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CoMag Purchase…a view from John Harrington

Posted by Scott On February - 9 - 2012

For an interesting perspective from the U.S, on the purchase of the national distributor CoMag by Canadian billionaire Jimmy Pattison, read the article below.

Industry expert John Harrington, a respected veteran of all-things newsstand, weighs in with some notable observations.

Pattison Group Purchase of Comag May Be a Seminal Event

John Harrington

www.nscopy.com

 It was news that truly shook the magazine retail distribution channel, as well as the broader magazine publishing business, or as it now likes to call itself, the magazine media business.  Last Tuesday, it was announced that The Jim Pattison Group, of Vancouver, British Columbia, which owns The News Group, generally estimated to be the largest magazine wholesaler in North America, entered into a long-term agreement with Hearst Magazines and Conde Nast to acquire the national distributor, Comag Marketing Group, which was co-owned by the two large publishers.  Comag is estimated to represent between 20% and 25% of the national distributor market.  Some reports said that Hearst and Conde Nast committed to ten-year agreements with Comag.

 The transaction is unprecedented in the history of the mass market magazine distribution channel.  Never has a national distribution company, viewed as suppliers and representing a wide range of publishers, been under the ownership of a company that also operates a large wholesaler.*  The sale is quite likely to result in significant and far-reaching changes in a supply chain that has struggled financially for more than a decade and suffered deep sales declines in the past four years, due to the impact of the Great Recession and its lingering hangover on consumer shopping patterns.  There is wide speculation that the Pattison-Comag deal may be only the first of several initiatives that will change the nature of the supply chain’s economic model.

 Last week, The New Single Copy wrote that magazine retail sales face a short term problem, declining sales, and a long-term one, a distribution channel where partners operate with mis-aligned economic models.  The two issues could not be addressed separately.  Last week’s announcement appears to have been driven by a desire to realign the financial incentives, and, subsequently, initiate the types of major marketing and promotion programs that can drive consumption of magazines at retail.

 Traditionally, national distributor and wholesaler operations have been characterized by redundant functions, most notably overlapping marketing and merchandising forces, but also data gathering and order/regulation systems that are sometimes duplicative.  As Jay Felts, who has been president of CMG since mid-2010 and who will continue in that role, said, the acquisition “represents a watershed moment to enhance the current supply chain model by properly aligning the economic models.”  Clearly there are opportunities for cost-savings at CMG and at The News Group, even as they remain separate operating divisions of The Pattison Group, but the broader potential is for using more coherent and aligned corporate strategies to address the slumping performance of the newsstand.  Further, from the publishers’ perspective, as John Loughlin, Hearst executive vice president and general manager, told a reporter, capital that they have directed at CMG will be loosened up.  “Hearst and Conde Nast are going to use those savings to reinvest back into the channel for marketing and promotion.”  For the Pattison Group, Michael Korenberg, its vice chairman, who will be chairman of CMG, said, “CMG can consolidate and improve publisher services as well as add stability for all stakeholders in the single copy marketplace.”

 There is not much reason to be cynical about the public statements of the principals.  As publishers, Hearst and Conde Nast need a healthy, stable newsstand market.  It provides profitable sales, is a key element in the launch of any new magazine, and a source of profitable new subscribers.  Their attentions can now be focused on their core competencies.  For CMG and The News Group, even as separate units of The Pattison Group, their strategies and tactics have the opportunity to be more focused and productive.  For CMG, the lessons of those more cooperative activities should improve the effectiveness of their relationships with the other wholesalers as well.

 The Jim Pattison Group has stayed with its commitment to magazine distribution through more than fifteen years of ruinous competition, struggling to make a once enviable business profitable again.  Many competitors, names once synonymous with magazine wholesaling, left the industry over that period.  It would be more than surprising if the company’s future strategy is only to cut costs by eliminating redundancies and not focus on the broader challenge of driving consumer consumption of retail magazine sales.

 All of the industry participants and observers that The New Single Copy has talked with this past week agree that the Pattison-Comag transaction is transformational and will have profound immediate and future impact.  One of them said it is a potentially “seminal event.”  The New Single Copy tends to agree with that description.

 In last week’s issue, we said the business faced the short term challenge of doing something about falling sales and the long term one of restructuring an inefficient and archaic distribution channel.  That led a reader to tell me that, “It’s not really a matter of separate challenges.  If we don’t do something about consumption and the trends of the past four years [see early 2011 sales figures in accompanying article] aren’t turned around, then a re-aligned distribution channel won’t matter, because there won’t be anything to go through it.”  We are in full agreement.  Hence, if the Pattison-Comag deal is the beginning of a broad restructuring of the supply chain that in turn inspires a magazine publishing industry-wide marketing and promotion effort to improve retail sales, then it will indeed be a seminal event.

 Background: Comag Marketing Group was formed by Hearst Magazines and Conde Nast in 2000.  Prior to that, Hearst maintained its own national distribution company and Conde Nast was the client of a competitor.  To some degree it was modeled on a United-Kingdom partnership, CMG U.K., of the two publishers.  CMG U.K. is not part of the sale to Pattison.

 The Jim Pattison Group, a large conglomerate, entered the magazine wholesale business in the 1970’s, acquiring several Canadian businesses.  It expanded into the United States in the early 1990’s with the purchase of businesses in North Carolina and Georgia.  Yet, when retailers broke down the magazine wholesaler framework of dense, regional markets in 1995, Pattison’s share of the U.S. market was estimated to be less than five percent.  The News Group U.S. embarked on a path of contracting with retailers for service rights, then expanding its distribution capability through acquisitions and partnerships.  After the withdrawal from the marketplace of Anderson News in 2009, News Group and its partners emerged as the largest magazine wholesaler with an estimated share in the mid-40% range.  The two other wholesalers, who along with News Group, make up approximately 90% of the market are The Source Interlink Companies (which has a significant publishing division) and Hudson Distribution Group (with a minority share in Hudson News, the terminal retail chain). ■

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About Me

Scott Bullock is a veteran circulation expert with over 38 years experience in both Canada and the United States. He has worked on trade titles such as Publisher’s Weekly, Library Journal, School Library Journal and Small Press in the USA. In consumer magazines, Scott was the Circulation Director for D Magazine (the city magazine of Dallas, Texas), and in Canada he was the Circulation Director for Toronto Life, Fashion, and Canadian Art. From 2000 to 2004, Scott was a partner at Coast to Coast Newsstand Services. Scott has also held the post of VP Sales & Marketing, for CDS Global, Canada. Currently, CoversSell.Com is Scott’s circulation consultancy. Active clients include: Fly Fusion, Canadian Geographic, Canadian House & Home, Canada’s History, Canadian Real Estate Wealth, Canadian Woodworking, Canadian Cycling, Canadian Running, Canadian Scrapbooker, Legion, Harrowsmith, SkyNews, and SuperTrax.

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