Outside Regents Park tube

If your publication is free, it’s vital that it reaches the widest possible appropriate audience. You don’t make as much money on each copy, because there’s no cover price revenue, so you have to distribute more copies. Low margin, high volume.

That’s why it’s such a shame that the London Evening Standard seems to have got it wrong so far. Where we work, on Oxford Street, it’s pretty much impossible to get a copy of the paper. You might be able to get one at Oxford Circus tube station if you’re lucky enough to arrive in what seems like the 20 minute window where the paper is there. If you’re up at the Tottenham Court Road end, forget it.

Can you get it in shops? Not really. Are there street vendors like there used to be? Not really.

The London Evening Standard has achieved an amazing feat: at a single stroke destroying both their subscription revenue base and  their distribution channel by going free. Peter Preston mentions in the Guardian that the Standard manages to distribute 600,000 copies a day! How? Where? To whom?

Still, I’m sure they know what they’re doing.

Associated Newspapers plans to close its free evening newspaper London Lite, putting 36 jobs at risk. The Guardian has the full story here.

There are interesting lessons from these papers that magazines can learn from. I want to look at the two most important facts of any business: revenues and costs.

1. Revenues: Diverse revenue streams are vital – use affinity deals

Traditionally publishers make money from the cover price and from the ads. Take away the cover price and you’re relying solely on the ads.

Advertising is a notoriously cyclical business. It has booms and it has busts. The sad part is that everyone knows this, but few seem to plan for it! This chart showing ad sales across various media in the US, including newspapers and magazines, paints a sorry picture.

DMGT’s morning freesheet Metro made profits of £8m a year during the good times. It won’t be making that now! The challenge for a publisher relying solely on ads is two-fold: first to launch in the good times, and then to save up enough cash to ride out the bad times. For most companies this is too difficult.

The solution is to diversify revenue streams. This requires some creativity, and I think it’s an area where the industry as a whole can improve. The starting point is to see your readers as a community that share similar interests. Then its time to explore affinity deals, where the publication runs a joint offer with a company rather than a straightforward ad. This lessens the risk for the company, getting them involved when the cost of an ad would be too high for them. The publisher might not make as much money off each deal, but any revenue is better than none in hard times!

Looking at London Lite and The London Paper, much more could have been done in this area. We’ll have more to say on affinity deals in the near future.

2.Costs: Distribution costs are a major problem for publishers

When free London evening newspapers were first mooted, then-mayor Ken Livingstone tried to sell the contract for evening distribution on the tube. Both The London Paper and London Lite decided not to bid for this, and instead to employ a huge army of distributors to stand on the streets and give out the paper. This probably meant that both papers were living on borrowed time from the day they were born!

When you count the cost of printing each copy, getting it to a distribution person, paying his or her wages, paying for uniforms and equipment, the unit cost of each copy proved far higher than the price of the advertising that the copy carried.

To put it another way, due in part to high distribution costs each copy was produced at a loss. No business can sustain that for long.

So what should have happened? There were probably deals to be done in several ways.

A joint distribution deal could have been struck with London Underground, where the two papers could have agreed with each other to pay less for the deal and have both titles distributed side by side. Not ideal, but better than going bankrupt! (There’s a chance this sort of partnering could have fallen foul of competition laws though, since some might have deemed it a cartel.)

Deals could have been done with shops to give away the paper, either with standard newsagents or with other shops where the paper is given away at the point of purchase. Probably one of the big supermarkets would have considered this, but again short-term greed could have strangled the idea at birth.

It’s interesting to see that as yet the London Evening Standard, which went free in October, hasn’t done a tube deal or a deal with shops. Now that it’s the last man standing, I’d expect to see some of this happen fairly soon.

Summary: Lessons for magazines and other publishers

The lessons for magazines and other publishers are really these:

1. See your readers as a community, not just a passive audience to force ads onto. Try and serve them with creative affinity deals where the reader really wins.

2. If distribution costs are too high, look to more creative ways of reaching your audience. Could you partner with other companies to distribute your magazine, in return for either standard sales terms, some free ads, or some editorial coverage. Distribution could either be in shops, or given away with internet orders when they are posted.

3. Consider going internet-only. Printing costs are eliminated, distribution costs are reduced to near-zero. Of course, you then have a whole new challenge of working in the online world! We’ll have a lot more to say on that in the future!