The following is the prepared text of Mr. Kliger’s speech, which was titled “What Is the Future of the Publishing Industry?”

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Thank you, Tom, for that very nice introduction.

Good afternoon, everyone, and my thanks to the DMA and its membership for inviting me here today. 

Many of you may have heard me speak about the need for changes in the US magazine business model.  Much of this conversation has focused on the advertising sales process.  But in fact, we’re in such an interconnected business, significant changes in one area can’t help but have major impact on other parts of our business.

Traditionally, US magazines have been viewed as being divided into three areas – editorial, circulation and advertising.  The editorial department being the creative side, and circulation and advertising the business sides.       

What I believe the magazine industry needs to get to is to reorder our business model so that the editorial and circulation departments are jointly focused on the consumer side while the circulation and advertising departments are jointly focused on the business side.

To do that, we need a much better understanding of our readership from both the consumer and advertising points of view.

This means that in the future, direct marketing to both acquire and retain magazine subscribers will focus on the profitability and readership generated by those subscriptions, rather than finding the most efficient way to get the largest number of subscriptions for the magazine

And this will make direct marketing a more strategically important element for the US magazine business than ever before.

Unlike our counterparts around the world, US magazines literally couldn’t work without direct marketing. Without direct marketing to acquire and retain subscribers, we wouldn’t have enough subscribers, our editors would have much smaller communities of readers to write for, our advertisers would have much smaller audiences to advertise to, and, most importantly, neither Tom Masterson nor I would have jobs.

Readers are the reason all of us at Hachette Filipacchi get up every morning and go to 1633 Broadway. Now, magazines are developing new audiences through digital technology. And the need to attract and retain readership, whatever the platform we use to serve it, will never change.

But, how we attract those readers, how we measure readership, and how we manage the reader’s engagement with our content, that can change, and in fact, I am here today to tell you that it must and will change.

One of the key points I will make is to tell you that the MPA has been working on changing how magazine  readership  is measured. This change is one that advertisers believe in, and in fact, are welcoming. Once implemented, this new readership measurement will change for the better the way advertisers buy magazine advertising, and the way we sell magazine advertising, and it will substantially change the way our consumer marketers execute their mission.

Let’s start with the first thing we hope to change as a result of this effort and that’s how we, that is, magazines and direct marketers, attract readers today.            

Magazine publishers send out millions of pieces of the most carefully calibrated mail ever conceived, and count as a success a three or four percent return. That’s an industry that is no friend of trees, or the people who hug them. But make no mistake, the magazine industry is committed to instituting environmentally responsible business practices.

We live in a world where consumer expectations about marketing are evolving and today’s consumers expect to be able to control how they receive marketing messages both online and offline.  We want to honor those expectations in a way that does not destroy the source.  Therefore, Hachette is favorable to industry self-regulation that allows the consumer to choose the frequency of mailings he or she receives from responsible mailers. 

Moving to readership measurement will enable magazines and direct marketers to move closer to this goal.

For more than 75 years, well before radio and television even began the concept of media audiences, the underlying driver of magazine circulation goals has been advertising circulation guarantees, particularly for national magazines. These guarantees, in turn, have determined the pricing of magazine advertising, which is, and will continue to be the industry’s biggest revenue stream.

And today, magazine advertising is still bought based on the number of copies in circulation, and distribution metrics are the advertising pricing standard.  I believe that circulation rate base guarantees are today’s biggest single enemy of effective magazine subscription direct marketing.

The truth is, until a new model is adopted, advertisers and their agencies will continue to base their ad purchases on distribution metrics. But, as I said, our industry believes measuring readership is the better model, not only for advertisers, but also  for magazines.

For today’s magazine consumer marketing executives, the current model pushes production to the level needed to reach the rate base number, and to do it as efficiently as possible with little regard to the amount of readership generated.

When the advertising selling side says, we need this many copies to sell advertising, circulators have to figure out the most efficient way to get them that number. As a result, the circulation department has often performed as a subcontractor to the requirements set by the advertising department.

As entrenched and embedded as this model is in our business, it doesn’t change the fact that it is, as we say in pig Latin, “bass ackwards.” 

It is time for a business model that puts things in their proper order. A business model that makes it possible for advertisers to buy based on the number of people who read our magazines, not the number of copies we distribute. This is a model that has worked well for the cable television business from the beginning. That is, you focus on building subscriptions as a profitable business, and at the same time, you focus on building the audience advertisers want to reach.

Because the problem with our industry is not whether we have enough distribution, the problem is whether we have enough readership, and knowing what readership our magazines have.

In competing for advertising market share versus other media, today, magazines often times cannot even get into the discussion of whether our adverting is effective in moving customers in the way the internet can, the way television is trying to, and most importantly, the way advertisers are looking to get a return on their investment. And the reason is quite simple.

Does a computer visit Google? No, the people operating that computer do. When looking at ESPN’s audience numbers, does any media buyer ever wonder how many TV sets were turned on? In the same way, a copy of a magazine doesn‘t buy a car, or plan to buy one, the readers of that magazine do. And I do mean readers, plural, not just the first person to get that copy. 

Advertising effectiveness measurement in those other media, whether it is measuring brand awareness, purchase intent, driving customers to the web, or consumer actions taken, is a measurement derived from an audience, viewership or readership metric, not a distribution metric, and the price of advertising in all other national media, except  magazines, is based on the audience.

Clearly, basing the advertising pricing model for magazines on the number of copies distributed is not only out of date, and forces magazines to operate in advertising isolation, it is out of sync with the way in which clients and agencies are asking for advertising effectiveness measurement and accountability.

So, to bring our business model up to date, the time has come to make a simple yet revolutionary change. Readership, not distribution, should become the currency of magazine advertising.  Publishers need to get themselves out of the advertising ghetto by providing advertisers this currency based on the quantity and quality of readership, not the number of copies distributed.

So, what is this change likely going to mean in terms of circulation practice and strategy?

It will mean that as an industry we will focus our circulation strategy on two pillars: distribution profitability and readership development.

We can unleash our consumer marketers to be the experts at distributing copies at the right level, at a profit and at the same time, focusing on growing the readership which comes from that distribution. And that makes good business sense for everyone, the editor, the publisher, the reader, and the advertiser.

It makes for a more efficient system, making it possible to measure magazine advertising effectiveness relative to audience advertising exposure and consumer actions as other media do.  But it particularly makes consumer marketing more relevant to what our editors are trying to convey, what our readers want to see,  as well as what our advertisers and their agencies need to do their job effectively.

In order to do this, we must address how readership is measured. And as I said, the MPA and its members are taking the necessary steps in exploring and developing that process.

Right now, our readership and audience numbers are not stable or timely enough to be used for both planning and buying. The current state of audience data is really only adequate to give ad agencies directional audience demographic information for planning, which is why when the proverbial rubber hits the road, they make the ad buy based on circulation data from ABC statements.

In all likelihood this practice will not change unless there is a viable alternative, meaning reliable audience metrics that are timely, stable, and ultimately, comparable to other media audiences.

What I can tell you is this: when publishers and advertisers can move to audience based measurement metrics it will be a major step forward for the industry. It will, without question, change the way we measure readership and change for the better the way advertisers think about and buy magazines. And, yes, it will not only put us into the game, but do it on a level playing field versus other media when it comes to advertising effectiveness measurement and share of market.

We will open up the opportunity to measure our audiences to a larger number of suppliers. This will create a healthy competition that produces new models, new thinking, and fresh approaches to measuring and reporting not only how many people read our magazines, but their level of engagement.

In terms of timeliness, other media, when it comes to audience, are measured on weekly audience accumulation. Magazines are measured in circulation, and currently, audience, on a six-month figure.

Going forward, we will be working with measurement companies to develop issue-by-issue measurement data delivered on a faster timetable within 8 weeks of issue distribution.

To do this, those who measure our readership, will employ the reach and rapidity of the internet. Digital measurement of readership is not only essential, it is possible, right now. Quite frankly, any company who can’t or won’t figure out how to use online measurement as part of effectively measuring magazine readership, will have a very hard time meeting the timeliness needs of such studies.

In short, any new model simply must deliver a system of measurement stable and timely enough for advertisers to confidently buy advertising in magazines based on readership, not distribution. If it’s not timely, not credible, it will be unacceptable, to us, and as I’ve made clear today, it will be, and should be, unacceptable to our advertisers.

I believe the most important ongoing benefit  of all this retooling will be a better understanding of the level of engagement magazines have with readers. Focusing our circulation strategy on readership development will attract a truly targeted reader, an individual already predisposed to receiving our content and the way we present it.

It is change, my friends, that is beginning as I speak. The wheels are in motion to create a measurement model more beneficial to editors, to publishers, to advertisers and most importantly, more beneficial to those people for whom we get up every morning—the readers.

And finally, as I’ve said, this new model will affect how we execute direct marketing and our ability to model for successful strategies. There will be tremendous opportunities as we better understand readers’ needs and behavior through improved measurement tools and direct marketing materials which will become even more targeted to what readers want.

And we will be able to execute this strategy because we have a substantial advantage over almost all other media.

Because consumers are willing to pay for magazines, in an era where it is often believed most content based media should be free. As long as we have that pillar, we will build our strategies with direct marketing as a core discipline. I can’t ever see a world in which US magazines will operate without direct marketing. In fact, I think we’re about to unleash incredible power in that area.

Thank you very much.

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