Entertainment & Media

The medium is
the message*
Outlook for Magazine Publishing in the Digital Age

*connectedthinking
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magazine publishing, book publishing, newspaper publishing, business information
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Introduction

The global publishing industry is going through a period of turmoil, as broadband

penetration rises and new devices for delivering digital content arrive on the
scene. Consumers are increasingly switching from traditional print media to
digital media, although the manner in which they are making the transition varies
with age, gender and nationality. In this study, we have examined the outlook for
consumer magazine publishers and media buyers, as they adapt to the digital
revolution.

Our research focuses on two key questions: how is the behaviour of consumers
changing, when they read magazines? And how are publishers and advertising
agencies responding to these changes? Our conclusions are based on a global
online survey of more than 5,000 consumers, and interviews with leading
publishers and media buyers. We have supplemented these findings with John Middelweerd
industry reports, annual reports, analysts’ reviews and our own expertise.
(For details of our methodology, please see Appendix 1.)

It is an exciting time to be part of the ever-evolving publishing industry. The

members of PricewaterhouseCoopers Global Publishing Centre of Excellence are
pleased to present you a look at where we see magazine publishing is headed in
the future and look forward to working with you and sharing our thoughts with
you further.

If we can be of service to your business in any way, please contact one of the
PricewaterhouseCoopers Publishing Centre of Excellence team members in the
region nearest you (see page 42) or visit our website (pwc.com) for details of
the Entertainment & Media contact in your territory. Marieke van der Donk

Finally, we thank you for your support and hope you enjoy our publication.

Sincerely,

John Middelweerd Marieke van der Donk

Partner Senior Manager
PricewaterhouseCoopers (Netherlands) PricewaterhouseCoopers (Netherlands)
European E&M Practice Publishing Centre of Excellence

Outlook for Magazine Publishing in the Digital Age

Executive
Summary

The global publishing industry is undergoing major changes. A growing number

of people are migrating from the printed page to the Internet for information and
entertainment. So what should consumer magazine publishers and media buyers
do to succeed in the digital age? We have looked at how the behaviour of
consumers is shifting, and how the industry leaders are responding.

Our research shows that:

sMost consumers still prefer to read hard copies of magazines, but many are also
interested in reading digital content (by which we mean interactive materials, not
PDFs or other static formats which can be viewed online) – and younger
consumers would rather access content digitally.

s!SIGNIFICANTNUMBEROFCONSUMERSALSOEXPRESSINTERESTINUSINGNEWDIGITAL
devices to read digital content, once these devices are commercially available.

s(OWEVERCONSUMERSEXPECTTOPAYMOREFORPRINTEDCONTENTTHANFORCONTENT
distributed electronically. Indeed, our research suggests that they are not
prepared to pay more than half the sum they would pay for a printed magazine.

s-OREOVERMANYCONSUMERSSEEDIGITAL ONLYCONTENTASASUBSTITUTEFORPRINTED

content. So any magazine publisher which launches digital content connected
to its brands risks cannibalising subscription and circulation revenues from
ITSTRADITIONALPRINTMAGAZINES(OWEVERTHEREISNOEVIDENCETHUSFARTHAT
consumer magazine print products have been cannibalized by the presence of
digital versions of the magazine on the title’s website. This fear may therefore
be groundless.

s!NUMBEROFMAGAZINEPUBLISHERSHAVERESPONDEDTOTHEDIGITALREVOLUTIONBY
reshuffling their portfolios through acquisitions, disposals and new launches, or
by forming strategic alliances to get access to the skills they need. As progress
in developing digital media is being made in mainland Europe, Britain and in
North America, we see Eastern European publishers continuing to build up their
print portfolios, as this relatively new industry develops.

s"RITISHAND.ORTH!MERICANMAGAZINEPUBLISHERSEXPECTTOGENERATEASMUCH
as 20% of their total revenues from digital platforms within the next five years,

2 PricewaterhouseCoopers
 Executive Summary

whereas mainland European publishers expect to generate only 10% of their

revenues from online activities. This reflects consumers’ willingness to pay
for digital content in these markets. According to third party research, smaller
publishers in Britain and in North America are far ahead of their mainland
European counterparts in digital investment and development.

s4HEMAGAZINEPUBLISHERSTHATHAVEPROVEDMOSTSUCCESSFULINENTERINGTHE
digital space are those that have been able to leverage strong brands across
multiple media platforms and generate revenues from online advertising,
search-engine marketing and e-commerce. In short, they have recognised that
digital media require different business models from those they have developed
to support their traditional print operations.

s(OWEVERONLYAFEWMAGAZINEPUBLISHERSSEEMTOHAVEDEVELOPEDBUSINESS
models which make these activities self-supporting. If they are to ensure that
they are ready to accommodate the changing preferences of consumers, they
will need to consider their future investment plans (and the potential impact on
their financial situation) very carefully.

s-OSTMAGAZINEPUBLISHERSMAYALSOHAVETOMAKEMAJORORGANISATIONAL
changes. Traditional publishers typically organise their operations around
different media types, whereas consumers use multiple channels. If these
publishers are to stay close to their readers, they may need to integrate
their operations and hire employees with the right blend of creative and
technological skills.

s4HEDIGITALAGECOULDHAVEEQUALLYSIGNIFICANTCONSEQUENCESFORADVERTISING
agencies. The traditional agencies have already acquired new skills, but many
still need to build truly multi-functional teams capable of offering multimedia
solutions rather than focusing on a particular medium.

s"OTHMAGAZINEPUBLISHERSANDMEDIABUYERSWILLALSOHAVETOINVESTIN
developing effective consumer-tracking and measurement systems. Lack
of robust consumer metrics has exposed companies in both sectors to
competition from new entrants, some of which (like auFeminin.com and Google)
have been very successful.

Outlook for Magazine Publishing in the Digital Age 3

4 PricewaterhouseCoopers
Contents

Market Outlook 7

The Perspective of Consumers 11

The Perspective of Magazine Publishers 25

The Perspective of Advertising Agencies 33

Conclusion 37

Appendix 1: Methodology 39

Appendix 2: Electronic paper 40

Acknowledgements 42

References 44

Contact 45

Outlook for Magazine Publishing in the Digital Age 5

Market Outlook

6 PricewaterhouseCoopers
 Market Outlook

The global consumer magazine market is currently very much faster rate than revenues from traditional print
worth about US$80 billion1 – up from about $71 advertising (see Figure 1).
billion five years ago. Advertising accounted for
most of this rise. Between 2003 and 2007, revenues Online advertising has already played a considerable part
from print advertising increased at a compound in boosting revenues in the media markets as a whole.
annual growth rate (CAGR) of 4%. Conversely, Between 2004 and 2008, global expenditure on Internet
circulation revenues grew by just 1.9%. advertising rose at a CAGR of 38.1%, whereas print
advertising in consumer magazines and newspapers grew
We anticipate that this trend will continue. Research by just 4.4% and 2.4%, respectively (see Figure 2). The
conducted by the PricewaterhouseCoopers Entertainment pace at which online advertising expands is likely to slow
and Media Practice suggests that the consumer magazine over the next five years. Even so, we believe that revenues
market will reach about $95 billion by 2012, and that will increase at a CAGR of 19.5% – three times more than
advertising will once again generate most of the increase. the rate at which expenditure on any other form of
(OWEVERREVENUESFROMDIGITALADVERTISINGWILLGROWATA advertising is projected to grow (except for video games).

Figure 1: Circulation and advertising revenues in the global consumer magazine market (2003-2012)

CAGR CAGR
100.000 2002 - 2007 2007 - 2012

Outlook N/A 46.1%

90.000

80.000

70.000 4.0% 4.5%

Revenue in $ millions

60.000

50.000

40.000

30.000
1.9% 2.0%

20.000

10.000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Circulation Print advertising Digital advertising

Source: PwC Global E&M Outlook 2008, Wilkofsky Gruen Associates

Note: Figures for 2008-2012 are estimates only

Outlook for Magazine Publishing in the Digital Age 7

Demand for magazines is also soaring in Brazil, Russia, British and North American publishers we interviewed
India and China – the so-called BRIC countries – thanks to expect to generate as much as 20% of their revenues from
the rising number of middle-class consumers who aspire to digital platforms by 2012.
a particular lifestyle and have the money to purchase
publications that cater to their aspirations. Advertising But any traditional consumer magazine publisher that wants
revenues are increasing accordingly; indeed, digital to capture a share of the booming online market will have to
advertising revenues are currently growing at a phenomenal make major changes in the way it operates and charges for
70% a year (see Figure 3). its products. Moreover, if it is to make these changes, it
must first understand what digitally enabled consumers
Magazine publishers and media buyers are well aware that really want.
consumers are shifting towards digital media. Some of the

Figure 2: Advertising expenditure by segment (2003-2012)

CAGR CAGR
700.000 2004 - 2008 2008 - 2012
16.7%
2.0% 1.6%
600.000 7.2% 6.8%
1.4% 1.8%

500.000
2.4% 2.9%
In $ millions

400.000 3.2% 4.2%

4.4% 5.1%

300.000
38.1% 19.5%

200.000

100.000 6.6% 5.9%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Television Trade Magazines Out-of-Home

Internet: Wired and Mobile Newspapers Directories
Consumer Magazines Radio Video Games

Source: PricewaterhouseCoopers Global Entertainment and Media Outlook, 2008

Note: Figures for 2008-2012 are estimates only

8 PricewaterhouseCoopers
 Market Outlook

Figure 3: Annual changes in advertising revenues by region (2006-2012)

85%

N-America
75%

65%

55%
Year to Year growth

BRIC
45%

Western Europe
35%

25%

15%

5%

-5%
2006 2007 2008 2009 2010 2011 2012

North America Print Magazine Western Europe Print magazine

BRIC Print magazine North America Digital Magazine
Western Europe Digital magazine BRIC Print magazine

Source: PwC Global Entertainment and Media Outlook, 2008, Wilkofsky Gruen Associates
Note: Figures for 2008-2012 are estimates only

Outlook for Magazine Publishing in the Digital Age 9

The Perspective
of Consumers
 The Perspective of Consumers

We asked the respondents participating in our The results of our survey show that motivations for using the
consumer survey to give us their views about Internet differ substantially from one age group to another.
reading digital content (by which we mean Young consumers typically log onto entertainment and
interactive materials, not PDFs or other static social networking sites, whereas older consumers are more
formats which can be viewed online). We also likely to surf, search for information or shop. On this basis,
asked them which devices they would prefer to improving e-commerce solutions is an area that publishers
use to access digital content, assuming that the should consider (see Figure 4).
technological and operational hurdles associated
with these devices had been completely overcome.
(Our survey did not cover the cost of the devices.)

Figure 4: Reasons for using the Internet

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%
Searching

Surfing

Social
Interaction

Business

Education

Entertainment

Shopping

Age group
12-15 15-20 20-25 25-35 35-45 45-55 55-65

Source: PricewaterhouseCoopers Consumer Media Usage Survey

Outlook for Magazine Publishing in the Digital Age 11

Figure 5: Consumer interest in accessing digital content versus reading hard copy

100%

80%

60%

40%

20%

0%
Internet Mobile Devices Electronic Papers Hardcopies

Age group
12-15 15-20 20-25 25-35 35-45 45-55 55-65

Source: PricewaterhouseCoopers Consumer Media Usage Survey

Most consumers still prefer to read hard copies of to read digital content using mobile devices or electronic
magazines, but 60% of all respondents would like to access paper. (For more information on e-paper, please see
content on the Internet, too – and very young respondents Appendix 2.) Nevertheless, many consumers are clearly
(those aged 12-15) would rather read digital content (see willing to consider using such devices. In the short term,
Figure 5). publishers should focus on online delivery solutions for
these devices. These solutions may differ by genre and age
Given that the younger generation uses the internet more for group, with titles targeting the younger age groups focusing
purposes of entertainment, magazines will need to carefully more on the mobile offerings.
consider how they deliver content to this age group. The
DECISIONBY%-!0TOCLOSEAFTERYEARSITSh3MASH(ITSv We asked the respondents to our survey whether they
pop music magazine points to some of the problems the thought that they would spend more time or less reading
industry is facing. As the younger generation grows up, paper magazines within the next five years, if various
this phenomenon is likely to affect other genres as well and devices for accessing digital content were commercially
we will begin to see publishers focusing on titles that are available. (We provided pictures of each device.) The
designed to have shorter lifespans. majority of respondents anticipate spending less time
reading paper magazines and more time accessing digital
Other channels for reading digital content are much less content, particularly if they can access that content via
popular; fewer than 25% of respondents currently want e-paper (see Figure 6).

12 PricewaterhouseCoopers
 The Perspective of Consumers

Figure 6: The percentage of their time respondents expect to spend accessing digital content via different devices in 2012

70%

60%

50%

40%

30%

20%

10%

0%
Electronic Paper Car navigator Mobile Phone Mobile Device
Connected to any PC
Age group
12-15 15-20 20-25 25-35 35-45 45-55 55-65

Source: PricewaterhouseCoopers, Consumer Media Usage Survey

Moreover, more than half of all respondents said that they the BRIC economies before venturing into more established
would go on buying their favourite magazines, even if those markets, where consumers are more fickle in their tastes
magazines were only published in digital formats (see and more likely to migrate to other brands if they cannot get
Figure 7). This trend is particularly pronounced in India and the materials they want in print.
China; 60% of Indian respondents and 80% of Chinese
respondents have a favourite magazine, and at least 70% of Willingness to buy digital content also varies with gender
these respondents said that they would continue to buy it if and genre. Forty-one percent of male respondents would
it were only available online – a response which may reflect be prepared to pay for a subscription for content that is only
the fact that many consumers in emerging economies published on the Internet, compared with just 29% of female
PURCHASEMAGAZINESFORhASPIRATIONALvREASONS respondents (see Figure 8).

Conversely, readers living in the industrialised West are This may indicate that titles aimed at a male audience are
generally less loyal to a specific brand and less willing likely to generate more online subscription revenue than
to make the transition. Only 35% of Dutch and German those aimed at the female audience. Over time we will see
respondents, for example, said that they would continue to a number of innovative approaches taken to grow online
buy their preferred publications if they could not get hard subscription revenue such as Disney-owned ESPN which
copies. It may therefore make sense for many consumer OFFERSANhINSIDERvSUBSCRIPTIONWHICHGIVESTHESUBSCRIBER
magazine publishers to focus on building digital platforms in more detailed sports data and insight on the ESPN website.

Outlook for Magazine Publishing in the Digital Age 13

Figure 7: The percentage of respondents who say that they would continue to buy their favourite magazines,
if those magazines were only published online

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Brazil

China

Canada

Germany

France

India

The Netherlands

Russia

United Kingdom

USA
Source: PricewaterhouseCoopers, Consumer Media Usage Survey

Figure 8: The percentage of male and female respondents who say that they would be willing to pay
for content that is only published on the Internet

Male Female

41% 29%

59% 71%

Yes No

Source: PricewaterhouseCoopers, Consumer Media Usage Survey

14 PricewaterhouseCoopers
 The Perspective of Consumers

This bias is reflected in the degree of interest respondents

express in purchasing different types of digital content.
Readers who like magazines on women’s issues and houses
and gardens, for example, are more reluctant to consider
subscribing to digital alternatives than those who like
magazines on men’s issues and sports (see Figure 9).
These divergences in taste suggest that magazine
publishers will need to adopt different digital strategies for
different audiences, as they already do when segmenting
customers for print publications.

Figure 9: The percentage of respondents who are interested in accessing digital content, by genre

% Interested
in category

Hobby 37%

34%
Health and body

Woman’s magazines 32%

PC and Games 32%

Lifestyle 29%

Sports 27%

House and Garden 26%

Teens 22%

Men’s magazines 16%

Erotic 13%

0% 10% 20% 30% 40% 50% 60%

Source: PricewaterhouseCoopers, Consumer Media Usage Survey

Outlook for Magazine Publishing in the Digital Age 15

But though consumers differ by age, gender and nationality Given our earlier observations, publishers will have
in their attitudes towards digital publishing, they are to balance the need for digital advertising against the
almost unanimous on one point: their aversion to intrusive consumer’s dislike of it. Solutions that limit advertising
online advertisements. More than three-quarters of all avoidance (e.g. online publishing platforms like those
respondents, regardless of age, dislike pop-up ads (see powered by Cerosmedia) are likely to increase as contextual
Figure 10). Young respondents are more tolerant of pop-up advertising is improved. Publishers may also want to explore
ads when the content is free, while older respondents are ad-free subscription content as an incremental revenue
more willing to pay to avoid them. Even so, only 30% of stream.
those aged between 45 and 55 are prepared to dip into their
own pockets to escape such interruptions.

Figure 10: The percentage of respondents who dislike pop-up advertising, by age

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
12-15 15-20 20-25 25-35 35-45 45-55 55-65
% of respondents who dislike pop-up ads
% of respondents who dislike pop-up ads and are willing to pay for content
% of repondents who mind ads, if the content is free

Source: PricewaterhouseCoopers Consumer Media Usage Survey

16 PricewaterhouseCoopers
 The Perspective of Consumers

This pattern is true throughout the world. The vast majority

of respondents dislike pop-up ads, although Indian
respondents find them somewhat less offensive than
RESPONDENTSINOTHERCOUNTRIESSEE&IGURE (ENCETHE
fact that more sophisticated and less invasive forms of
online advertising – such as peel-away ads and context
ads – are now more common in some markets, like North
America, as online advertising evolves in response to the
reactions of consumers.

Figure 11: The percentage of respondents who dislike pop-up ads, by nationality

USA

United Kingdom

Russia

The Netherlands

India

France

Germany

Canada

China

Brazil

0% 20% 40% 60% 80% 100%

% of respondents who dislike pop-up ads

% of respondents who dislike pop-up ads and are willing to pay for content

Source: PricewaterhouseCoopers Consumer Media Usage Survey

Outlook for Magazine Publishing in the Digital Age 17

On this basis, we see that the BRIC countries are more In short, our survey findings show that many of those
willing to pay for content to avoid advertising. consumers who are already using the Internet are ready to
start accessing digital content. It also shows that many of
(OWEVERMOSTCONSUMERSAREMUCHMOREOPENTOTHE them would be interested in buying products and services
idea of digital direct marketing and e-commerce. Sixty through the digital platforms of the publishers of that
percent of respondents say that they would be willing to content, but they are much less tolerant of online advertising
consider buying goods or services via the digital platforms in its most intrusive forms. This echoes the fact that the
of publishers whose content they access. Respondents opportunity for e-commerce is perhaps stronger than
in the BRIC countries are especially receptive (see Figure publishers have historically exploited. The key question,
12). In fact, several global publishers have already enjoyed however, is how much they will pay for digital content – and
enormous success with online stores and direct marketing here the news is much less encouraging.
operations, Reader’s Digest being one such example. The
company sells a wide range of books, music and videos, We asked respondents how much they would be willing to
home accessories and gifts on its national websites, as well pay (WTP) for a digital version of a particular magazine that
as operating an insurance and financial services arm. is currently published in hard copy in the country in which
they reside, if they could buy a digital version of the same

Figure 12: The percentage of respondents who are receptive to the idea of shopping via the digital platforms
of magazine publishers whose content they access

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Brazil

China

Canada

Germany

France

India

The Netherlands

Russia

United Kingdom

USA

Source: PricewaterhouseCoopers Consumer Media Usage Survey

18 PricewaterhouseCoopers
 The Perspective of Consumers

Figure 13: The percentage of the cost of a printed magazine which respondents are willing to pay for digital content and digital/print combinations

100%
90%
80%
-53%
70%
60%
+19%
50%
40%
30%
20%
10%
100% 35% 47% 54% 66%
0%
WTP for WTP for WTP for WTP for WTP for
current paper digital version digital version paper & paper &
magazine only (on only (on digital version digital version
mobile devices) E-paper) (on mobile (on E-paper)
devices)

Source: PricewaterhouseCoopers Consumer Media Usage Survey

Note: We have taken the cover price of a printed magazine currently published in each of the 10 countries in our survey
as a reference point, and used conjoint analysis to assess the average amount respondents are willing to pay for a digital
version. Our analysis excludes the cost of purchasing the devices required to read a digital magazine.

magazine. We also asked them how much extra they would In other words, respondents believe that digital content should
be willing to pay for a printed version of that magazine, if cost less than half the price of printed magazines. And once
they already had an electronic subscription. digital alternatives to a printed magazine are available, they
expect to pay a maximum of two-thirds of the cover price for
On average, respondents are only willing to pay 35% of the hard and soft copies of the same magazine. This probably
price they pay for a hard copy to receive a digital version explains why many magazine publishers provide digital content
of the same magazine on a mobile device, and 47% of the that differs from the content in their print publications, since
price they pay for a hard copy to receive a digital version of they might otherwise come under considerable pressure to
the same magazine on e-paper. And they are only willing to reduce the prices of their printed versions.
pay an additional 19% to receive a paper copy of content
they have already bought in a digital format (see Figure
13). In fact, respondents in the BRIC economies are only
prepared to pay an additional 15%.

Outlook for Magazine Publishing in the Digital Age 19

Figure 14: The percentage of the cost of a printed magazine which respondents are willing to pay for digital content, by nationality

90%

80%

70%

60%

50%
E-paper
40%

30%
Mobile
20%
device
10%

0%
Brazil

China

Canada

Germany

France

India

The Netherlands

Russia

United Kingdom

USA
WTP digital magazine (on E-paper)
WTP digital magazine (on mobile device)

Source: PricewaterhouseCoopers Consumer Media Usage Survey

Figure 15: The percentage of the cost of a printed magazine which respondents are willing to pay for digital content, by age

90%

80%

70%

60%

50%
E-paper
40%

30% Mobile
device
20%

10%

0%
Age: <=25 Age: 26-45 Age: 46-65

WTP digital magazine (on E-paper) WTP digital magazine (on mobile device)

Source: PricewaterhouseCoopers Consumer Media Usage Survey

20 PricewaterhouseCoopers
 The Perspective of Consumers

The same pattern prevails regardless of nationality, age or possibly because it is easy to fit a mobile device in a
gender. Consumers in every country we surveyed expect handbag. (This may suggest that publishers targeting male
to pay less for digital content than for printed magazines readers should focus on producing digital content that is
(see Figure 14). Indeed, German and Chinese respondents suitable for e-paper whereas those that are targeting female
are not prepared to pay more than 40% of the amount they readers would do better to produce digital content that is
currently pay for hard copies. suitable for mobile devices.) Again, however, both men and
women still expect to pay much less for digital content and
Younger respondents are willing to pay more for digital combined print/digital formats than they would for hard
content than older respondents (although they often have copies alone (see Figure 16).
less money than older consumers). They are also much
more willing to consider reading digital content on mobile Most respondents would also prefer to read digital content
devices. Even so, they are only prepared to pay about 55% of on standalone devices with direct access to the Internet
the price they would pay for a printed version (see Figure 15). than on than devices which must first be linked to a
computer to download the content. And they favour e-paper
Similarly, men are willing to pay marginally more than over mobile devices. Conversely, very few respondents are
women for digital content on e-paper, while women are willing to pay extra for spoken text.
prepared to pay more for digital content on mobile devices,

Figure 16: The percentage of the cost of a printed magazine which male and female respondents are willing to pay
for digital content and digital/print combinations

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
WTP for digital WTP for digital WTP for paper & digital WTP for paper & digital
version Only (on E-paper) version Only (on mobile device) version (on mobile device) version (on E-paper)

Male Female

Source: PricewaterhouseCoopers Consumer Media Usage Survey

Outlook for Magazine Publishing in the Digital Age 21

These findings have major implications for magazine
publishers everywhere. It is clear that interest in digital
content is growing rapidly, and that no publisher can
afford to ignore the online channel, since new entrants will
otherwise erode its market share. Moreover, experience in
the music industry shows just how quickly the transition can
take place. Between 2000 and 2006, global sales of CDs
fell by 23%, and the switch to digital music is accelerating;
in 2007, sales of CDs fell by 19% in the US alone2. Yet any
magazine publisher that starts offering its content online
may have to charge much less than the respective hard
cover price.

22 PricewaterhouseCoopers
 1 Titel

Outlook for Magazine Publishing in the Digital Age 23

The Perspective
of Magazine
Publishers
 The Perspective of Magazine Publishers

So how is the industry responding to these This trend is likely to persist, as the online competition
changes? Some magazine publishers have increases and the average product lifespan continues to
acquired other publishers or titles in a move to contract in mature markets, forcing many magazine publishers
increase their critical mass. In August 2006, for to refresh or renew their offerings more frequently.
example, Wenner Media purchased the 50% of the
shares in US Weekly it did not already own3. In late As implied by the findings from our research above, some
2007, Sanoma bought Mood for Magazines4, while of the largest magazine publishers have also moved into
APN News & Media acquired Simply You, New the digital space and started trying to leverage their brands
Zealand’s leading fashion title5. And, in February by launching multimedia formats from which to generate
2008, Heinrich Bauer Verlag acquired EMAP’s additional revenues. The BBC has been particularly
consumer media division for $1.4 billion6. successful in this respect; it has, for example, created
various spin-offs from its popular motoring television series
Other magazine publishers have concentrated on launching Top Gear, including a monthly car magazine now available in
new titles – typically niche publications for consumers with 17 international editions, newsletter and website8.
specialised interests (see Figure 17). German publishing
giant Gruner + Jahr has recently launched two such titles: a A number of North American publishers have taken the
magazine for dog-lovers and a magazine for people who are same route, and we anticipate that many other publishers
INTERESTEDINDEVELOPINGTHEIRhPERSONALLIFEvSKILLS7. will follow suit. They will use their specialist titles to create

Figure 17: Annual net new titles published in the US, Canada and UK (1998-2006)

Period of
2,000 rationalisation following
dotcom crash, economic
1,000 downturn and decline
in magazine advertising
in #

(1,000)

(2,000)
1998 1999 2000 2001 2002 2003 2004 2005 2006

Sources: MPA 2007, Magazines Canada 2007 & PPA 2007

Outlook for Magazine Publishing in the Digital Age 25

online social networks and generate transaction revenues – carefully about how it should invest in building a digital
i.e. revenues from advertising, search-engine marketing and platform and be prepared to invest for the long term, since it
e-commerce – from these communities (see Figure 18). cannot expect to cover its costs for some years.

(OWEVERTHEINDUSTRYFACESSOMESIGNIFICANTCHALLENGESIN A number of powerful new competitors – both content

making this transition. For a start, most of those magazine providers and advertising vehicles – have also emerged.
publishers that are developing an online presence currently One such instance is web portal auFeminin.com, now
have to subsidise their digital activities with revenues from Europe’s leading publisher of interactive women’s
other parts of their business. This is true even in the US, magazines and an increasingly serious rival to the long-
which is one of the world’s most advanced digital markets established glossy magazines. In the past five years, the
(see Figure 19). group’s net turnover has more than quadrupled, to `22.5m,
while its operating profits have grown at a CAGR of 141%,
Moreover, the vast majority of print publishers outsource to reach nearly `13.1m, far outstripping the pace at which
their printing and fulfilment, so their capital expenditure traditional print publishers have been expanding9.
is relatively low. Conversely, creating and sustaining a Internet search provider Google has been even more
compelling web presence requires significant capital successful. It has built a multi-billion-dollar business by
investment and thus has major implications for a company’s tapping into demand for niche products and converting the
financial position. Any magazine publisher that wants to millions of consumers who use its search engine into highly
succeed in the online world will therefore need to think very targeted advertising opportunities10.

Figure 18: Composition of the digital revenues of US publishers (2006)

70%
% of total online revenue

60%

50%
Sources of future revenue growth,
40%
but publishers need to create interaction
30% in order to fuel transactions
20%

10%

0%
Ads* Search engine marketing Paid-for content Ecommerce Other

3OURCE)NTERNATIONAL&EDERATIONOFTHE0ERIODICAL0RESSh2OUTESTO3UCCESSv

26 PricewaterhouseCoopers
 The Perspective of Magazine Publishers

Figure 19: Sources of investment in building a digital presence

in the US magazine publishing sector (2006)

23%

23%
40%

32%
40%

32% 5%
Internal (central) Internal (print magazines)
5%
Web Revenue Other
Internal (central) Internal (print magazines)
Web Revenue Other

Source: International Federation of the Periodical Press,

h2OUTESTO3UCCESSv

The competition is getting tougher, then, but many

magazine publishers must contend with organisational
issues, too. A few companies have integrated their print
and digital media operations – and they are typically
the publishers that have made the greatest progress
in developing digital offerings. “Our journalists learn to
WRITEANDPRODUCECONTENTFORDIFFERENTMEDIAvSAYSONE
executive working for a successful Dutch publishing house.

Outlook for Magazine Publishing in the Digital Age 27

Figure 20: The organisational changes required to build an integrated multimedia platform

Shift from ...to one

organisation based on
by medium... function

Publisher Publisher

Print Digital Editing Marketing Sales

Editing Marketing Sales Print Digital

Source: PricewaterhouseCoopers

But the vast majority of magazine publishers still maintain (OWEVERITISOFTENVERYDIFFICULTTOFINDPEOPLEWITHTHERIGHT
separate editorial teams for producing print and digital blend of talents. “We ask for a technology background or at
media. This is partly because traditional print journalists least an interest and ability. The issue is legacy employees,
often find it difficult to write copy for digital formats and who are somewhat resistant to the technologies that their
partly because the editorial workforce is heavily unionised CHILDRENANDGRANDCHILDRENTAKEFORGRANTEDvSAYSA53
in some countries. Such publishers are ill-equipped to publisher. Several other publishers also note how hard it is
address the changing preferences of their audience. As to recruit people with creative and technical skills.
more and more consumers gravitate towards the Internet,
these companies will need to integrate their print and digital
operations, both to capitalise on any back-office synergies
and to stay close to their readers (see Figure 20).

The transition to digital media also requires different skills.

“The Internet is not about shoving a magazine down a wire. It
ISATOTALLYDIFFERENTMEDIUMvREMARKSONE#ANADIANPUBLISHER
Any magazine publisher that wants to build a multimedia
platform must therefore recruit employees who can write for,
market or sell advertising space in multiple media.

28 PricewaterhouseCoopers
 The Perspective of Magazine Publishers

A number of magazine publishers have tried to overcome (OWEVERMOSTMAGAZINEPUBLISHERSARESTILLSTRUGGLINGON

this problem by acquiring companies with a strong track this score. “The ‘metrics’ of traditional advertising are weak
record in digital media or entering into partnerships COMPAREDTOTHEPOSSIBILITIESOFFEREDBYONLINEINSTRUMENTSv
with new players. In 2007, for example, German media says a senior manager at one German publishing house.
conglomerate Axel Springer bought a 68% stake in But “online tracking methods are still relatively weak. There
auFeminin.com11. (Table 1 includes other recent cases is currently no generally accepted ‘currency’ in the online
INWHICHMAGAZINEPUBLISHERSHAVEBOUGHThDIGITALv WORLDv
COMPANIES 3IMILARLYINEARLY#ONDÏ.AST(EARST
Rodale and Time Warner formed a partnership with Internet Lack of standardisation is certainly a problem at present.
service provider Yahoo! to provide a women’s portal called Nevertheless, it may be a smaller problem than many
Shine12. We believe that there will be many more such magazine publishers realise. Measures like cost per lead,
transactions over the next few years. cost per sale and cost per visit are arguably just as robust
as traditional measures like reach and frequency, gross
The ability to track consumers and deliver a demonstrably rating points and rate base. Search engines like Google
effective advertising platform is yet another issue. “Metrics are also developing increasingly sophisticated systems
AREGOINGTOBEBRANDATTRIBUTESvSAYSANEXECUTIVEATONE for tracking how consumers behave online, while digital
global media buying agency. technology company Phorm recently announced that it

Table 1: Selected recent deals in which magazine publishers have bought “digital” companies

Acquirer Target Transaction Value

Date Acquirer Country Target Country (US$ millions)
Yospace Technologies
Feb-07 EMAP Consumer Media UK (multimedia messaging) UK 28
Aug-07 Lagardère France Nextedia (Internet advertising) France 136
RealAge
Sep-07 (EARST-AGAZINES USA (personalised information provider) USA N/A
Trusted Reviews
Oct-07 IPC Media UK (online recommendation site) UK N/A
Dec-07 Penthouse Media Group USA Various Inc. (social networking) USA 500
Feb-08 Lagardère France Doctissimo (healthcare websites) France 107
Dec-07 Bertelsmann Germany Pixelhouse (ISP) Germany N/A
Answerology
Mar-08 (EARST-AGAZINES USA (online information services) USA N/A
Apr-08 (ACHETTE&ILIPACCHI UK Digital Spy (search engine service) UK N/A

Source: PricewaterhouseCoopers, Thomson One

Outlook for Magazine Publishing in the Digital Age 29

HADDEVELOPEDAWAYOFUSINGhDEEPPACKETINSPECTIONv This relatively relaxed attitude may stem from the fact that
to monitor people’s browsing habits and deliver many magazine publishers currently see content primarily
personalised ads13. as a means of generating traffic, and do not charge for it.
Even those that charge for their content, like The Economist,
Indeed, some of these online tracking systems are so GENERALLYCHARGEONLYFORhPREMIUMvSERVICESANDSTILL
effective that they have provoked considerable concern. In provide a considerable amount of information for free.
late 2007, for example, nine privacy organisations asked the
US Federal Trade Commission to consider implementing a In some countries, freelance writers also generate a
h$O.OT4RACKvLISTTOPROTECTPEOPLEFROMHAVINGTHEIRONLINE substantial amount of content and magazine publishers
activities unknowingly tracked and used by marketers14. PURCHASEhFIRSTUSEvRATHERTHANFULLCOPYRIGHTSOTHE
Plans by several large British Internet service providers protection of such intellectual property is a bigger issue for
to use behavioural targeting tools like that developed by authors than magazine publishers. Yet, as one US publishing
Phorm also sparked a storm of protest15. Any magazine executive points out, “the digital environment makes
publisher that wants to succeed in the online world, then, INFRINGEMENTAHECKOFALOTEASIERv4HE53)NSTITUTEOF0OLICY
will need to adopt better systems for tracking and targeting Innovation estimates, for example, that illegal downloading
the consumers who visit its websites, without violating their costs US record companies some $3.7 billion a year16.
privacy or jeopardising their security.
The industry will therefore have to develop new distribution
One last issue is vital: namely, much greater vigilance and copyright strategies to protect the intellectual property
when it comes to the protection of digital intellectual it publishes online. Fortunately, various technologies are
property. Few magazine publishers seem to take the risk of now emerging specifically to manage digital rights and
digital piracy very seriously. Only five of the 30 publishing prevent unauthorised copying, printing, modification or
executives we interviewed regard it as a top priority, sharing of digital media.
although seven think that it will become more important in
future.

30 PricewaterhouseCoopers
 1 Titel

Outlook for Magazine Publishing in the Digital Age 31

The Perspective
of Advertising
Agencies

32 PricewaterhouseCoopers
 The Perspective of Advertising Agencies

Just as the digital revolution is transforming print media. They are not there to build brands but to
magazine publishing, so it is transforming GENERATEARESPONSEvA$UTCHPUBLISHEREXPLAINS
advertising – and many agencies are also
struggling to adjust. The advertising industry has -UCHOFTHEhDIRECTvADVERTISINGTHATTAKESPLACEISPROBABLY
already made considerable changes; in the US, for incremental, rather than a substitute for agency-managed
example, most advertisers expect publishers to campaigns. Nevertheless, as the opportunities for reaching
offer them multimedia solutions, and the majority consumers proliferate and new kinds of advertisers emerge,
of print ads are now sold as part of a multimedia a growing share of the money that is spent on advertising
package. could be diverted into other channels. So, if the advertising
industry is to retain its role in the advertising process, it will
(OWEVERADVERTISERSAREINCREASINGLYAWARETHATTHEYCAN have to ensure that it understands the requirements of
reach their target markets either by setting up their own these new customers and build multi-functional teams
websites or by going directly to publishers with multimedia capable of covering the full media spectrum.
platforms (see Figure 21). Some of these advertisers also
have completely different objectives from those that have The advertising executives we interviewed recognise the
historically advertised in print magazines. “New advertisers need to integrate their media-buying functions. As a senior
are using the Internet, advertisers who have never used manager in one global advertising agency notes, “I’ve got a

Figure 21: Emerging opportunities for reaching consumers via other means than traditional advertising agencies

Online interaction
Consumers

Direct dealing
Publishers

Media buyers

Advertisers

Source: PricewaterhouseCoopers

Outlook for Magazine Publishing in the Digital Age 33

whack of people in here and they’re broadcast buyers.
That’s what they’ve done forever and they’re good at it. But
they’ve got to change. They’re not going to be broadcast
BUYERSANYMORE4HEYREGOINGTOBECONTENTSTRATEGISTSv
(OWEVERCREATINGMULTI FUNCTIONALTEAMSTHATCANOFFERTRULY
multimedia solutions, rather than focusing on a single
medium, entails major organisational and cultural
alterations.

Moreover, many advertising agencies, like publishing

houses, are finding it difficult to recruit people with the
abilities they require. “We face some problems with hiring
CREATIVEPEOPLEWHOALSOHAVESTRONGTECHNICALSKILLSvSAYS
one executive. “The big agencies need to become more
INNOVATIVEvANOTHEREXECUTIVEREMARKSOTHERWISETHEYhRISK
BEINGSURPASSEDBYSMALLERMOREINNOVATIVESTART UPSvAND
getting marginalised.

A number of the leading agencies have responded by taking

the acquisition route. In 2007, for example, WPP bought
interactive agencies 24/7 Real Media, Schematic and Blast
Radius17; Aegis Group bought Genesis Media and
Mindblossom18 ; and Publicis bought Digitas, a US Internet
specialist19. But acquisitions also present significant
challenges, not least the need to integrate the target
company, retain the best people and ensure that the full
value of the transaction is realised.

34 PricewaterhouseCoopers
 1 Titel

Outlook for Magazine Publishing in the Digital Age 35

Conclusion

36 PricewaterhouseCoopers
 Conclusion

To sum up, our research shows that many consumers are s-AINTAINHARDCOPYPRODUCTSASINTHESHORTTERMTHEY
receptive to the idea of using digital platforms. The issue is are likely to continue to generate the majority of
not whether, but when and how they will do so. Some revenues.
technical barriers– such as the bandwidth and battery life
of e-paper, and the cost of multi-purpose digital devices – Most publishers and advertising agencies clearly recognise
remain. These are outside the control of the media industry. the importance of the digital revolution. British and North
But, if magazine publishers are to succeed in the digital American organisations are generally more advanced than
age, they should consider the following recommendations: their mainland European peers in this respect, although a
few European publishers have digital publishing platforms
s%MBRACEANDENCOURAGECHANGETOAVOIDBECOMING that are just as sophisticated as any to be found in North
sidelined by competitors and new entrants. America and the opportunities for creating digital platforms
are arguably even greater in some of the BRIC economies.
s2EVIEWTHESKILLSNEEDEDTOOPERATEINTHISFAST CHANGING
industry and consider the best option with which to These are major changes, but the rewards for making them
address them (recruitment of skilled personnel, training could be substantial. One of the world’s leading magazine
of existing staff or acquisition of existing specialised publishers has achieved a six-fold increase in its online
businesses). revenues over the past four years – proof that publishers
can be successful with digital media, when they are
s2EVIEWTHEORGANISATIONALSTRUCTUREAROUNDMULTIPLE properly managed.
channels.

s/PTIMISEDIGITALREVENUEFROMADSSEARCHENGINE
marketing, paid-for content and e-commerce and
recognise that advertising should not be at the detriment
of the consumer online experience.

s5NDERSTANDTHATCONSUMERSWILLINCREASINGLYWANTTO
access content how, when and where they want.

s7ORKWITHADVERTISERSANDADVERTISINGAGENCIESTO
develop appropriate metrics.

s&OCUSDEVELOPMENTONTHOSEGENRESANDDEMOGRAPHICS
that are likely to generate the most online activity.

s)NVESTWISELYINDIGITALSOLUTIONS0ROFITINDIGITALMEDIAIS
achievable but it is neither inexpensive nor quick.

Outlook for Magazine Publishing in the Digital Age 37

Appendices

38 PricewaterhouseCoopers
Appendix 1
Methodology

We conducted a survey of 5,036 consumers to identify

how they currently read magazines and how they anticipate
doing so within the next five years. Our survey sample
comprises at least 500 consumers aged 12-65 from each
of 10 countries – Brazil, Canada, China, France, Germany,
India, the Netherlands, Russia, UK and USA.

The survey was conducted online. Our findings are thus

representative of the prevailing situation in countries where
broadband penetration is extensive. They point to future
trends in media usage in those countries where broadband
penetration is still relatively low but likely to increase over
time.

We used conjoint analysis – where respondents are asked

to choose between different attributes and statistical
techniques are employed to estimate the average value
of each attribute – to determine how much consumers
would be willing to pay for digital and printed versions of a
particular magazine. The results of this analysis are based
on the responses of the 4,938 consumers who answered
every question in the section of our survey that covers
willingness to pay. They include at least 405 respondents
from each of the countries we covered. (Our survey does
not address the costs of purchasing the devices required
to receive digital media or any technological hurdles
associated with their development.)

We also conducted interviews with 30 leading publishers

and 20 leading media buyers around the world. We
supplemented this qualitative research with industry reports,
annual reports and analysts’ reviews, as well as drawing on
our extensive experience of advising clients in the publishing
industry.

Outlook for Magazine Publishing in the Digital Age 39

Appendix 2
Electronic paper

E-paper is a portable storage and display medium which

looks like paper but can be repeatedly written on and
re-used. The information to be displayed is downloaded
through a connection to a computer or mobile phone,
or created with mechanical tools such as an electronic
hPENCILv3EVERALCOMPANIESARECURRENTLYDEVELOPING
e-paper devices, and Amazon launched a version called the
!MAZON+INDLEINLATE(OWEVERSUCHDEVICESARENOT
yet widely available.

40 PricewaterhouseCoopers
Outlook for Magazine Publishing in the Digital Age 41
Acknowledgements

This paper was developed with the support and expertise We are also grateful to the following people for conducting
from staff members from around our firm. A core group of interviews with publishers and advertising agencies in the
PricewaterhouseCoopers staff worked diligently to produce countries we surveyed, analysing the data and providing
this publication and we would like to thank our team, without valuable feedback on the results of our research:
which this paper would not have been published.
Jerry A. Brown
Special thanks are due to our authors John M. Middelweerd PricewaterhouseCoopers (Canada)
and Marieke van der Donk. +1 416 839 2630
[email protected]
John Middelweerd
PricewaterhouseCoopers (Netherlands) Matthieu Aubusson de Cavarlay
+31 30 219 16 56 PricewaterhouseCoopers (France)
[email protected] +33 1 56 57 77 50
[email protected]
Marieke van der Donk
PricewaterhouseCoopers (Netherlands) Nicholas D. George
+31 30 219 11 83 PricewaterhouseCoopers (United Kingdom)
[email protected] +44 (0) 20 780 47106
[email protected]

Smita Jha
PricewaterhouseCoopers (India)
+91 124 4620111
[email protected]

Simon P. Lamb
PricewaterhouseCoopers (United Kingdom)
+44 20 721 25999
[email protected]

Frank Mackenroth
PricewaterhouseCoopers (Germany)
+49 40 6378 1309
[email protected]

42 PricewaterhouseCoopers
 Acknowledgements

Chris Monteleone Of further interest

PricewaterhouseCoopers (Russia) PricewaterhouseCoopers produces a range of thought
+7 495 9676117 leadership publications related to the Entertainment & Media
[email protected] industry, a selection of which are summarised below. If you
are interested in viewing these publications, please visit
David Moss www.pwc.com/entertainmentandmedia or
PricewaterhouseCoopers (United States) www.pwc.com/convergence
+1 678 419 1358
[email protected] - Global Entertainment & Media Outlook 2008-2012
(OWCONSUMERCONVERSATIONWILLTRANSFORMBUSINESS
Phil Stokes - The Convergence Monitor: Enterprise Mobility (2008)
PricewaterhouseCoopers (United Kingdom) 4HE#ONVERGENCE-ONITOR4HE$IGITAL(OME
+44 20 780 44072 (OWTOCAPITALISEONLIFESTYLEADVERTISINGINACONSUMER
[email protected] centric world (2007)
- Media Insights 2008
Sergio Zamora - Show me the money: Strategies for success in IPTV (2007)
PricewaterhouseCoopers (Brazil) - On Media: Recorded Music - Who benefits from digital?
+55 11 3674 3506 (2008)
[email protected]

Outlook for Magazine Publishing in the Digital Age 43

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asp?capId=125705

44 PricewaterhouseCoopers
Contact

Global Media and Entertainment contact: Regional Media and Entertainment contact:

PricewaterhouseCoopers (United States) PricewaterhouseCoopers (Asia Pacific)

James O’ Shaughnessy Marcel R. Fenez
Chairman [email protected]
[email protected]
PricewaterhouseCoopers (Canada)
PricewaterhouseCoopers (Asia Pacific) Tracey L. Jennings
Marcel R. Fenez [email protected]
Managing Partner
[email protected] PricewaterhouseCoopers (Europe)
John M. Middelweerd
[email protected]

PricewaterhouseCoopers (South & Central America)

Estela Vieira
[email protected]

PricewaterhouseCoopers (United Kingdom)

Phil Stokes
[email protected]

PricewaterhouseCoopers (United States)

James O’ Shaughnessy
[email protected]

pwc.nl !SSURANCEs4AXs!DVISORY
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