• by Jack Loechner , Staff Writer @mp_research, June 19, 2013

Advertisers are increasingly spending more money on digital properties, and by 2017 analysts expect almost 3.8 billion dollars will be spent.

According to the annual PricewaterhouseCoopers report on digital advertising, overall spending is expected to dramatically increase to $3.8 billion in 2017, when it will represent a quarter of overall advertising, from $2.4 billion in 2012. Customers who actually purchase the digital content will also increase from $275 million in 2012 to $1.4 billion in 2017.

The shift to digital advertising is almost proportionate to the rate of the decline of the print industry. In 2008, a record 9.8 billion was spent and then fell to $7.9 billion in 2012, and it is expected to diminish further to $6.4 billion in 2017.

North America and Britain are poised to generate 20% of their overall revenue from digital properties. This mainly stems from their investment in a dedicated infrastructure, while the rest of Europe will only see a modest 10% increase by 2017. Westerners have had a proven track record of expressing a willingness to pay for digital content, whether it be accessing the HTML edition or taking out a subscription on the Apple news stand.

The research focuses on two key questions:

• How is the behavior of consumers changing, when they read magazines?
• How are publishers and advertising agencies responding to these changes?

The study conclusions are based on a global online survey of more than 5,000 consumers, and interviews with leading publishers and media buyers, supplemented with industry reports, annual reports, analysts’ reviews and in-house expertise. 

A growing number of people are migrating from the printed page to the Internet for information and entertainment. To understand what consumer magazine publishers and media buyers should do to succeed in the digital age, the study looked at how the behavior of consumers is shifting, and how the industry leaders are responding.

• Most consumers still prefer to read hard copies of magazines, but many are also interested in reading digital content (interactive materials which can be viewed online), and younger consumers would rather access content digitally.
• Consumers expect to pay more for printed content than for content distributed electronically. The research suggests that they are not prepared to pay more than half the sum they would pay for a printed magazine.
• Many consumers see digital-only content as a substitute for printed content. So any magazine publisher that launches digital content connected to its brands risks cannibalizing subscription and circulation revenues from its traditional print magazines.
• British and North American magazine publishers expect to generate as much as 20% of their total revenues from digital platforms within the next five years, whereas mainland European publishers expect to generate only 10%
• Magazine publishers that have proved most successful in entering the digital space are those that have recognized that digital media require different business models from those they have developed to support their traditional print operations.
• Most magazine publishers may have to make major organizational changes. Traditional publishers typically organize their operations around different media types, whereas consumers use multiple channels.
• Both magazine publishers and media buyers will also have to invest in developing effective consumer-tracking and measurement systems. Lack of robust consumer metrics has exposed companies in both sectors to competition from new entrants, some of which have been very successful.

The global consumer magazine market is currently worth about US $80 billion, up from about $71 billion five years ago. Advertising accounted for most of this rise. Between 2003 and 2007, revenues from print advertising increased at a compound annual growth rate (CAGR) of 4%. Conversely, circulation revenues grew by just 1.9%.

Online advertising has already played a considerable part in boosting revenues in the media markets as a whole. Between 2004 and 2008, global expenditure on Internet advertising rose at a CAGR of 38.1%, whereas print advertising in consumer magazines and newspapers grew by just 4.4% and 2.4%, respectively. The pace at which online advertising expands is likely to slow over the next five years. Even so, says the report, revenues are expected to increase at a CAGR of 19.5%, three times more than the rate at which expenditure on any other form of advertising is projected to grow (except for video games).

Advertising Expenditure By Segment (2003-2012; 2003 $ in millions)
Segment	CAGR 2004 – 2008	CAGR 2008 - 2012
Internet: Wired and Mobile	38.1%	19.5%
Video Games	N/A	16.7%
Out-of-Home	7.2%	6.8%
Television	6.6%	5.9%
Consumer Magazines	4.4%	5.1%
Trade Magazines	3.2%	4.2%
Newspapers	2.4%	2.9%
Directories	2.0%	1.6%
Radio	1.4%	1.8%
Source: PricewaterhouseCoopers, Consumer Media Usage Survey, June 2103

The results of the survey show that motivations for using the Internet differ substantially from one age group to another. Young consumers typically log onto entertainment and social networking sites, whereas older consumers are more likely to surf, search for information or shop.

Most consumers still prefer to read hard copies of magazines, but 60% of all respondents would like to access content on the Internet as well. More than half of all respondents said that they would go on buying their favorite magazines, even if those magazines were only published in digital formats.

Readers living in the industrialized West are generally less loyal to a specific brand and less willing to make the transition. Only 35% of Dutch and German respondents, for example, said that they would continue to buy their preferred publications if they could not get hard copies. It may therefore make sense for many consumer magazine publishers to focus on building digital platforms in the BRIC economies before venturing into more established markets, where consumers are more fickle in their tastes and more likely to migrate to other brands.

Willingness to buy digital content also varies with gender and genre. 41% of male respondents would be prepared to pay for a subscription for content that is only published on the Internet, compared with just 29% of female respondents. This may indicate that titles aimed at a male audience are likely to generate more online subscription revenue than those aimed at the female audience.

Percentage Of Respondents Who Are Interested In Accessing Digital Content, By Genre
Genre	% Interested In Category
Hobby	37%
Health and body	34%
Woman’s magazines	32%
PC and Games	32%
Lifestyle	29%
Sports	27%
House and Garden	26%
Teens	22%
Men’s magazines	16%
Erotic	13%
Source: PricewaterhouseCoopers Consumer Media Usage Survey, June 2013

Most publishers and advertising agencies clearly recognize the importance of the digital revolution. British and North American organizations are generally more advanced than their mainland European peers in this respect, although a few European publishers have digital publishing platforms that are just as sophisticated as any to be found in North America, and the opportunities for creating digital platforms are arguably even greater in some of the BRIC economies.

These are major changes, but the rewards for making them could be substantial, concludes the report. One of the world’s leading magazine publishers has achieved a six-fold increase in its online revenues over the past four years, proof that publishers can be successful with digital media, when they are properly managed. 

For more information, please visit PricewaterhouseCoopers here.