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The Surviving Small Press: Magazine Business Models

by Tom Person
Reprinted from Laughing Bear Newsletter #129, Copyright © 2001 by Laughing Bear Press

A few weeks ago Daniel Pink, a columnist for the Startup Journal section of WSJ.com, the online edition of the Wall Street Journal, interviewed me for an article he was doing about a proposed magazine startup. (You can find the article at http://www.startupjournal.com/columnists/ideafile/20010418-pink.html.)

The proposed startup is a magazine called Obit that intends to profile celebrities and other notable people who have recently died. Because the business plan calls for the magazine to fit a niche somewhere between People and Biography magazines, I suggested that it would be vital for Obit's publishers to decide which of those very different business models they should use, or whether to come up with a new business model of their own.

People magazine has a business model built around newsstand and supermarket checkout sales, and waiting rooms. What do those markets have in common? Large numbers of people leaf through the magazine – and whether they buy it or not is incidental. The publishers certainly don't mind if you buy the magazine, but that isn't where the bulk of their revenue comes from.

People is designed to be browsed. It is filled with short articles, lots of pictures, and tons of advertising. The reader is meant to flip through the magazine quickly, not spending too much time on any particular page. It is perfect for flipping though in a supermarket line or while you are waiting to see the dentist.

You won't find recipes, weight loss programs, or anything else readers are likely to want to clip and save. That makes it less likely copies will be stolen or disfigured. It also makes it less likely anyone will spend more than a couple minutes on each page.

The emphasis is on celebrity and entertainment news, with some human interest and feel-good stories, but the purpose of the content is to attract your attention and get you to open the magazine, then quickly move through it while being exposed to the advertising along the way.

From an advertiser's point of view, each copy of People has the potential to be viewed by hundreds of people, unlike a magazine marketed to single family homes where each copy may be leafed through by one or two readers. A copy of People on a newsstand may be picked up by dozens of people before someone buys it, and a copy in a waiting room may be read hundreds of times and have a life in the magazine rack of months. That makes advertising in People seem like a bargain if you are figuring your advertising budget on a dollars per set of eyeballs basis.

Magazine subscriptions are available to the public, but at $55.00 to $78.00 per year (depending on the deal you can find), the weekly is not competitive with other mass-market magazines. Most popular magazines, including Rolling Stone, which comes out every other week, cost from $10 to $20 a year. But then, from the publisher's standpoint, subscriptions are a secondary and expensive market that does not support the primary business model.

I hear from a lot of potential magazine publishers who, like Obit, would like to do a magazine like People. The thing to consider is that People has a business model that would be very expensive to duplicate.

While People saves some expense by relying less on subscriptions, with their related postage and marketing costs, it has to deal with huge expenses for returns, transportation, paper waste and recycling, and selling advertising. The startup costs would run into the tens of millions of dollars, if not hundreds of millions.

There has only been one serious competitor for People in the 30 odd years it has been around, and that is Us, which uses the same business model. To take People and apply a different model by, say, dropping the subscription price and targeting the home market, would emphasize the magazine's shortcomings.

People is fun to read in the doctor's office, but really doesn't offer anything you can't find on TV. Since it does not have features like in-depth reporting or do-it-yourself projects, that add substantial value to most subscription magazines, it would not be able to maintain its subscription base. TV Guide offers the same kind of stories, but at least you get TV listings as well.

Biography uses a business model more in line with what we expect from a subscription magazine. It provides in-depth profiles of famous people. The subscription price for the monthly magazine is modest ($14.95). It also doesn't hurt that the magazine is tied to the popular TV series it is named after.

The Biography business model includes newsstand sales, but more to entice readers to subscribe than to get them to flip through the magazine. The articles require too much time and effort to read in full to facilitate the People model. That's also why it doesn't work as well for waiting rooms. By and large people don't want to commit themselves to reading a long article they are unlikely to have the chance to finish.

Biography's advertisers are able to reach a more targeted audience than People's. People appeals to everyone, from the janitor to the CEO, so the advertisers have to offer products that appeal to everyone to get the most for their marketing dollar. Biography appeals to better educated, more affluent readers. Biography advertisers are more interested in targeting specific demographics than in sheer quantity of page views.

The challenge for the publishers of Obit will be to survive the first few years. They will need cash reserves to not only publish the first issue, but possibly a couple years' worth before they can expect to make enough to cover expenses, much less a profit. So they are going to need to have a well-researched business model and plan. They'll need it to show banks and investors and to ensure their resources are utilized efficiently.

The trouble is that to launch a new mass-market magazine, you need to attract high-paying, national advertisers or be able to obtain very large loans, and the only way to do that is to have a substantial circulation in place. Or a very powerful and convincing plan.

To find a way around the problem, the publisher can use their business model to play "what if" with the magazine. As in, "What if we try it out in selected cities at first" or "What if we start out with a modest format and market it through our web site, then grow into something more elaborate if the public shows interest".