Monday, November 13, 2006

Old Media in the Bizarro World



Time magazine, the flagship publication of Time Warner's Time Inc., is cutting its rate base, or the circulation it guarantees advertisers, according to Ed McCarrick, world-wide publisher of Time magazine. He says Time will cut the rate base by 750,000 to 3.25 million, a reduction of about 19%.

—The Wall Street Journal

It’s hard to know where to begin on this report of Time magazine’s desperate measures to keep publishing, printing, stacking, trucking, and delivering an increasingly irrelevant weekly news magazine to a world now getting its news immediately and effortlessly the same way these words are brought to you: online.

No printing, stacking, trucking, delivering or recycling required.

Time had kept circulation artificially high by offering cut-rate subscriptions, the account went on, noting, Time's ad pages are up 2% for the first 10 months of the year, according to Publishers Information Bureau, but were down 12.2% in 2005.

Now, for starters, you would think the fact that Time needed “cut-rate” subscriptions to keep up the magazine’s circulation would have clued in management to the fact that in order to keep readers interested, something needed to change—i.e. the price of the magazine.

And you would be right, except you would be wrong.

Let me explain.

You would be right in thinking that the Time elders would realize the need to change their magazine’s price in order to maintain circulation in the face of compelling alternatives to a high-priced, once-a-week bound copy of old information headed straight for the recycling bin.

But you would be wrong in thinking they are reducing the price.

It seems Time (and perhaps other Old Media companies, but we only have one sample in this case) hires only people from Superman’s Bizarro World (frequently invoked by Jerry Seinfeld)—where things are the opposite of what they should be.

For instead of lowering their costs and passing on the savings to induce readers to continue buying, the Time magazine elders from the Bizarro World decided to raise prices.

I am not making that up:

Time is also raising its newsstand cover price to $4.95 from $3.95, Mr. McCarrick says, and offering advertisers the option to purchase space in the magazine based on a guaranteed audience measure.

So what we have here is a business facing declining demand, that is raising prices to meet the challenge.

Perhaps this is merely a knee-jerk reaction by the elders at Time to changes in their external environment, and they are simply reacting as all Old Media types grew accustomed to reacting whenever costs rose or circulation declined.

In that case, I would suggest they take a lesson from Seinfeld himself, by doing precisely the opposite of these apparently deeply held instincts:

George: Elaine, bald men, with no jobs, and no money, who live with their parents, don’t approach strange women.

Jerry: Well here’s your chance to try the opposite. Instead of tuna salad and being intimidated by women, chicken salad and going right up to them.

George: Yeah, I should do the opposite, I should.

Jerry: If every instinct you have is wrong, then the opposite would have to be right.

After all, weekly news magazines with declining circulation, terrible demographics, and a high fixed-cost structure don’t raise prices.

Except, perhaps, in the Bizarro World.



Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


8 comments:

Harry DeMott said...

Bizarro World exists - it is called public company expectations. In this bizarro world, quarterly earnings go up year over year in a smooth fashion forever - allowing editors and other plutocrats to lunch on $29.85 Cobb salads at Michael's. So when reality strikes and you have to cut your circulation numbers and you simultaneously have to meet quarterly projections - you do the only thing possible - rasie prices and count on the stupidity of your readership. Of course when those full price subscribers start leaving in droves that's when the lunches stop and the firings begin.

Gordogekko100 said...

Jeff,

But you didn't say if the circulation price was raised or not. If they didn't raise circulation and perhaps lowered it they might try to persuade subscribers to stick with it-and keep the advertising buck-so they don't have to pay newsstand prices. I think it is all about paid subscribers for them and not kiosk sales.

whydibuy said...

Ahhh, they're using the U.S. Post Office's business model of raising prices in response to lower demand. Funny how former dominating entities think alike. Ya can't blame them. Its always hard to manage a decline in business. After all, they face high fixed costs and militant unions. And cutting prices is a slippery slope. I know. In manufacturing, my former haunt, if a company had to cut prices it was usually the beginning of the end. None of the other cost went down so the reduction came right out of their pockets. I'll quote W. Buffett again who said " I like to buy businesses who don't have to hold a prayer session before raising prices."

Gone to the blogs said...

Maybe the $4.95 newsstand price is a (lame) attempt at a behavioral change among casual buyers? Perhaps a cut-rate subscription becomes more enticing if the newsstand price goes up.

stealthelephant said...

I dearly hope this hastens the well-deserved demise of Time Magazine. Bye bye to insipid articles, poorly chosen subject matter, haughty editors, and illiterate, self-important columnists. Really. Anna Quindlen? Please. I will miss headlines such as "Does God Want You To Be Rich?," "The Opus Dei Code," and "How To Tune Up Your Brain." But I can get that kind of fare on a daily basis from the USA Today.

FrankGuest said...

LTRFTP - A big fan of the blog, however I think you're taking too quick-a-glimpse at this picture. Sure, on the surface raising subscription prices in the face of decreasing demand looks plain-old-retarded, but a quick Microeconomics study says, in theory, it's not always THAT dumb. If the demand of Time is even somewhat elastic, a $1 increase in price, despite lower Q sold, CAN result in higher total revenue. There are a lot of moving parts in determining whether or not a firm's demand curve is elastic, and I'm not saying Time is one of them. Despite high fixed costs, they're not 100%. Even if a 25% increase in price results in a 0.05% increase in total revenue, the firm should increase it's prices. Just a thought...

BelowTheCrowd said...

What will I do in my dentist's waiting room if Time disappears?

Does anybody even bother reading it anywhere else?

-btc

pondering said...

The Boston Globe called my mother and said the rates were going up for home delivery, she cancelled on the spot. Funny thing happened, they wouldn't take no...and five years later she still gets her paper only now its free. They don't bill her. It reminds me of what we used to say in the sales department...we lose money on each sale but make it back in volume.