Sizing Up The U.K. Market

Sizing Up The U.K. Market

Don Brown

A look at how shifting trends mean new opportunities, and new obstacles, for U.S. magazine publishers looking to crack the U.K. market.

For growth-hungry U.S. publishers, the United Kingdom would seem to offer a natural and potentially lucrative new market. Aside from the obvious English-language advantage, the U.K., with a current population of some 55 million, offers an affluent, literate audience who show every indication of embracing magazines in unprecedented numbers.

Magazines have shown substantial growth here over the past 10 years. There are now more magazines, read by more people, generating more revenue than ever before. The Periodical Publishers Association (PPA), whose members include both consumer and B-to-B titles in the U.K., estimates that 1.35 billion consumer magazines are now purchased each year, compared to 1.15 billion in 1991 Total B-to-B circulation has grown 5.6 percent, to 300 million, since 1995, and it’s estimated that 95 percent of businesspeople regularly read one or more professional publications.

Estimated total magazine revenue reached some $10 billion last year. New titles are launching all the time, and existing publications are leveraging their brand strengths to develop a range of ancillary products, including exhibitions, events and consumer goods.

The U.K. also has extremely high Internet penetration. Net-savvy consumers and professionals are eager for content of all kinds and prepared to spend online. In fact, the region boasts the highest penetration of Web-connected households and businesses in Europe:1 3 million, compared to Germany’s 12 million and just 5.7 million in France, according to Simba Information. Morever, U.K. Net subscription growth is expected to jump by 30 percent this year, and by 20 percent in 2001 (see table, page 26).

Surely, by employing their marketing skills, financial muscle and economies of scale, U.S. publishers ought to be able to clean up here, or at least carve out a considerable slice of market share? So far, the answer seems to be yes and no. Certainly, some U.S. titles have done spectacularly well. Rodale created a new market when it launched Men’s Health in the U.K. in 1995, and currently sells some 233,000 copies (about 30,000 of which are subscriptions). In addition, Rodale’s Runner’s World now outsells its nearest rival by a factor of two to one. The U.K. edition of Reader’s Digest has a circulation of 1.1 million copies per issue–the fourth-largest sale among all U.K. magazines–with a reverse model: All but about 25,000 of the total is subscription-based. National Geographic boasts a circulation of nearly 380,000 (mostly, as in the U.S., through membership subscriptions, with a 33,000-copy single-copy component). Cond[acute{e}] Nast and Hearst brands feature prominently in their sectors’ top 10’s, and t he U.K. edition of Time has more than 90,000 subscribers.

Still, for most U.S. publishers, U.K sales and revenue are still minimal. Many view this market as being too complex to understand, too difficult to launch into, and too expensive to maintain a profitable presence in over the long haul.

But given the promising magazine environment here now, the growth of the Net, the probable adoption of the Euro, and the general forces driving market globalization, there may never be a better time for U.S. publishers to investigate the potential of this market through joint ventures, licensing or other means. For those who haven’t taken a serious look at the U.K, or have only dipped their toes in, this overview provides some insights into how the market works and how it’s changing, and suggests ways in which sales and growth might be achieved.

NEWSSTAND TURMOIL AKIN TO U.S.

As most U.S. publishers are well aware, the U.K consumer magazine distribution model has traditionally been a mirror image of the U.S. model, in terms of the mix of single copies and subscriptions. Although subscriptions have grown substantially in recent years (in part through the efforts of the PPA and Royal Mail), and some domestic titles have developed significant subscription portions, nearly 90 percent of all copies are still sold on the newsstand.

However, there are strong forces working to reshape the newsstand environment, and these have major significance for any U.S. title looking to crack the market. In fact, the upheavals in the U.S. single-copy distribution system have remarkably close parallels in the U.K.

The great majority of U.S. publications with newsstand presence in the U.K work through an international and local distributor to market and sell their publications through to the wholesalers who physically distribute copies to retailers. This distribution network is in a major state of flux, with a large amount of consolidation of both wholesalers and distributor companies. The bigger wholesalers, threatened by talk of a possible movement to direct-to-retail distribution, are taking a more active marketing role. This, in turn, has caused the distributors to examine their business strengths. Some have drastically reduced the number of magazines that they represent, to devote more resources to their better-selling titles. And, since imported magazines generally have smaller sales potential, U.S. publishers looking to launch in the U.K may find it increasingly difficult to find a company that is prepared to distribute their titles.

Of even more concern are the changes within the retail sector. As in the U.S., retail power is becoming concentrated among a few large retailers, which is causing publishers to scramble to develop and maintain retailer relationships.

As the bigger stores and the supermarket chains have become more efficient and profit-centered, the independent sector–generally, local “mom and pop” stores selling confectionaries, tobacco and news (CTN’s)–has seen a significant contraction. In fact, independents’ share of market has plummeted from 60 percent in 1995, to below 45 percent today This has a major impact on U.S. titles, as it’s usually the CTN’s that stock the broadest range of magazines. As the number of CTN’s declines, niche and small-circulation titles lose considerable market access.

The catalyst behind changes in newsstand retailing in the U.K has been the growing market share of major supermarket chains. As is also becoming true in the U.S., however, the supermarkets tend to measure and treat magazines just as they do other product categories. In a nutshell, titles with strong brands, large sales volume and substantial promotion budgets have overwhelming advantages when it comes to the baffle for display space.

The supermarkets’ success with magazines has caused the major magazine chains –notably, W. H. Smith, which has 18 percent of the market and dominates high-volume travel outlets such as railway and airport magazine shops–to adapt their retail models. ‘The bigger and more successful retailers are adopting FMCG [fast-moving consumer goods] disciplines,” confirms Nicola Rowe, director of circulation for the PPA. “They’re looking for maximum profit from every meter of shelf space.” This further increases the gap between the circulation haves and have-nots, and makes it more difficult for new titles, unless supported by massive expenditure, to break through.

Of course, this concentration of power also means that big retailers are in a stronger position to dictate terms. “We’re seeing retailers starting to flex their muscles a lot more,” observes Rowe.

Some of this has come in the form of demands for greater off-cover discounts. Typically, a retailer would keep 25 percent of the cover price, with 25 percent split between the wholesaler and distributor, leaving 50 percent for the publisher. But W.H. Smith recently jolted U.K publishers by proposing to charge a 5 percent RDA on some titles. This may or may not be implemented, but it definitely speaks to the impact of retailers’ growing clout.

Promotional expenditures are perhaps an even bigger issue. Those who spend are those who tend to get distribution in more stores. W. H. Smith also “tiers” its stores, and decides on the range of magazines in each tier. Publishers that want to get display in stores beyond its assigned tier have to invest heavily to prove that they’re serious about increasing circulation.

The competition to gain the best retail exposure is proving to be an expensive battle for U.K. publishers. In order to gain or consolidate market share, mass-market consumer titles are investing heavily in retail promotion schemes, advertising support and cover-mounted premiums. And at the same time, because of heavy competition, they are also having to be cautious about cover price increases. Cover prices, which rose throughout the 1990’s, have stalled because inflation has slowed and a few major titles have been suppressing price increases in order to drive circulation and advertising.

All this may sound very depressing to a U.S. publisher keen to develop sales over here. Yet, the U.K.’s two largest distributors of U.S. magazines, COMAG and Seymour, are far from downbeat.

While agreeing that the U.K. news-trade has become tougher in recent years, COMAG’s import sales director, Ian Bridgman, and Seymour’s import controller, Jonathan Champion, are adamant that U.S. titles can succeed. Indeed, both cite titles that are selling 10,000 or even 30,000 copies per issue.

Bridgman stresses that there’s no in-built prejudice against U.S. imports; ifs sales that count. “Once a title reaches a certain sales level,” he says, “the trade doesn’t care where it comes from.” Niche and specialty titles, especially in categories in which the U.S. is regarded as being the leading source of information, can sell strongly, as can well-known international brands. And in other categories, U.S. titles do well as secondary purchases.

And while it’s true that there are hardly any U.S. titles in supermarkets, the independent outlets that are surviving in the new market are doing so precisely by making a greater variety of titles available, either on the shelves or by reserving them for pick up by customers (a venerable U.K. tradition). By concentrating on providing a different service, including a much broader range of titles than supermarkets or the volume-driven retail chains, the more switched-on independents are keeping and attracting customers. This works in U.S. titles’ favor.

As mentioned, there is intense competition in the U.K. on cover price, so U.S. titles often have to absorb certain costs, such as shipping, so as not to be overpriced. However, pricing dynamics are not completely clear-cut. Champion says that higher cover prices can work in a title’s favor, especially at independent stores, since they mean larger revenue per copy for the retailer. The price that a magazine can charge is also, of course, affected by its market. “Harvard Business Review does not have to compete on price the same way as, say, a hair-care magazine,” says Bridgman.

Most home-gown titles are priced at between two and three pounds, although some specialty titles are four pounds or more. For comparison, Time is currently priced at two pounds in the U.K. (about $3), Cosmopolitan at 2.5 pounds, the U.K. version of Vanity Fair at 2.8 pounds, and Men’s Health at 3 pounds. The Vogue U.S. import retails for 3.9 pounds, against 3 pounds for the domestic version. At present, sterling is quite high and the strength of the dollar is less, which is also helping to make U.S. titles attractive. (As I write, the exchange rate is about 1.6 U.S. dollars to the pound.)

Naturally, the value that the title represents is also very important. Just as with computer magazines in the U.S., cover-mounted premiums are the norm for some categories in the U.K., and a U.S. title must conform to have any chance at competing. Distributors can arrange this, and will also take responsibility for stickering the magazines with U.K. prices and barcodes.

Bridgman and Champion agree that, to achieve sales growth, U.S. publishers need to invest not only money, but time and effort. They need to take an active interest in U.K. sales performance. Visiting key retailers and wholesalers pays dividends. “Generally speaking, the titles that achieve long-term success are the ones that put time and resources behind their product,” sums up Bridgman.

SUBSCRIPTION GROWTH: SLOWER, BUT STILL HEALTHY

As noted, subscriptions represent just 11 percent of per-issue sales, on average. Until recently, subscriptions had been showing steady growth, but the growth rate has slowed in the last two years.

Some of this is due to recent Royal Mail postal increases affecting both promotional mail and magazine fulfillment. But retail competition is also playing a part. Major consumer titles are generally devoting more of their marketing budget to retail promotions, and less to direct sales, with a consequent decline in the number of subscriptions they support.

But pressures at the newsstand have propelled specialty and niche publications in the opposite direction. Certain categories, such as news and current affairs, finance and business, and gardening, tend to have significant subscription volumes, according to Jim Bilton of Wessenden Marketing, whose newsletter, Circulation Briefing, provides regular analysis of the U.K. circulation market. Aware that their success or even their very survival now depends on subscriptions, many have been extremely aggressive about subscription acquisition. In many such cases, subscriptions now account for the bulk of a title’s sales.

In addition, some publishers of more broadly based consumer magazines, such as Dennis and BBC Worldwide, have demonstrated that it’s possible to generate substantial numbers of subscribers within more general markets.

In short, the U.K consumer is now willing to accept subscribing as a means of purchasing magazines. If the product is good, the marketing is strong and the customer service is reliable, a publisher can acquire and retain a very healthy subscription base. This presents obvious opportunities for those U.S. publishers who are willing to promote in the U.K.

As with retail, magazines that cater to areas where the U.S. is regarded as being the leading source of information are likely to generate more subscriptions than more broadly based titles. But also as with retail, U.S. publishers in many markets may have to accept that their titles will be subscribed to as secondary or add-on purchases.

There are also a number of practical considerations of which U.S. publishers should be aware. The costs of acquiring and fulfilling subscriptions are higher in the U.K. Fulfilling a monthly costs about 2 to 2.5 pounds (about $3 to $4) per name per year. List rentals tend to be about 60 to 70 percent higher than in the U.S. (Lists go for a minimum of $100 pounds per thousand, up to $150 pounds or more.) And even when mail qualifies for all of the postal discounts, a direct mail piece can’t be delivered for less than 25 to 30 cents.

These extra costs often lead U.S. publishers to support U.K. subscriptions from their side of the Atlantic. And this is probably justifiable, if the U.K. is regarded as an incidental market. However, if subscription sales are to be properly developed, a certain amount of local infrastructure is necessary. This might amount to as little as quoting prices in sterling and using a U.K. accommodation address. But, as on the newsstand, the more resources that are devoted, the greater the likelihood of success. For instance, if a high level of customer service seems called for, some form of local contact point is essential.

Bilton, who assisted Publishers Clearing House in its successful U.K. launch, says that it was the service issue that influenced PCH to operate a U.K.-based order-processing and fulfillment operation. It would have been possible to use a U.K. address simply to forward all orders for processing in the U.S. (as the American Family Enterprises operation here does). But by using a local operation and call center, PCH was able to gain considerable commercial advantage through a high level of customer service.

Whether U.S. publishers should consider employing locally based subscription bureaus, mailing houses and agencies depends on how strategically import the U.K market is to them, of course.

Fortunately, U.S. publishers will be pleasantly surprised by many of the differences between the two markets. For one thing, U.K. subscription prices are much higher than U.S. subscription prices. Average U.K sub prices tend to run only 10 to 20 percent off the cover price.

In addition, pay-up rates on bill-me offers tend to be much higher in the U.K U.K consumers receive fewer magazine offers, and have long been accustomed to paying on the barrel head, since the bill-me option was virtually non-existent until recent years. Mass-market titles see pay-up rates ranging between 50 and 60 percent, and higher-end titles enjoy pay-up rates as high as 85 to 90 percent.

For the same reasons, subscription rates do not need to be heavily discounted or incentivized, and conversion and renewal rates are generally higher. Conversion rates for mass titles tend to run in the 35 to 50 percent range, and for special interest titles in the 60 percent or higher range. And it’s not unusual for consumer magazines to generate 70- to 80-percent renewals without heavy use of premiums or discounts. Paid B-to-B titles generally perform even better.

Consumers are also accepting of continuous billing through direct debit, offered through the U.K banking system. Customers sign a bank mandate authorizing the publisher to debit money directly from their accounts. This allows for renewals ’til forbid, and also for shorter-term, lower-cost sub offers. Quarterly and even monthly direct debits are not uncommon. Many U.K consumer publishers achieve 90 percent renewals on direct-debit subscriptions, which usually account for between 15 and 25 percent of total subscriptions for titles that have invested in promoting this payment option. (A lucky few have 50 percent or more of their subscribers on the debit system.)

These benefits, which also foster high lifetime customer value, help counterbalance higher U.K acquisition costs. Still, U.S. publishers should plan to take a medium- to long-term view of return on investment for subscription marketing efforts in the U.K

A newsstand presence is an obvious bonus when it comes to generating subscriptions. Blow-in and bind-in cards, especially if they quote sterling prices and have a U.K return address, are a proven, low-cost way of acquiring new subscriptions, just as in the U.S. And the U.K’s love affair with the Internet means that specialist titles may also find that their Web sites, if tailored with payment options for a U.K audience, will generate useful numbers of subscription sales.

B-to-B: Tough Competition

With 70 percent of U.K. B-to-B titles distributed as controlled circulation, many business sectors expect to get their information for free, and are extremely reluctant to pay for magazines or for access to Web-based products. The U.K. is also a very crowded market Charles Arthur, executive director of Miller Freeman Direct, says that because the B-to-B market is so dynamic and entrepreneurial, new niches are quickly filled with U.K. based launches. In fact, he says that if there’s no domestic title serving a U.K. industry, the reason may be that the niche is too vertical for the market to support it Publishers have also developed their ancillary services, including trade shows, conferences and directories, and so are generally able to provide a much more complete information resource than a title from the U.S.

The jury is still out as to whether the Internet will help or hinder B-to-B subscription growth. On one hand, it does allow potential U.K. subscribers to sample the magazine and assess the quality of the information that it provides–and, of course, to order direct On the other, magazines that are taken as secondary purchases or for research purposes may suffer, at least in cases where publishers make the content that is of interest to them available at no charge on the Web.

When it comes to generating paid subs, the guidelines for the consumer market also apply to B-to-B. Quoting prices in sterling will boost response, as will a U.K. telephone order number and return address. If the price is high, a “bill-my-company” facility may be necessary, so your subscription operation needs to be able to invoice in sterling.

There’s probably less need for B-to-B titles to have U.K.-based customer service. The sales volume potential is lower than for consumer titles and U.K. businesspeople, especially in the markets that are most likely to want to read international magazines, will communicate via email.

As with consumer titles, succeeding in the U.K. as a B-to-B publisher requires taking the market seriously and being willing to hang in there for the mid to long term. It also means being willing to devote appropriate resources.

The approach taken by companies such as Rodale and Time Inc., a U.K. office, producing a U.K. edition, serviced and managed from the U.K., is cost-justifiable for very few titles. Others choose a partial physical presence in the market, through use of U.K. companies that can help provide local market knowledge and advice. Titles with more limited ambitions may find that subscription campaigns can be managed and run from the U.S. (See “Marketing U.K. Subscriptions from the U.S.,” page 28, for tips.)

My hope is that this summary will have inspired some of you to take a closer look at this sizable but largely untapped export market If it’s not part of your strategic plans, it really should be.

Don Brown (donbrown@maginfo.co.uk) is a partner in Little field Brawn, a leading U.K. subscription strategy and creative agency. Last year, titles represented by Little field Brawn wan five main PPA subscription awards, including Subscription Magazine of the Year.

Forecast for U.K. P.C., Telephone and Internet

Growth, 1999-2003 (in millions)

1999 2000 2001 2002 2003

Home P.C.’s 6.1 7.2 8.3 9.4 10.3

Annual Growth – 16.6% 15.7% 13.0% 10.2%

Access Lines 31.8 32.7 33.4 33.9 34.3

Annual Growth – 2.9% 2.1% 1.5% 1.0%

Internet Subscriptions 13.0 16.9 20.3 23.5 26.5

[No data available] – 30.0% 20.2% 15.6% 13.0%

Source: Simba Information

The U.K. already has Western Europe’s highest Web user saturation, and

its Web subscribers are expected to jump another 64 percent by 2001.

Information Resources

Publishers’ Multinational Direct Al Goodloe’s monthly newsletter remains the most important regular source of international subscription marketing news and case studies. The recently revised “PMD Guide” is probably the best introduction to overseas sub marketing available. (212) 861-4188

Circulation Briefing A monthly newsletter that examines news and market trends affecting U.K. retail sales and subscriptions for magazines and newspapers. Various research reports are also available. A sample copy of Circulation Briefing can be downloaded from www.wessenden.co.uk.

PPA Magazines Handbook 2000 A comprehensive overview of the U.K. consumer and B-to-B magazine market compiled by the Periodical Publishers Association. The guide can be downloaded from the PPA’s Web site at wwwppa.co.uk. The site also contains a host of other useful information, publications and links.

www.maginfo.co.uk Information for and about the U.K. publishing industry, including an online directory of providers of magazine circulation, fulfillment and newsstand distribution services.

www.abc.org.uk The U.K Audit Bureau of Circulation’s Web site allows you to view online the audited circulation figures for all ABC-registered publications and compare titles within market sectors.

Other Useful Contacts

* Seymour (single-copy distribution): +44 20 7396 8000

* COMAG (single-copy distribution): +44 1895 433 633.

* wessnden@netcom.co.uk (circulation market analysis and information)

* tgmc@fmm.co.uk (retail marketing consultancy and market research)

* Set a sterling rate. As with any international campaign, accepting payment only in U.S. dollars will depress response, and offering local currency will increase it. Publisher’s Multinational Direct reported that one U.S. publisher saw a response jump of 300 percent in the U.K. after it began allowing payment in sterling. Any publisher that is serious about increasing its U.K. subscriber base will need to offer the ability to pay with sterling checks or debit cards drawn on British banks. Also, don’t forget to make sure that your Web site quotes a sterling rate.

* Watch pricing, but don’t underprice yourself. To aid acquisition, subscription prices will need to be lower than the equivalent U.K. newsstand price, but it might not be necessary to discount too heavily. U.K. subscription rates are generally much higher than those in the US.

* Establish a U.K. return address. U.K. readers will respond better if they have a domestic address to which to send orders, payments and queries. PCH and AFE both use U.K. addresses for orders, even though the AFE order processing operation is in the U.S. The Royal Mail offers a forwarding facility, so if s possible to quote a U.K. address without having a local base.

* Consider a U.K. telephone number. More and more U.K. customers are using the telephone to buy goods and services, and offering this ability will increase response. If you’re serious about customer service, U.K. telephone and fax numbers are important. Telephone providers can supply U.K. phone numbers that route to call centers overseas, so it may be possible to use your current subscription operation–if you can get around the five-hour time difference.

* Use the Internet. In addition to the potential for inexpensive promotion, your Web and email addresses can allow you to maintain U.S.-based customer service with fewer of the problems associated with international mail. However, you will need to consider the time taken for copies to reach U.K. subscribers. If your site features an issue weeks before it reaches the U.K., you’ll receive complaints and your renewal rates will be affected.

* Adapt your creative. Your direct mail packages may need to be adapted, but probably not completely overhauled, for the U.K. PCH tested its U.S. control package against one created by a U.K. direct mail agency, and the U.S. version won handsomely. However, U.S. spellings, cultural allusions and sporting metaphors need to be watched. As with all DM, the rule is test, test, test (P.S.: In some markets, your Americanness is a virtue. Subscribers are buying your magazine precisely because it offers the U.S. perspective or expertise.)

* Don’t assume that lists are plentiful. There are fewer good lists in the U.K. than the U.S., especially in the consumer arena. Find brokers in the U.S. who have serious U.K. market knowledge, or approach U.K.-based brokers.

* Watch the legalities. Data protection legislation regarding the use and maintenance of mailing lists is much stronger in the U.K. and Europe, and misuse of data can result in criminal prosecutions. Make sure that you understand all of the requirements. (See “International Round-Up,” page 33. for updates on data protection issues.)

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