1 34th FIPP World Magazine Congress Confidential Global Executions of the Magazine Business Model How the U.S. Varies from the E.U. and Will We Converge? Presented by Michael Loeb of Synapse Group, Inc.

2 34th 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 SourceSubscriptionsNewsstand Dominant Revenue Source AdvertisingConsumer Cost of GoodsLowerHigher Cost of EditorialHigherLower

3 34th FIPP World Magazine Congress Confidential Subscription Versus Newsstand: The Sources of Readers Vary Greatly Worldwide 100% Newsstand 100% Subscription Spain 95%/ 5% U.K. 89%/ 11% Italy 73%/ 27% Japan 79%/ 21% France 69%/ 31% Germany 52%/ 48% Sweden 30%/ 70% U.S.A. 16%/ 84% China 18%/ 82%

4 34th 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 Dominant in the U.S.?

5 34th FIPP World Magazine Congress Confidential Social Factors Contributing to U.S. Subscription Concentration n More 2 income households -Trips to supermarket, key single copy outlet, down n A direct-to-the-consumer buying culture -Catalogs, computers and more n A driving vs. walking culture -Even in our cities people don’t walk

6 34th FIPP World Magazine Congress Confidential Economic Factors Contributing to U.S. Subscription Concentration n ABC mandated rate bases -Advantage of subscription constancy n Comparatively low postage costs n Big subscription discounts -Typically 50% or more off cover

7 34th 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%

8 34th FIPP World Magazine Congress Confidential The Reason Is Simple: The U.S. Per-Capita Advertising Consumption Highest Worldwide n U.S. n Japan n U.K. n Germany n France n Italy n Spain $443 $278 $244 $196 $142 $119 $ Spending Index

9 34th FIPP World Magazine Congress Confidential The U.S. Also Has the Advantage of Cost Efficient COGs n Economy of scale -A big, unified market -Available raw materials -Printing efficiency n Low postage costs

10 34th 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

11 34th FIPP World Magazine Congress Confidential But U.S. Magazines Tend to Spend More on Overhead Highly priced talent in -Editorial -Advertising -Circulation n A deeper masthead n Tony real estate

12 34th 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)

13 34th FIPP World Magazine Congress Confidential There Are Market and Social Forces That Are Converging the Models In the E.U.... n As in the U.S., newsstand sales are on the decline n Subscription sales and subscription marketing techniques are advancing n Production is becoming more economic n The post is becoming more flexible and more interested in promoting subscription sales

14 34th 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 is being reconsidered: n The “Maxim Model” with its lean editorial is getting much notice n Subscription sales are migrating to the negative option model of the E.U. n Publishers are trying to re-balance circulation and advertising objectives

15 34th FIPP World Magazine Congress Confidential And What Does the Future Hold for E.U. Subscription Sales? n Subscription sales will increase as newsstand continues to erode and readers are needed for growth and replacement n E.U. marketers will import U.S. subscription techniques and deploy them successfully in local markets n COGs costs will decline as production becomes more efficient and the post looks to look kindly on the subscription opportunity