Function Categories in the Magazine Industry

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A second useful way of structuring the magazine industry is to divide it by function into the production, distribution, and retail segments.

The production phase of the industry, which consists of approximately 2000-3000 publishers, encompasses all the elements necessary to put out a magazine-copy, artwork, photos, titles, layout, printing, and binding.

The distribution phase of the industry handles the job of getting the magazine to the reader. It is not a simple job. In fact, the circulation department at a large magazine may be the most complex in the whole company. As with newspapers, circulation means the total number of copies of the magazine that are delivered through mail subscriptions or bought at the newsstand. There are two main types of circulation. Paid circulation means that the readers pay to receive the magazine, either through a subscription or by purchasing it at the newsstand. Paid circulation has two main advantages. First, periodicals that use paid circulation qualify for second-class postal rates, which are lower than other rates. Second, paid circulation provides a revenue source to the publisher in addition to advertising. On the negative side, paid-circulation magazines gain a wide coverage of their area by expensive promotional campaigns designed to increase subscriptions or to sell single copies. Paid-circulation magazines also have the added expense of collecting subscription payments and record keeping. Most consumer magazines use paid circulation.

The alternative to paid circulation is free or controlled circulation. Controlled- circulation magazines set specific qualifications for those who are to receive the magazine and send or otherwise distribute the magazine to those who qualify. Magazines that are provided to airline passengers or motel guests are examples of controlled, circulation publications. The advantages of controlled circulation are, first, that publi­cations that use it can reach all of the personnel in a given field and second, that these publications avoid the costs of promoting subscriptions. On the negative side controlled-circulation magazines gain no revenue from subscriptions and single-copy sales. Further, postage for controlled publication costs more. Controlled circulation has generally been used by business and public relations magazines. No matter what method is chosen, the circulation of a magazine is an important number. Advertising rates are based on circulation figures, and the larger the circulation, the more the magazine can charge for its advertising space.

For a paid-circulation magazine, distributing copies to its subscribers is a relatively simple affair. Address labels are attached to the magazine, and copies are delivered by mail. The complicated (and expensive) part of this process is getting subscribers. There are no fewer than fourteen methods that are used by magazines to build subscription lists. They include employing "cash-field" agencies, which have salespeople make house-to-house calls in order to sell subscriptions directly to consumers; direct-mail agencies such as Publishers Clearing House ("You may have already won $100,000 or other valuable prizes! See inside."), which generates 10 million magazine subscriptions a year; direct-mail campaigns sponsored by the publisher; and, finally, what are called "blow-in" cards, those annoying little cards that fall out of a magazine as soon as you open it.

Single-copy distribution to newsstands and other retailers is a multistep process. The publisher deals with only one party, the national distributor. There are seven national distributors that work with the nation's publishers. The national distributor handles anywhere from a dozen to fifty or more titles. At least once every month, representatives of the magazine sit down with the national distributor and determine the number of magazines to be distributed for an upcoming issue. The national distributor then delivers the magazines to the approximately 500 wholesalers who sell magazines and paperback books within specified areas. In any given month, a wholesaler might receive 1000 or 2000 magazines to distribute to dealers. The actual distribution is done by route people who drive a truck around to their various retailers on a predetermined schedule, deliver new issues of the magazine, and pick up unsold copies.

The retailer is the last segment of the industry. Best available figures indicate that there are approximately 140,000 different retail outlets in the United States. Retail outlets may be corner newsstands, drugstores, supermarkets, tobacco shops, convenience stores, and bookshops. Of these, the supermarket ac­counted for 45 percent of all sales in 1990. Supermarket sales have become so important that publishers pay the stores a premium of about $20 per checkout rack to have their titles prominently displayed. When a dealer receives a magazine, he or she agrees to keep the magazine on the display racks for a predetermined length of time (usually a week or a month). At the end of this period, unsold copies are returned to the wholesaler for credit.