I’ve been hearing, these last weeks, from publishers who are approached by wholesalers for bigger discounts—even on publications that have what is sometimes known as a “grandfathered” bipad.
A grandfathered bipad is one whose original discount structure was set up with wholesalers in the old days, when a standard discount from publisher to wholesaler might be 40% off the cover price. Those days have been gone for quite a few years now, and newly-launched publications have to expect to pay more off the cover for newsstand distribution.
Many publishers have found, however, for many years, that their long-established titles have enjoyed a bit more protection from pressures on their discount. Not so anymore.
“Standard” wholesaler discounts—which have, in fact, never really been as standard as all that—are these days less standard than ever. And while most variations from a standard base discount were once initiated by publishers looking to establish incentive programs with their wholesale partners, most discount conversations nowadays begin with a discussion of a wholesaler’s profitability formula. These formulas are based less on the incentive goals dictated by a publisher and more on the costs incurred by the wholesaler. They take into account, for example, the cover price, efficiency, and sales volume of a publication—and may also include factors such as weight.
It does make a certain amount of sense, doesn’t it? Which may be why a publisher might find its national distributor, which has protected it for years from discount inflation, recommending compromise or capitulation.
Today I got a message from a publisher asking three questions:
1) Are other publishers receiving—and giving in to—this same pressure on discounts?
2) Can you get increased service in return for increased discount? and
3) If you give the increase in discount to one wholesaler, will you later have to give it to all?
The answers to these questions are: yes, sometimes, and absolutely.
A wholesaler will very possibly work with a publisher partner to increase penetration into key retailers in return for the increase in discount. But that’s a one-time thing. If efficiencies are low in the retailer stores, out you come again. The distribution goes back to where it was. The increased discount stays.
Because one thing you can be sure of in every discount change: once offered, a discount can never be reversed. Never as in not ever.
And the other thing you can be absolutely positive of is: if you increase a discount to one wholesaler, the day will come in the not-too-distant future when you will be required to meet that same increase with every other wholesale agency.
Does a publisher have any recourse?
Some, and it mostly involves building relationships with the wholesalers.
There was a very long period of time when the smart publisher kept its head down and stayed out of the line of fire. Very little appeared to be gained by getting into the fray at that time. But there is nowhere left to hide, it seems, and the best approach is to meet the situation head on, keeping a couple of possible strategies in mind:
1) Is your discount structure consistent? It will have to become so. Run your revenue analyses applying your highest discount across the board and prepare for that outcome.
2) Are your sales efficiencies decent? If so you are making more/losing less for the wholesalers, and therefore have more to negotiate with; if not, what will it take to bring them up? Cuts in draw? Changes in frequency? Adding value to the package?
3) If you intend to increase your discount to the wholesale agencies, what will you ask for in return? A one-time distribution increase with the hope that sales in newly-added retail outlets will change your mutual profit picture? Help in getting into a chain you haven’t cracked in the past? Support for a new publication you are launching?
4) Do you have alternatives to the discount conversation? Can you spend promotions money with the wholesaler agencies to improve your contribution? This could very easily cost considerably more than changing your discount. On the other hand, you get something very specific in return for the money spent, and the time period of the spend is finite.
The promotions conversation is one you’ll have repeatedly. On the other hand, many publishers have noticed, the discount conversation doesn’t go away for good either—another reason to face it head on.