Realities at Retail

Gil BrechtelPresident and Chief Executive

OfficerMagnet

Realities at Retail• Magazine Information Network (MagNet)

• Owned by the major US wholesalers• Recognized as the newsstand industry’s only central data repository• Capture US and Canadian wholesalers’ store level allocation, sales and

return information at least weekly• 125,000 retailer accounts and 8,000 titles

• Receive retailer Point of Sale information daily or weekly from retailers and wholesalers

• Provide data and consultancy services to publishers and national distributors

• Newsstand Industry Historical Sales Perspective - 2003-2007• Wholesaler competition started in 1995• Significant margin shift from wholesalers to retailers• Most smaller players exited the business and four major wholesalers

dominated servicing large geographical areas with regional distribution centers

• Wholesalers put more pressure on publishers for discounts• Reduced service and overhead costs in an attempt to maintain profit levels• Despite all of the cost cutting, sales actually increased between 2003 and

2007

Sales Trends From MagNet

2003* (CP $3.86 / EFF 33.27%%) 2007* (CP $4.13 / EFF 37.80%%)0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1,180 1,209 (+2.4%)

$4,551

$4,993 (+9.7%)

2003 - 2007 Magazine Category Sales and Retail $ (Millions)

Sale Units

Retail $

• Newsstand Industry Historical Sales Perspective - 2008-2012 • The economy tanked in early in 2008 bringing magazines sales with it• The sales decline continued through the end of 2012

• Celebrity and newsweekly title sales losses a major contributing factor• Celebrity title information and major news stories available to consumers in real

time through social and digital media

• Small titles ceased publishing, dropped by wholesalers or left newsstand• Technological advances, social media and mobile affected newsstand sales

• iPad - Release in early 2010 provided another platform to receive content• Facebook - 400 million users in 2010, now 1.1 billion, 665 million every day• Smart phones - Represent 55% of US mobile phone use– 130 million people

• Kroger Supermarkets reduced average customer checkout wait time in 2,400 stores from 4 minutes to 26 seconds using infrared cameras and technology

• Wal-Mart testing “Scan & Go” system in 200 stores• Customers scan barcodes of products they are buying and bag them as they

shop• Self checkout screen reads barcodes and prompts customer to pay

Realities at Retail

Sales Trends From MagNet

2008* (CP $4.53 / EFF 35.24%%) 2012* (CP $4.81 / EFF 32.28%%)0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1,067

713 (--33.2%)

$4,834

$3,427 (--29.1%)

2008 - 2012 Magazine Category Sales and Retail $ (Millions)

Sale Units

Retail $

Sales Trends From MagNet

2008* (CP $3.57 / EFF 35.18%%) 2012* (CP $3.91 / EFF 32.08%%)0

200

400

600

800

1,000

1,200

280

196 (--30.3%)

$1,001

$765 (--23.6%)

2008 - 2012 Celebrity Weekly Sales and Retail $ (Millions)

Sale Units

Retail $

Sales Trends From MagNet

2008* (CP $4.09 / EFF 35.50%%) 2012* (CP $4.66 / EFF 32.62%%)0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

867664

(--23.4%)

$3,542

$3,095 (--12.6%)

2008 - 2012 Top 1000 TItle Sales and Retail $ (Millions)

Sale Units

Retail $

Sales Trends From MagNet

2008* (CP $6.45 / EFF 34.27%%) 2012* (CP $6.84 / EFF 28.27%%)0

200

400

600

800

1,000

1,200

1,400

200

48

$1,292

$331

2008 - 2012 Outside Top 1000 Title Sales and Retail $ (Millions)

Sale Units

Retail $

Sales Trends From MagNet

2012* (CP $4.78 / EFF 32.70%%) 2013* (CP $4.98 / EFF 31.50%%)0

100

200

300

400

500

600

700

800

900

188161

(--14.5%)

$900

$801 (--11.0%)

2012 Q1 vs 2013 Q1 Sales and Retail $ (Millions)

Sale Units

Retail $

• Largest quarterly sales decline compared to same period previous year

in memory

• Top 50 titles and titles ranked lower than 1000 in sales contributed 97% of the

sales loss – $96M

• Titles ranked 50-1000, over 50% of the business collectively performed fairly

well

• Contributing factors:

• Continual high unemployment along with tax increases at the beginning of 2013

• 22 million unemployed or “underemployed Americans” May, 2013

• 4-6% reduction in take home pay effective January 1, 2013

• Consumers have less discretionary income

• Many major weekly titles had 12 issues in 2013 compared to 13 in 2012

• 975 fewer releases in the first quarter this year – 6.3% less than 2012

• Mainly non-weekly titles no longer on the newsstand or cutting frequencies

• Non-weekly title sales flat much of the third and fourth quarter last year

• Competition from new media for content delivery and consumers’ leisure

time

Realities at Retail

• Newsstand sales environment has impacted the supply chain• Many publishers have stopped publishing titles or moved only to digital

format• Retailers cutting back on space as sales decline

Realities at Retail

Top Chains Share of Market

2012 Rank Chain HQ 2008 $ 2012 $ $ Var

1 Wal Mart Stores/HQ $659 $498 -24.3%

2Barnes & Noble Inc

HQ $261 $227 -12.8%

3 Kroger Co/HQ $236 $177 -25.1%

4 CVS/Caremark Corp $158 $122 -22.6%

5 Safeway Inc/HQ $162 $116 -28.8%

  Top 5 Sub-total $1,476 $1,141 -22.7%

  ROM $3,358 $2,286 -31.9%

  Total $4,834 $3,427 -29.1%

• Newsstand sales environment has impacted the supply chain

• Many publishers have stopped publishing titles or moved only to digital format

• Retailers cutting back on space as sales decline

• Wholesalers with high fixed costs explore other opportunities to increase sales as financial losses continue• Retailer demands for SBT has impacted their cash flow positions

• Anderson News Company, the largest magazine wholesaler closed its doors in early 2009, creating a vacuum while other wholesalers attempted to service the effected retailers• Many small retail accounts stopped handling magazines as they couldn’t get service

• Major Southern wholesaler on shaky financial footing• Wholesalers not really interested in expanding marketshare in current environment

• So are printed magazines and newsstand sales really dead or on life support?

• Currently, 75% of consumers still prefer to read magazines in print – Deloitte’s 2013 Consumer Media Survey• 88% last year

• 78% of consumer magazine publishers’ revenue derived from print – MediaWeek

• Current consensus of opinion is that print is more profitable than digital and newsstand is more profitable than subscriptions

Realities at Retail

• A deeper dive into the numbers shows that many titles are prospering in this tough newsstand environment

• Both specials and regular frequency titles

Realities at Retail

• So if print is dead why are consumers spending so much on high cover priced newsstand only products?

• No subscriptions• Little or no advertising and no rate base to meet

• Brands sell – Time, Life, Us, Meredith, Taste of Home usually successful• High quality cover and paper stock and good pagination very important

• Book-a-zines – high cover priced specials have prospered during the same five year period

               

 2008 2009 2010 2011 2012

   

Retail $ $194,750,000 $231,303,000 $263,043,000 $293,756,400 $352,016,000    

Units 19,244,000 22,134,000 22,406,000 24,594,000 29,102,000    

CP $10.12 $10.45 $11.74 $11.94 $12.10                   

Top Book-a-zines 2012

Book-a-zine Sales Sample

2012 01

Sales 360,300

Dealers 50,700

Retail $(000’s)

$3,368

Index +130%

US Price $9.99

2013 35

Sales 203,600

Dealers 53,300

Retail $(000’s)

$2,468

Index +120%

US Price $11.99

2012 16

Sales 195,800

Dealers 46,600

Retail $ (000’s)

$2,018

Index +64%

US Price $9.99

2012 28

Sales 191,300

Dealers 49,500

Retail $ (000’s)

$2,529

Index +164%

US Price $12.99

Sales Increases in Quarter 1, 2013

2012 12

Retail $ +23%

2012 12

Retail $ +51%

2012 12

Retail $ +24%

Sales Increases in Quarter 1, 2013

2013 01

Retail $ +6%

2013 01

Retail $ +11%

2013 01

Retail $ +9%

Sales Increases in Quarter 1, 2013

2013 02

Retail $ +15%

2013 02

Retail $ +46%

2013 02

Retail $ +5%

Distribution And Expansion Works

2012 10

Draw +73%

Retail $ +67%

Dealers +55%

2012 08

Draw +86%

Retail $ +105%

Dealers +18%

2012 10

Draw 12%

Retail $ +34%

Dealers +11%

Distribution and Expansion Works

2012 10

Draw +23%

Retail $ +56%

Dealers +25%

2013 02

Draw +136%

Retail $ +384%

Dealers +60%

2012 21

Draw 29%

Retail $ +257%

Dealers +13%

• Secrets to newsstand success:• Be proactive – Don’t give up on the newsstand

• Work with your distributor or consultant to look for opportunities for dealer expansion and sales

• Insist that your title’s distributions are worked more that a few times per year

• You can increase your newsstand profitability by reducing your newsstand production and distribution costs without a sales loss

• Produce titles that pique consumer’s interest to beat the competition for the consumers’ dollars in a tough economy

• Consumer’s perceived value of the publication is very important • Newsstand is the only place in the magazine world where the consumer

must decide in a very short time period whether or not they are getting the “bang for the buck” with their purchase

• With fewer advertising pages and current cover prices, too many titles are failing the “Thud Factor” test

• Newsstand can be your most profitable source of revenues, but you have to work at it!

Realities at Retail

• Thank You For Your Attention