for many consumer magazines. Industry players will need to focus more on older audiences. Competition for readers and advertisers will intensify among media service providers. Online advertising spend will increase as a share of total media advertising budgets. The internet, smartphones and an increasing number of TV channels will all offer advertisers greater scope to reach target audiences and specific niche markets; rather than markets on mass as before.
The development of social websites, video sharing websites and internet-based market places, along with households’ growing internet use, will produce significant competition for magazines targeting young audiences and trade-based periodicals. Nevertheless, the internet offers publishers the opportunity to retain and grow their printed and online readership, provide value-added content (pod casts, blogs, analysis tools) and to further stratify their markets; all of which could improve selling propositions to advertisers. New devices capable of accessing media content provide publishers with the potential for new revenue streams.
The internet also offers publishers the opportunity to provide additional value to readers, while also offering a new low-cost distribution platform. Some readers will prefer low-cost internet periodicals rather than printed versions. Business models should seek to ensure that growth in profits from internet offerings are not overwhelmed by any reduction in profits earned by the print franchise. Furthermore, libraries are looking at ways to reduce their spending on journals and serials through more targeted purchases, by pooling purchasing, and by electing to receive content via electronic means rather than print media.
The women’s magazine market accounts for over half of the market circulation of consumer magazines, which is high in Australia by world standards. Women’s interests are changing and becoming more varied, which is resulting in major alterations to the content of existing women’s titles, as well as in the introduction of more niche titles. The share of the domestic magazine market held by imports is expected to be flat over the next five years, continuing a trend seen in the previous five-year period. Magazines attuned to local needs appear to have ascendancy in most markets. A strong Australian dollar would, if sustained, act to raise the price of imported magazine titles, which would act to weigh down imports.
In an environment of slow or negative revenue growth, industry players will concentrate on reducing their cost structure. Non-performing titles will be either be revamped or quickly closed. Players will seek to keep down risks associated with the launch of new titles by licensing successful foreign titles or pursuing joint ventures with other players. The introduction of computer software can assist monitoring magazine sales and reduce copy returns (unsold copies), which ultimately reduces publishers’ costs. Australian Consolidated Press (ACP) has installed software called ExchangeIT, which records sales at newsagents with the aim of reducing returns. This type of innovation could have the effect of bolstering industry value added so long as cost savings are not competed away through price reductions in cover prices or advertising rates.
Industry consolidation, through company takeovers and the acquisition of magazine titles, will tend to have a positive effect on profit margins by spreading fixed and semi-fixed costs over a wider revenue base; reducing the impact on profits from costs associated with new magazine launches, and reducing marketing and distribution expenses as a percentage of revenue. Free magazine inserts provided in newspapers can cut into the markets of stand-alone consumer magazines with alternative distribution, and this will present a challenge for some magazine titles in the future. According to Fairfax, advertisers find that magazines inserted in newspapers are an increasingly good proposition. Nevertheless, while newspaper insert magazines may have some competitive advantages in distribution, they may also have some disadvantages such as a reliance on the host newspaper’s readership profile; overall newspaper readership is declining.
The price of paper (an input that accounts for about one-third of industry costs) is determined on international markets and expressed in US dollars. The global economy is expected to strengthen in 2010-11, which will tend to drive up paper prices, at least in US dollar terms. If sustained, a strong Australian dollar would put downward pressure on local paper prices, acting to partially or fully offset the impact of higher US dollar paper prices. However, in the event that the Australian dollar price of paper falls, some advertisers may be attracted to direct mail and catalogue advertising. The fragmentation of consumer magazine titles enables advertisers to target niche audiences; although fragmentation also tends to drive up industry costs.
Deregulation of the Newsagents industry should continue to provide publishers with savings on distribution costs. It should also provide additional exposure and availability of titles, which will be favourable for sales. There are a large number of consumer magazine titles in the Australian market. This acts to raise industry costs as well as the risks involved in starting a new magazine. While there will be pressure to rationalise unprofitable titles, efforts to increase market share will see some publishers trying to further stratify the market and offer products that satisfy the needs of particular consumer groups. IBISWorld believes that clearly focussed magazine operators serving very specific and complimentary market segments are likely to gain an increasing share of advertising revenue. New titles will usually need a very specific niche to compete effectively against established titles.
The availability of economies of scale and scope in media industries will likely promote a rise in industry concentration during the next five-year period. Consolidation within media industries may make it more difficult for some small niche magazine publishers to compete for advertising dollars. Private equity funds have become major players in the industry, and these players may see future industry consolidation as a way to produce increased returns on their investments. Seven Media Group (owner of Pacific Magazines) and PBL Media (owner of ACP) are now controlled by private equity firms with foreign ownership. These companies are expected to focus heavily on cost control, while taking advantage of opportunities in the Media sector in Australia and overseas. These vehicles also have high debt levels and this may hamper their ability to acquire other operators.
Australia’s two largest magazine publishers, Pacific Magazines and ACP, have associates that operate television broadcasting and internet businesses. This assists them in putting together TV, magazine and internet packages to advertisers, in the form of spin-off magazines from TV shows or cost-effective internet websites. News Ltd acquired the Federal Publishing Company (FPC) Group’s magazine business in April 2007, and is able to offer advertisers newspaper, magazine and internet packages. In addition, FPC has joint ventures with the Australian Broadcasting Commission (ABC) for magazines, which are spun off ABC TV programs. Newspaper publishers are winning some market share through growth in their insert magazine segment; Fairfax Media Ltd is developing more paid magazine titles.
Robert Bryant is the general manager of business information firm IBISWorld.
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