Optimum Distribution Formula

What is the probability of selling the next copy distributed?

How much did it cost to distribute/produce that copy?

Variables Affecting

Title Economics

Publisher Discount

Retailer Discount

Cover Price

Sales Variability from Issue to Issue

Operational Costs (Metro)

Average Cost per Unit: $0.21

Variable Cost per Unit: $0.14

How Much Does it Cost to Distribute One More Unit?

$0.14 (Marginal Cost)

0%20%40%60%80%100%

Marginal Revenue per Copy

MarginalEfficiency

$

Optimum Distribution Formula

0%20%40%60%80%100%

Marginal Cost per Copy

$

MarginalEfficiency

Optimum Distribution Formula

Marginal Revenue per Copy

0%20%40%60%80%100%

Marginal Loss

BreakevenPoint

$

MarginalEfficiency

Optimum Distribution Formula

Marginal Profit

-

0.10

0.20

0.30

0.40

0.50

0.60

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

A Lower Cover Price Requires a Higher Efficiency

-

0.10

0.20

0.30

0.40

0.50

0.60

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

A Higher Retailer Discount Requires a Higher Efficiency

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

A Higher Publisher Discount Allows a Lower Efficiency

-

0.10

0.20

0.30

0.40

0.50

0.60

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Higher Operating Costs (Metro) Require a Higher Efficiency

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Disparity Between ANC and Publisher Economics

ANC Gross Profit

ANC Variable Cost

Publisher Gross Profit

Publisher

Variable Cost

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Disparity Between ANC and Publisher Economics

The difference between

ANC’s profit maximization point

and the publisher’s represents

ANC’s leverage

Variable Costs

Distribution $0.11 / Copy Distributed

Returns $0.03 / Copy Returned

Gross Profit per Copy Sold

Discount from Publisher 43%

Discount to Retailer -26%

Gross Margin % 17%

Cover Price $3.50

Gross Margin $3.50 * 17% = $0.60

Motor Trend

Optimum Distribution Formula

Marginal Revenue = Marginal Cost

Gross Profit * Efficiency = Distribution Cost + Return Cost * (1-Efficiency)

$0.60 * Efficiency = $0.11 + $0.03 * (1-Efficiency)

$0.60 Efficiency = $0.11 + $0.03 - $0.03Efficiency

$0.63 Efficiency = $0.14

Efficiency = $0.14 / $0.63

Optimum Marginal Efficiency = 22%

Motor Trend

Optimum Distribution Formula

MOTORTREND ACCOUNTS WITH AVERAGE SALE OF 10 COPIES PER ISSUE

AVERAGE SALE

ACTUAL SALE

# OF OBSERVATIONS

CUMULATIVE # OF

OBSERVATIONS TOTAL

OBSERVATIONS MARGINAL

PROBABILITY 10 0 5 529 529 100%10 1 2 524 529 99%10 2 2 522 529 99%10 3 5 520 529 98%10 4 16 515 529 97%10 5 30 499 529 94%10 6 37 469 529 89%10 7 46 432 529 82%10 8 59 386 529 73%10 9 58 327 529 62%10 10 56 269 529 51%10 11 46 213 529 40%10 12 45 167 529 32%10 13 34 122 529 23%10 14 33 88 529 17%10 15 18 55 529 10%10 16 10 37 529 7%10 17 6 27 529 5%10 18 11 21 529 4%10 19 1 10 529 2%10 20 1 9 529 2%10 21 4 8 529 2%10 23 1 4 529 1%10 26 1 3 529 1%10 27 1 2 529 0%10 31 1 1 529 0%

99% 99% 98% 97%94%

89%

82%

73%

62%

51%

40%

32%

23%

17%

77%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Unit Sales

Probability of Selling Contribution

Motor Trend

10 Copy Average Accounts

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Marginal Probability

Gross Profit

Variable Cost

Motor Trend

10 Copy Average Accounts

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Draw

Contribution

Marginal Contribution

Optimum

Motor Trend

10 Copy Average Accounts

MOTORTREND ACCOUNTS WITH AVERAGE SALE OF 5 COPIES PER ISSUE

AVERAGE SALE

ACTUAL SALE

# OF OBSERVATIONS

CUMULATIVE # OF

OBSERVATIONS TOTAL

OBSERVATIONS MARGINAL

PROBABILITY 5 0 121 8,172 8,172 100%5 1 278 8,051 8,172 99%5 2 670 7,773 8,172 95%5 3 1,099 7,103 8,172 87%5 4 1,464 6,004 8,172 73%5 5 1,493 4,540 8,172 56%5 6 1,213 3,047 8,172 37%5 7 847 1,834 8,172 22%5 8 532 987 8,172 12%5 9 256 455 8,172 6%5 10 109 199 8,172 2%5 11 62 90 8,172 1%5 12 17 28 8,172 0%5 13 8 11 8,172 0%5 14 2 3 8,172 0%5 15 1 1 8,172 0%

AVERAGE SALE

ACTUAL SALE TOTAL DRAW TOTAL NET COST CONTRIB

5 0 - 0 -$ -$ 5 1 8,172 8,051 903$ 3,928$ 5 2 16,344 15,824 1,813$ 7,681$ 5 3 24,516 22,927 2,744$ 11,012$ 5 4 32,688 28,931 3,708$ 13,650$ 5 5 40,860 33,471 4,716$ 15,366$ 5 6 49,032 36,518 5,769$ 16,142$ 5 7 57,204 38,352 6,858$ 16,153$ 5 8 65,376 39,339 7,972$ 15,631$ 5 9 73,548 39,794 9,103$ 14,774$ 5 10 81,720 39,993 10,241$ 13,755$ 5 11 89,892 40,083 11,382$ 12,667$ 5 12 98,064 40,111 12,526$ 11,541$ 5 13 106,236 40,122 13,669$ 10,404$ 5 14 114,408 40,125 14,813$ 9,262$ 5 15 122,580 40,126 15,957$ 8,118$

MOTORTREND ACCOUNTS WITH AVERAGE SALE OF 1 COPY PER ISSUE

AVERAGE SALE

ACTUAL SALE

# OF OBSERVATIONS

CUMULATIVE # OF

OBSERVATIONS TOTAL

OBSERVATIONS MARGINAL

PROBABILITY 1 0 22,083 61,686 61,686 100%1 1 22,826 39,603 61,686 64%1 2 12,522 16,777 61,686 27%1 3 3,443 4,255 61,686 7%1 4 643 812 61,686 1%1 5 128 169 61,686 0%1 6 28 41 61,686 0%1 7 6 13 61,686 0%1 8 6 7 61,686 0%1 11 1 1 61,686 0%

AVERAGE SALE

ACTUAL SALE TOTAL DRAW TOTAL NET

VARIABLE COST CONTRIB

1 0 - 0 -$ -$ 1 1 61,686 39,603 7,448$ 16,314$ 1 2 123,372 56,380 15,581$ 18,247$ 1 3 185,058 60,635 24,089$ 12,292$ 1 4 246,744 61,447 32,701$ 4,167$ 1 5 308,430 61,616 41,332$ (4,362)$ 1 6 370,116 61,657 49,967$ (12,972)$ 1 7 431,802 61,670 58,602$ (21,600)$ 1 8 493,488 61,677 67,238$ (30,232)$ 1 11 678,546 61,678 93,146$ (56,139)$

AVERAGE SALE

ACTUAL SALE

MARGINAL DRAW MARGINAL NET

MARGINAL COST

MARGINAL CONTRIB

1 0 0 0 -$ -$ 1 1 61,686 39,603 7,448$ 16,314$ 1 2 61,686 16,777 8,133$ 1,933$ 1 3 61,686 4,255 8,508$ (5,955)$ 1 4 61,686 812 8,612$ (8,124)$ 1 5 61,686 169 8,631$ (8,530)$ 1 6 61,686 41 8,635$ (8,610)$ 1 7 61,686 13 8,636$ (8,628)$ 1 8 61,686 7 8,636$ (8,632)$ 1 11 185,058 1 25,908$ (25,907)$

AVERAGE SALE

OPTIMUM DRAW EFFICIENCY

1 2 50%2 3 67%3 5 60%4 6 67%5 7 71%6 8 75%7 9 78%8 11 73%9 12 75%

10 13 77%11 14 79%12 15 80%13 17 76%14 18 78%15 20 75%16 21 76%17 22 77%18 26 69%19 24 79%20 26 77%

BLENDED EFFICIENCY 66%

Motor Trend

Optimum

Distribution

Formula

y = -0.0002x3 + 0.0132x2 + 1.0844x + 1.137

0

5

10

15

20

25

30

0 5 10 15 20

AVERAGE SALE

OP

TIM

UM

DR

AW

Motor Trend

Optimum Distribution Formula

Motor Trend

Net Impact

Draw Net Eff Gross ProfitVariable

Cost Contribution% of

Retail

Current 1,437,707 618,214 43% 370,928$ 182,733$ 188,196$ 8.5%

Optimum 898,788 593,200 66% 355,920$ 108,034$ 247,886$ 11.6%

Change (538,919) (25,014) 23% (15,008)$ (74,698)$ 59,690$ 3.2%