134th FIPP World Magazine Congress

Confidential

Global Executions of the Magazine Business Model

How the U.S. Variesfrom the E.U. andWill We Converge?

Presented by Michael Loeb of Synapse Group, Inc.

234th FIPP World Magazine Congress

Confidential

The U.S. Consumer Magazine Business Model Is Very Different From That of the E.U.

Dimension U.S. E.U.

Dominant Reader Source Subscriptions Newsstand

Dominant Revenue Source Advertising Consumer

Cost of Goods Lower Higher

Cost of Editorial Higher Lower

334th FIPP World Magazine Congress

Confidential

Subscription Versus Newsstand:The Sources of Readers Vary Greatly Worldwide

100%Newsstand

100%Subscription

Spain95%/ 5%

U.K.89%/ 11%

Italy73%/ 27%

Japan79%/ 21%

France69%/ 31%

Germany52%/ 48%

Sweden30%/ 70%

U.S.A.16%/ 84%

China18%/ 82%

434th FIPP World Magazine Congress

Confidential

They weren't always. The contribution from Newsstand has declined in the U.S. by 2/3 in the last 50 years. This trend has been affected by both social and economic factors. And some of these factors are emerging today in Europe.

Why Are Subscription Sales So Dominantin the U.S.?

534th FIPP World Magazine Congress

Confidential

Social Factors Contributing to U.S. Subscription Concentration

More 2 income households -Trips to supermarket, key

single copy outlet, down

A direct-to-the-consumer buying culture -Catalogs, computers and more

A driving vs. walking culture -Even in our cities people don’t walk

634th FIPP World Magazine Congress

Confidential

Economic Factors Contributing to U.S. Subscription Concentration

ABC mandated rate bases -Advantage of

subscription constancy

Comparatively low postage costs

Big subscription discounts -Typically 50% or more

off cover

734th FIPP World Magazine Congress

Confidential

Compared to Other Nations, U.S. Consumer Magazines Are Advertising-Centric

Percentage of Total Revenue from Advertising

60%

50%

40%

30%

20%

10%

U.S.A.: 62% Italy:

55% Germany:50%

U.K.: 37%

Spain: 35%

France:35%

834th FIPP World Magazine Congress

Confidential

The Reason Is Simple: The U.S. Per-Capita Advertising Consumption Highest Worldwide

U.S.JapanU.K.GermanyFranceItalySpain

$443 $278 $244$196$142$119$113

100635544322726

Spending Index

934th FIPP World Magazine Congress

Confidential

The U.S. Also Has the Advantage of Cost Efficient COGs

Economy of scale

-A big, unified market

-Available raw materials

-Printing efficiency

Low postage costs

1034th FIPP World Magazine Congress

Confidential

Just How Low Are U.S. Postage Costs?

Price per single mailed copy*

USAFranceGermany

$1.16

$0.32

$0.18

*FIPP World Magazine Trends 2002/2003

1134th FIPP World Magazine Congress

Confidential

But U.S. Magazines Tend to Spend More on Overhead

Highly priced talent in -Editorial -Advertising -Circulation

A deeper masthead Tony real estate

1234th FIPP World Magazine Congress

Confidential

And We Also Make Big Investments in Acquiring Subscriptions

It is often the case that acquisition costs exceed first year subscription revenues (which are offset by advertising revenues and renewals)

1334th FIPP World Magazine Congress

Confidential

There Are Market and Social Forces That Are Converging the Models

In the E.U. ... As in the U.S., newsstand sales are on the decline

Subscription sales and subscription marketing techniques are advancing

Production is becoming more economic The post is becoming more flexible and more interested in promoting subscription sales

1434th FIPP World Magazine Congress

Confidential

In the U.S. Declining Ad Sales and the Dismantling of Sweepstakes Sources Has Forced a Re-Examination of the Business Model

How the U.S. model isbeing reconsidered:

The “Maxim Model” with its lean editorial is getting much notice

Subscription sales are migrating to the negative option model of the E.U.

Publishers are trying to re-balance circulation and advertising objectives

1534th FIPP World Magazine Congress

Confidential

And What Does the Future Hold for E.U. Subscription Sales?

Subscription sales will increase as newsstand continues to erode and readers are needed for growth and replacement

E.U. marketers will import U.S. subscription techniques and deploy them successfully in local markets

COGs costs will decline as production becomes more efficient and the post looks to look kindly on the subscription opportunity