Circulation is the fundamental audience measure for print publications such as newspapers and magazines. Its importance lies in the fundamental relationship between circulation and advertising rates in the business models of most print publications.
Taking the US as an example, prior to 1830 US newspapers depended primarily on subscription revenues. Content was focused mainly on either politics or commerce, and subscriptions were expensive. Single copies of individual issues were generally only available to nonsubscribers at the publisher’s office. In 1830, the US had only 65 daily newspapers with an average circulation of 1,200 copies, and total daily newspaper circulation was estimated to be 78,000 copies.
In New York, the center of US newspaper publishing at that time, two publishers reinvented the newspaper business model. Benjamin Day, who founded the New York Sun in 1833, and James Gordon Bennett, who established the New York Herald in 1835, decided that by reducing the price of newspapers from the then prevalent six to eight cents per copy to a penny per copy, they could significantly increase the size of their audience. With increased sales (or circulation), they would provide a more effective vehicle for advertisers and could, therefore, charge more for advertising.
Growing audience, however, required more than simply reducing the price. Publishers had to explore alternative distribution strategies that would increase sales while reducing their dependence on subscriptions. Newsboys, who hawked single-copy sales on the street, were introduced as a way to expand sales of single issues. By 1840, the number of daily newspapers in the US had grown to 138 and average circulation had nearly doubled to 2,200. Total daily circulation nearly quadrupled to 300,000. The model of decreased dependence on subscriber revenues and increased reliance on advertising revenues that were tied to audience size was firmly established and ultimately was nearly universally adopted by print media.
Circulation also impacts newspaper and magazine publishers’ cost structure. “First copy” costs are the expenses incurred for the resources and activities required to produce the first copy of a publication. For newspapers, these average 40 – 45 percent of total costs. Once the “first copy” has been produced, the marginal costs of producing additional copies rapidly declines due to manufacturing economies of scale. Therefore, a publication with a circulation of 100,000 is significantly less expensive to produce than two newspapers of 50,000 circulation.
For magazine publishers, the problem is complicated by the general use of third-party vendors to print their product. Newspapers, which generally control their manufacturing process in-house, can readily add pages or increase the press run if major stories break – thus increasing their circulation average. Changing press runs for magazines, however, is much more difficult and expensive, limiting the publisher’s ability to leverage circulation by taking advantage of content that is likely to increase sales.
If the prices that publishers charged advertisers were to be based on the size and value of the audience they could deliver, measurements were needed. The latter half of the nineteenth century was marked by circulation wars – sometimes literally involving physical confrontations between groups of newsboys affiliated with competing publications – and unverified publisher circulation claims.
In 1914, a group of advertisers, advertising agencies, and publishers created a voluntary program to ensure reliable circulation data. The Audit Bureau of Circulation was charged with direct verification of publishers’ claims of paid circulation. That movement expanded in 1963 with the formation of the International Federation of Audit Bureaux of Circulations, which now represents organizations conducting publication audits in 50 countries. Today, ABC (www.accessabc.com) provides audit information on both newspapers and magazines to advertisers making purchase decisions.
Traditionally, audit functions have focused on paid circulation – copies for which the reader/subscriber paid a stated price to the publisher. Advertisers generally considered this to be a more reliable measure by which to gauge audiences than figures including free or heavily discounted promotional copies. The logic was that if someone paid for an issue of a publication, they were more likely to read it than if they were simply handed a copy as they walked down the street.
This assumption, however, may be changing. First introduced in Sweden in 1995, by 2002 there were more than 60 free daily newspapers published in 26 countries with a combined daily circulation of more than 10 million copies. The growth of online advertising has also increased the desire of advertisers for audited information regarding newspaper websites. ABC has expanded its services to include electronic newspapers and circulation of free distribution newspapers if they are owned by an ABC member that derives more than 50 percent of its circulation from home delivery. Other organizations, such as Verified (www.verifiedaudit.com/history.htm), cater to the free distribution audit market.
An ABC audit involves several steps. First, a publisher submits unaudited circulation figures with supporting documents to the Audit Bureau. Then, once a year, an auditor visits the publisher’s workplace to examine production reports, inventory records, circulation records by category and geographic zones, prices charged, discounts offered, returns records, and other factors bearing on the circulation claims. Finally, a random sample of subscribers is interviewed to ensure that the person who received a publication is the one who paid for it. If all data are congruent, the ABC issues a formal audit report showing the publication’s average audited paid circulation for a 12-month period.
Circulation measurements may be expressed in several ways. The most basic measure is audited paid circulation. That reflects the number of copies printed and delivered to readers who paid for them. Another measure frequently considered by advertisers making purchase decisions is circulation penetration. That is calculated by dividing the paid circulation in a geographic market by the total number of households in that area. This is often viewed as a more accurate measure of the effectiveness with which a publication delivers information within its market because it is assumed that everyone in the household has an opportunity to be exposed to the same content. Household penetration is most effective as a measure for newspapers, which generally have a geographically limited distribution area, and is less meaningful for magazines, which have less geographically definable distribution zones.
The degree to which publishers rely on circulation revenues varies between magazines and newspapers. Circulation revenue for newspapers generally represents 15 –20 percent of total revenues. Traditionally, newspapers have looked to circulation revenues to recoup a substantial portion of the material costs of the product – paper, ink, and supplements. The percentage varies over time depending on the publisher’s willingness to increase prices and often wildly varying costs for newsprint. The rapidly growing free newspaper segment, however, is entirely advertising dependent.
Magazines have traditionally relied more heavily on consumer subsidies. Some publishers of specialized magazines, such as Consumer reports, rely entirely on circulation sales revenues to avoid any potential of real or apparent conflicts of interest with advertisers. Others, particularly controlled circulation magazines in technology and similar areas, may rely virtually entirely on advertising revenues. The overall trend in consumer magazines has been to increase dependence on advertising revenues. Between 1980 and 1998, consumer subsidies fell from 57.8 percent of total revenue to 41.8 percent based on a study of 96 major continuously published magazines.
While circulation represents a major factor in advertising prices, other factors affect rates as well. Overall cost structure, competition for advertiser dollars, which may result in discounts or incentives, and audience demographics all affect the ability of publishers to establish and maintain advertising rates.
Relatively little industry or scholarly research into circulation issues was conducted prior to the 1970s, when publishers began to notice a flattening in circulation growth. Early research focused on the substitutability of news products and the development of the theory of umbrella competition (Rosse & Dertouzos 1978). This model argued that newspapers compete across geographic boundaries for circulation and advertising by segmenting audiences and differentiating their product and content. As news consumers become dissatisfied with their existing media mix, they reorder their media consumption to better satisfy their needs. Rosse’s model postulated four layers of competition – large metropolitan dailies, newspapers in satellite cities, suburban dailies, and weekly newspapers, shoppers, and other specialized media.
Subsequent research exploring the Rosse model tested it by looking at circulation and advertising behaviors independently as well as in combination. This research revealed that circulation and advertising competition are different but are closely associated. To address this issue, Bridges et al. (2002) proposed a concentric circle or ring model, which preserved Rosse’s layer model but suggested that the relationships between the levels of competition were more complex. They also suggested the need to include consideration of national-level competition.
Little theoretical economic research has been conducted on magazine circulation. The general view is that magazines compete for readers based on content quality and differentiation in increasingly segmented markets, although differences in pricing, marketing investment, and distribution capabilities may affect sales.
In the US the frequency with which people read newspapers began to decline in the late 1940s, but increases in overall population allowed total newspaper circulation to increase until 1970. Real circulation numbers remained stable for the next 20 years, though circulation penetration declined. In 1990, circulation began to decline in real numbers and continues to do so at approximately 1 percent per year.
Total daily US newspaper circulation declined from 62.2 million copies in 1980 to 56.2 million copies in 1998. A portion of this decline can be attributed to a reduction in the number of newspapers published (1,754 in 1980 compared to 1,489 in 1998). This decline primarily reflects a shift in reader preference from afternoon to morning publications and the closing of many evening newspapers.
Total circulation of general and farm magazine publications audited by ABC increased from 275 million in 1980 to 366.3 million in 1997. This was accompanied, however, by a significant increase in the number of published titles (from 406 to 590). Average circulation per magazine actually decreased from 677,431 to 620,850. During the same period, singlecopy sales of magazines declined from 34.2 percent of total sales to 18.1 percent. Similar developments can be found in many industrialized countries.
Several factors affect these trends. For newspapers, a number of studies have found that younger readers simply have not developed the newspaper reading habit. Although for many years, industry executives argued that younger readers would turn to newspapers as they aged and became settled into adulthood, cohort analysis indicates otherwise.
Churn, the number of cancelled subscriptions that must be replaced in order to maintain the existing level of circulation, is also increasing for newspapers. Although the percentage of churn increases with circulation size, data from the Newspaper Association of America shows that the average churn factor for all dailies increased from nearly 50 percent in 1996 to nearly 58 percent in 2003.
The economic constraints of public ownership may also be contributing to circulation declines. The newspaper industry is a mature business with increasing competition for advertising revenue and rising costs. Between 1960 and 1996, the percentage of total daily circulation in the US by group-owned dailies climbed from 46.1 percent to 81.5 percent. Many of these groups are publicly owned, and institutional investors are primarily concerned with increasing profit margins and stock prices. If investor expectations are not met, the firm may be forced into a sale, as occurred with Knight-Ridder in 2006 and the Tribune Company in 2007. Management response to these pressures has frequently been to reduce costs and resources devoted to the editorial product despite a substantial body of research indicating a strong correlation between editorial investment and circulation growth.
Audience fragmentation, driven by the proliferation of media alternatives, is affecting all of the traditional mass media, not just print. Cable TV news audiences were flat between 2002 and 2004, despite the impact of a presidential election cycle in 2004. Broadcast network prime-time audiences have declined 26 percent since the mid-1990s. Audiences for all-news radio stations have remained relatively stable, while audiences for National Public Radio (NPR) programming have actually grown, but radio as a source of news has diminished since the Telecommunication Act of 1996 made it possible for hundreds of stations to drop news coverage altogether.
Magazine circulation is particularly affected by declines in single-copy sales – attributable to a proliferation of titles – and a decline in the effectiveness of traditional marketing techniques such as sweepstakes and direct mail.
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