The Economics of Storytelling: Magazines

Magazines and storytelling, for some the link between the two is more obvious then others. Magazines range in topic from news and literary magazines to motorcycles and sports. One thing that all magazines do have in common is the fact that they all contain stories. The stories may range in type, from news stories to short fictional stories, but they all spread ideas through a written medium. So now, ladies and gentlemen, I shall produce part two of my economics class blogs on storytelling.

Unlike in my previous blog where I depicted one instance of a musical and followed it through the basic principles of economics, here I plan to contrast various types of business firms which run magazine industries. Now in order to be a business firm a company would have to use resources (which for magazines would include writers, photographers, equipment to produce the magazine etc.), to produce a good (the magazine itself) which would then be sold to the consumer (the readers). Now in an ideal world everything would run smoothly for these business firms, but unfortunately there are people who tend often participate in shirking. Such proprietors of this mischief would include writers who don't finish their stories, or editors that always show up late, or website designers who consistently forget to fix a server. And so to keep an eye on the staff, so that they don't all become "shirkers", monitors are introduced who keep everyone in line. These "monitors" are often referred to as the dreaded bosses.

Now moving away from that happy road which I'm sure is littered with a whole bunch of storytelling itself, lets move on to the types of business firms that exist. The first one I shall mention is a sole proprietorship which would be a business which is owned by only one person. An example of one such sole proprietor is Peter Blake, who in 1981 founded the magazine Throttle, an alternative music and culture magazine. Now Mr. Blake had several advantages as the sole proprietor of his magazine.

• Aside from government regulations in the USA, starting up his business was relatively easy, and if he decided to get rid of his newly formed magazine, it would be easier then say, a corporation.
• Mr. Blake has all of the power over his magazine as publisher and owner, and can make whatever changes he sees fit.

Now although he may have several advantages in starting his own business, there are also several disadvantages such as:

• He has unlimited liability, which means that if he can't pay of the debts of the company his own items may be taken, such as his car or even his house, to pay off his debts.
• For his initial starting money Mr. Blake probably had some difficulty raising enough funds, because most banks or lenders won't lend money to a business which may not succeed.
• The third disadvantage is that the business usually ends with the retirement or death of the company owner, and many employees would doubt the stability of their jobs. However if Throttle becomes more successful, when Mr. Blake wishes to retire, another owner may step up to the helm.

Now the next company I'm going to talk about is Tin House, a literary magazine which featured stories by new writers, interviews with established literary figures and much more. In 1998 Win McCormack came up with the idea for the magazine, but rather than starting a business of his own he formed a partnership with two New York Times Editors, Rob Spillman and Elissa Schappell, and through this partnership each of the co-owners would share any profits the business earns and would be held responsible for any debts incurred by the firm. Now by choosing to form a partnership for his magazine, Mr. McCormack faces these advantages as he sets up his company:

• Each co-owner's specialization can be incorporated fully in to the company. For example, Mr. Spillman and Mrs. Schappell who lived in New York City have more of a specialty for the eastern US beat, while Mr. McCormack, who lives in Oregon, was able to capture the western US beat.
• For the partnership only personal income taxes apply, while corporate taxes do not.

However a partnership also faces several disadvantages:

• Just like sole proprietorships, the partners of Tin House face unlimited liability. This can be a major problem if say Mr. Spillman ran off with $45,000 of the company's money and left the other two trying to make up for his debts.
• Decision-making in a partnership can often times be frustrating and major arguments may prevent the future growth of the magazine.

Moving on from partnerships we'll journey on to corporations. Now one well known magazine which has developed into corporation is Reader's Digest. Now as a corporation Reader's Digest can conduct business in its own name in the same way an individual does is owned by its stockholders, people who buy stock in a corporation. Each piece of stock that a person buys represents a claim on the assets of the company which include anything over which the firm has legal claim. Now the advantages of being a corporation include the following:

• The owners of a corporation are not personally liable for the corporation's debts, unlike the previous businesses discussed, and contain limited liability which means they can't be sued for the debts of their corporation.
• If one or more of the owners of Reader's Digest dies or retires, the business does not end but continues, ensuring future stability.
• Also unlike Throttle, which had to raise all of its money by itself, Readers Digest can raise money by selling stock.

As you have probably caught on, with every advantage there is a disadvantage, and Readers Digest has to face the following:

• As a corporation Reader's Digest has to pay double the taxation of partnerships or sole proprietorships because of corporate and income taxes.
• Corporations are also pretty complicated to set up, as in addition to the owners and stockholders there is often a board of directors who decides the policies of the company. That's also not taking into account the financial set-up aspect which comes with distributing stocks and bonds.

Moving on with our tour of various ways magazine companies may be owned, we come to the franchise, which takes place when a business allows a person or group of people to use its name and sell its products. Homes & Land Magazine is a franchise, and when someone wants to set up a franchise (the franchisee) he or she would talk to the owner of Homes & Land (the franchiser) and set up a deal. Now by starting a franchise, one can hope for help from the "parent company" in advertising and training, but sometimes if there are disagreements within the franchise, the best thing to do is pull out.

Now, after examining the different types of magazine businesses that are out there its time to look at the costs involved. For this I plan to examine one of my favorite magazines Muse. Now for Muse and many other magazines the variable costs that change with the number of magazines produced may include the cost of paper and the cost of ink for the magazine. Now some of the other costs which the owners of Muse has to pay include fixed costs that do not change with the amount of magazines produced such as employee costs and the rent for the building in which Muse is produced. Now if one adds up the fixed and variable costs for Muse, one would get the total cost. In order to find the average total cost of producing each magazine, Muse would divide the total cost by the quantity of magazines produced. Now say Muse just got in a last minute subscription to there magazine and had to publish one more copy of that particular issue. The cost of producing that one more copy would be the marginal cost. The marginal cost may be greater or less than the average total cost.

Now when considering whether or not to let the late subscription slide and produce another copy of the magazine, Muse has other questions to consider besides how nice they want to be. If the marginal revenue, or the amount of money made from producing one more copy of the magazine is greater than the marginal cost then the company is more willing to produce that one extra copy. A similar concept is used when Muse wants to compute how much profit or loss it can be held accountable for. Muse takes the total revenue (the price x the quantity of magazines sold) and takes from it the total cost to reveal the total profit/loss.

Now going back to the "marginal" theme earlier in the last paragraph we can look at the law of diminishing marginal returns. Now for the amount of writers that Muse hires this law can show that as Muse hires more writers to write for a set number of pages in the magazine, then eventually the amount of additional writing that each new writer hired does will decrease. If that sounded a bit confusing think look at the chart below:

# of Workers	Pages of Additional Writing Added Per Worker	Total Number of Pages Written
1	10	10
4	10	40
8	8	72

As you can see as more and more writers are added, the pages of additional writing added per worker decreases.

Now once again I'd like to thank you for plowing through another wonderful blog of mine, and if you are interested in any of the magazines which I mentioned in this blog the websites can be found below:

For Throttle by Peter Blake: http://en.wikipedia.org/wiki/Throttle_(magazine)

For Tin House: http://www.tinhouse.com

For Reader's Digest: http://www.rd.com

For Homes and Land: http://www.homesandland.com

For Muse: http://www.cricketmag.com/ProductDetail.asp?pid=12