Friday, July 11, 2008

Today's iPhone Release May Be Big News -- But the Continued Drop in Ad Sales Has Bigger Implications

According to major media, along with the social media world like Twitter, today's big news is the release of the latest iPhone 3G.

The iPhone has certainly had a significant impact on the cellphone handset business. But the latest version is an iteration, not a revolution. It will be replaced next year with more of the same -- no doubt cool stuff, but more of the same.

Bigger news, I think, was reported on page 5 of today's New York Times' business section: "In Deepening Ad Decline, Sales Fall 8% at Magazines: The decline is led by automotive and technology ads" by Richard Perez-Pena.

The current business model of magazines and newspapers in the U.S. is based on advertising. Without advertising, a U.S. magazine won't survive -- even if it maintains a high circulation base. In the past year, magazines with circulations of several hundred thousand have folded merely because advertisers had dried up.

That doesn't mean that readers had given up on the magazine. Just advertisers. In contrast, European magazines typically charge higher subscription fees, which are used to underwrite a greater proportion of a print outlet's costs. Presumably, in Europe, a magazine with a high circ. could survive an advertising downturn.

Not so in the U.S., where news and some business mags were hit by the continuing slump. BusinessWeek's ad pages dropped 14.8% and Forbes dropped 12.6 for the first half of 2008, according to the Publishers Information Bureau, which tracks this information.

Even some of the biggest circ. magazines were hit, including Reader's Digest, Cosmo, Ladies' Home Journal and Family Circle.

Things are so bad here that Thomas J. Wallace, editorial director at Conde Nast, told Perez-Pena, "The joke here is, 'Flat is the new up.'" (Translation: that just having flat advertising sales is great in this environment.)

The implications to the news is that there will be more layoffs at magazines and newspapers, which are having an even more difficult time. Many of those layoffs will come from editorial for two reasons:
  1. You can't cut the advertising dept., because you people to sell space to advertisers.
  2. The decline in ad pages by 14.8% brings with it a drop of at least 14.8% in editorial pages. That means magazines don't need as much content, which means they can cut reporters without much impact.
Over the past year, BusinessWeek and Fortune updated their formats. Expect more to follow suit. When they do, a letter from the editor or publisher will say that the new format is designed to better help readers, but don't be fooled. The new formats are designed to convey that the magazine continues to be relevant.

But after cutting reporters and editors and bringing more charts and graphics, that's probably not the case. Skimpier content is not more relevant. Meanwhile, in announcing format changes, a number of newspaper chains have said they will be adding more charts and graphs, as the Boston Globe's business section has done.

Unfortunately, these changes have not stemmed the exodus of readers or advertisers.

The iPhone is great. I would consider getting one if the carrier had better coverage in my area. But the news about the ad declines is unlikely to be cyclical, and means bad news for traditional media.
to attract advertisers .

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