Global Executions of the Magazine Business Model

1. Global Executions of the Magazine Business Model How the U.S. Varies from the E.U. andWill We Converge? Presented by Michael Loeb of Synapse Group, Inc.

2. The U.S. Consumer Magazine Business Model Is Very Different From That of the E.U. • Dimension U.S. E.U. • Dominant Reader Source Subscriptions Newsstand • Dominant Revenue Source Advertising Consumer • Cost of Goods Lower Higher • Cost of Editorial Higher Lower

3. Subscription Versus Newsstand:The Sources of Readers Vary Greatly Worldwide 100%Newsstand 100%Subscription Spain95%/ 5% Japan79%/ 21% France69%/ 31% Sweden30%/ 70% U.S.A.16%/ 84% U.K.89%/ 11% Italy73%/ 27% Germany52%/ 48% China18%/ 82%

4. Why Are Subscription Sales So Dominantin the U.S.? • 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.

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

6. Economic Factors Contributing to U.S. Subscription Concentration • ABC mandated rate bases -Advantage of subscription constancy • Comparatively low postage costs • Big subscription discounts -Typically 50% or more off cover

7. Compared to Other Nations, U.S. Consumer Magazines Are Advertising-Centric U.S.A.: 62% 60% Italy: 55% Percentage of Total Revenue from Advertising Germany:50% 50% 40% U.K.: 37% Spain: 35% France:35% 30% 20% 10%

8. The Reason Is Simple: The U.S. Per-Capita Advertising Consumption HighestWorldwide • U.S. • Japan • U.K. • Germany • France • Italy • Spain Spending Index 100635544322726 $443 $278 $244$196$142$119$113

9. The U.S. Also Has the Advantage of Cost Efficient COGs • Economy of scale -A big, unified market -Available raw materials -Printing efficiency • Low postage costs

10. $1.16 Just How Low Are U.S. Postage Costs? • Price per single mailed copy* • $0.32 • $0.18 • Germany • France • USA *FIPP World Magazine Trends 2002/2003

11. But U.S. Magazines Tend to Spend More on Overhead • Highly priced talent in -Editorial -Advertising -Circulation • A deeper masthead • Tony real estate

12. 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. There Are Market and Social Forces That Are Converging the Models • In the E.U. ... • As in the U.S., newsstand sales are on the decline • Subscription sales and subscription marketing techniques are advancing • Production is becoming more economic • The post is becoming more flexible and more interested in promoting subscription sales

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

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