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The secret levers of Condé Nast power
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Erick Schonfeld at TechCrunch has the skinny on why magazine publishers are pushing for a “Hulu for magazines” to get magazines on the iPhone:

Why are these print publishers reinventing the digital wheel? A popular app store already exists. It’s called iTunes. And people don’t mind paying for apps there. By creating their own app store, the magazine publishers can avoid paying Apple its 30 percent cut of sales. But that’s not the real reason.

The real reason they want their own store is the customer data. Magazine companies may look like paper companies, with a little art direction thrown in. But at their core, magazine companies are database companies. The way they make money is by knowing who their readers are and marketing to them by where they live and who they are. For nearly every subscriber, they have a credit card number. And they have whole departments which do nothing but massage the data to figure out who to target for advertising purposes and where the profits are. I’ve seen this machine in action. The database people hold the secret levers of power inside magazine companies.

This shouldn’t be a revelation, but it feels like one: nobody working in print media makes money by selling print media. Newspapers sell advertising, bookstores sell coffee and calendars, popular novelists sell movie options, less-popular novelists sell creative writing classes, popular nonfiction writers sell lecture appearances, less-popular nonfiction writers sell humanities seminars, Ben Franklin sold bookplates, and magazines sell subscriber data. It all makes the movie industry’s reliance on box office and DVD sales seem downright purist, even after you consider product placement and crossover merchandizing.

Also worth noting: the fact that magazines’ core business lies in massaging and selling subscriber data makes them pretty good candidates to thrive on the web, once they get their s— together. That’s where the real money and potential for growth is on the internet, too.

5 comments

I think this is vastly overstated. While there is an element of truth to Schonfeld’s claim, it is only even remotely true at those very large, mega corporate magazine companies with dozens of titles and thus the data to make this sort of activity profitable. In that sense they are not even really magazine publishers, but rather mass media companies. The large majority of magazine publishers make their money the same way newspapers do – selling straight ad space. If they are sophisticated enough to actually capture usable demographic data it’s only used as a sales tool – a demonstration to potential advertisers of what kind of audience they’re buying.

Tim, I meant to leave this comment elsewhere, but I’m unconvinced that book publishers don’t make money by selling books. I’m also still skeptical that it’s the non books that account for a majority of the of the profits at bookstores. In your original post, you cited Franklin’s autobiography, which strikes the dormant business reporter in me as very anecdotal evidence for such a sweeping industrial analysis. Sure, the stationary and calendars are higher margin, per transaction, than a book, but I find it hard to believe that summed over their total volume they are actually the bulk of a B&N type store’s revenue stream. For one thing, stationary and calendars and baked goods just don’t occupy enough floor space at a typtical B&N. According to page 36 of B&N’s 2008 annual report, they (and presumably their auditors) feel h that they are so primarily in the business of bookselling that they neglect to break their operations down into segments that account for non-bookselling for SFAS 131. Their language implies that they actually thought about the very question you’re posing, from an accounting pov, and decided that books were in fact the bulk of their profits. I believe that specifically citing SFAS in this context should mean that selling non-books and cafe goods should each total less than 10% of their total revenues, profits or assets. Borders 2008 annual report is even murkier, since they are kind of in trouble, but the discussion that starts on page 24 of their 10-k (84 of the PDF) makes it sound like gifts and stationary are the only growing part of the business, but not the the bulk of the actual volume of their business. (They’re a little weird b/c they’ve been as much about the music as about the books for a while.) It seems like Borders *wants* stationary to be a biger part of their business, hence its Paperchase strategy. but that it hadn’t though thought of relying on it till now. I mean, I could be wrong, I’m not accountant, but my Fermi-estimation skills make me dubious that even 50% margins on $5.99 holiday cards that are sold from about 5 tables could outweigh 5% margins on $29.99 that occupy two floors worth of stores. So yeah, I’m still skeptical.

It’s a little tragic how much the final Harry Potter book is significant to both of these corporate reports.

Tim Carmody says…

No; I never meant to imply that bookstores don’t make money selling books. Nor did I mean to imply that in sheer volume of sales, non-books beat books. (I think this is what you’re trying to argue about; Book publishers really only make money selling books, so it would be silly to argue otherwise. I don’t think I even got close to this.)

I mean exactly what you said — the margins on books are terrible, and the other conditions placed on book sales make the straight sale of new books a terrible retail business. So the truly profitable side of the business is the sale of other things – which is why Borders wants stationery to be a bigger part of their business.

Let’s put it this way — the gifts section and coffee shop in the bookstore definitely outsell by margin and may very well outsell by volume every other section of the store — children’s books, philosophy, cookbooks, best sellers. And they do it with less floor space and less-trained staff.

Let me try another formulation — It’s obvious on its face that if you took all the books away, a bookstore would go out of business. It’s not obvious on its face that if you took all those non-books away, that the bookstore could go out of business too. But it might be true.

Ditto, it’s obvious that if all the subscribers go away, newspapers and magazines go out of business. It is less obvious on its face — at least to those of us who don’t work in these industries — that if you took classified dollars and subscriber data away from each of them, respectively, that you would be crippling a major source of revenue.

Producing and selling media is not and has never been the most profitable part of the business. You could break even on it, and still do okay, so long as you continue to have these other income streams. And if you’re forced to near-break-even margins, as bookstores have been, you need these secondary income streams. And they quickly become a major part of your business, store design, long-term planning, until eventually you are not quite in the bookstore business as it once was, but something else. Moreover, even when you look at “as it once was,” printers like Franklin likewise dealt in lots of goods, almost all of which were more profitable than books.

As for your general skepticism, I wrote a paper on stationers’ shops for a graduate seminar in ’04. I will try to dig up the exact data, but let me assure you, Franklin is not just an anecdote; he is an illustration.

I think Tim has got the capital T truth right here.

I was shocked when I realized as a young journalist that the business of newspapers (as opposed to their mission) was to aggregate audiences and sell them to advertisers. I was even more surprised (though no longer so shockable) when I much later groked the fact that they’re *really* packaging and distribution companies. It was their control over every day delivery to every doorstep that allowed them to price advertising at such outrageous margins.

Packaging and distribution control. Hmmm. Google anybody?

P.S. I also remember hearing that American auto companies made much (most?) of their profits from their financing arms, not sales.

Tim Carmody says…

The famous quote about the Big Three (so famous that I’ve forgotten who said it or what the exact words were) was that they were in the pension and health care management and financing industries, with a small side business in manufacturing and selling automobiles.

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