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SPECIAL REPORT: More Money to be Made in Circulation?
By
Mark Fitzgerald
Published: November 18, 2009 10:49 AM ET
CHICAGO Newspapers are doing a lot of talking about charging for online content without actually implementing pay plans beyond a few niche selections. But there's one thing that dailies are making readers pay more for these days — the print edition.
"Circulation" used to mean only one thing: the number of copies sold by subscription or by single copy. Not anymore. "We are definitely seeing among newspapers that the mindset has changed from a focus on the absolute number of copies as the magic number for circulation," says Mather "Matt" Lindsay, president of Atlanta-based industry consultants Mather Economics. "What we're finding now is that newspapers are much more focused on profitable circulation."
Historically, circulation has contributed about 20% to total newspaper revenue. But publishers are determined to push that number up — and not just because advertising revenue continues a stubborn decline, with few signs of a turnaround. Newspapers are finally convincing themselves that circulation should become more of a profit center, and that their papers are more valuable than their price-per-copy would suggest.
"Most newspapers are very underpriced," Lindsay says flatly. He notes the disparity within the United States, where newspapers in the Northeast charge on average one-and-a-half to two times more than elsewhere in the nation. Then, too, there's the U.S. newspaper's standing in the world: Relative to real household income, American papers are cheaper than in more than two dozen other nations.
"As ad revenue is coming down, if you are not growing these other areas, how are you going to grow your business going forward?" asks James Moroney, executive vice president of A.H. Belo.
Moroney is taking this tack with Belo's flagship, where he serves as publisher — and where ad revenue at the paper is down 30% over the past three years. The Dallas Morning News raised its seven-day home-delivery rate in May 43% to $30; single copies went from 75 cents to $1 on weekdays and from $2 to $3 on Sundays, all part of the drive to make print a "premium" buy. Nine out of 10 home-delivery subscribers have signed up so far, of the 88% whose subs have come up for renewal.
The Morning News didn't stop there —and has been aggressively going after contracts to print and distribute other papers.
By the fall of next year, Moroney expects the Morning News' ratio of revenue — just the flagship, not niche products — to be 56% advertising, 36% circulation, 8% other, such as printing contracts. Currently, the ratio is 66% advertising, 31% circulation, 3% other. Compare those figures to the year 2000, when 92% of the Dallas daily's revenue was derived from advertising.
With the "premium" angle paramount, the DMN asserts it is adding back pages, increasing coverage in certain areas, and even looking to hire in the newsroom.
The result of this changing mindset is an explosion of new strategies across the nation to wring more money out of the print reader — some of which seem at first to defy logic.
In San Francisco, the Chronicle encourages its customers to take a two-day package of Thursdays and Sundays — two high-profit days for the Hearst Corp. paper — rather than push for seven-day home delivery. The Arizona Republic in Phoenix trumpets rate increases with mailings in advance of the change — and finds it actually increases retention rates. The Columbus (Ohio) Dispatch ratcheted up home-delivery rates for the far-flung reaches of its circulation area by 85% to 100% — and increased circ revenue even after the inevitable cancellations.
Newspapers are even looking to increase circulation revenue from a single day out of the year: In many markets, customers who buy the news-paper from a newsstand or rack this Thanksgiving — the paper annually fattest with ads — will have to pay far more for that single copy than on any other Thursday.
Some longtime circulation experts caution that aggressive pricing is not necessarily a sure-fire revenue-raiser (given the typical hits on the number of buyers), and that long-term damage to a newspaper's advertising franchise is a danger. But they also say that, done right, newspapers can increase circulation's contribution not just as a percentage of total revenue but as incremental revenue as well.
Take that, customers
This change in the perception of circ is showing up in the deliberately downsized numbers many newspapers report to the semi-annual Audit Bureau of Circulations' (ABC) FAS-FAX reports. It's showing up in subscribers' bills for home delivery, and on the cover prices of newspapers big and small.
According to the Newspaper Association of America (NAA), 75 cents is quickly replacing the recent standard 50-cent single-copy cover price on weekdays. Nearly one-third of all dailies were at 75 cents by the end of 2008, compared with just 2% two years earlier. Home delivery prices are also accelerating, with seven-day delivery plans up an average of 8.3% between 2007 and the beginning of 2009. Weekend packages, meanwhile, are up more than 11%.
Smaller papers are being even more aggressive, hiking their seven-day plans by 13.4%, according to John Murray, the NAA's vice president of audience development. This signals that readers, too, are beginning to ignore a newspaper's size when determining its value, he says: "People associated the circulation number with demand for the paper, but the perceived value is unrelated to how large a paper it is."
At the very top of the market, among the three nationally circulated news-papers, pricing has become very aggressive. The Wall Street Journal puts a $2 cover price on its paper, as does The New York Times outside of its home market. In fact, among news-papers with circulations above 100,000, home delivery prices have soared 24% in the past two years.
Newspapers have been emboldened to charge more aggressively because more customers seem to accept the price increases. In a conference call with analysts this summer, New York Times Co. President/CEO Janet Robinson, reporting on the surprising 3% increase in circulation revenue during the second quarter, said cancellations following increases at the flagship Times and The Boston Globe were "well below" the company's forecasts.
A delicate balancing act
But many papers are also finding that increasing circ revenue is not as simple as just jacking up prices and sitting back to watch the cash flow in.
K Group Inc. co-founder/President Jerry Kackley has been advising news-papers on subscription pricing for most of three decades. He says that until very recently, newspapers sought to keep their rate increases small. Done right, there were virtually no circulation losses as a result — and the revenue bump was nearly always incremental.
But big price hikes can be dangerous, he warns. "Let's say you increase the subscription price in the range of 25%," Kackley says. "If you lose 10% of your circulation, you will basically be flat in terms of revenue once you add in the impact on advertising." That's especially true of preprinted insert advertisers, who are keenly alert to circulation numbers rising or falling. "No matter how smart you do it, when you look at circulation increases of 25% to 30% like you're seeing around the country, it doesn't take a lot of circulation losses to zero out that revenue increase," he adds.
Substantial price hikes also pose a long-term risk to newspapers even if they are accepted by loyal readers, cautions Len Kubas, a former Toronto Star circulation manager and the president of Kubas Consultants. "The people who are to stay on may be less desirable from an advertising point of view," he says. Older readers are the most loyal, while the sweet spot for advertisers, the household with young kids, are more price-sensitive.
But others maintain that insert advertisers have changed their mindset as well, and are more sophisticated about circ numbers. Mather Economics' Lindsay notes that the percentage of inserts that are in the full run of a paper, once around 75%, has fallen to the 30% to 35% range for a typical newspaper. "The good thing about preprints is you can see the value of the circulation they are reaching," says Lindsay. "And it's just not true to say that all circulation is good circulation."
Out on the 'fringe'
Publishers often explain the decline in circulation measured by copies — a fall-off that has been precipitous at the nation's biggest metro newspapers for years now — by saying they are deliberately shrinking the distribution area of the paper to shed customers who are too costly to service and, in any case, unwanted by advertisers.
But newspapers should not necessarily give up on those "fringe" customers, consultants say. Mather Economics worked with The Columbus (Ohio) Dispatch in designing pricing for home delivery on the outreaches of its area.
Mather came up with a break-even number of cancellations that would make far-off circulation more profitable in the event of a huge price increase. They found by hiking the price by 85% and even 100%, they could remain profitable despite a cancellation rate that soared to 20%.
One key was collecting the data that identified customers who would accept the increase. The other was using professional "stop-savers," in this case trained by Belford, N.H.-based outsource call center Surpass, to talk customers out of dropping the paper when they called to cancel. "They're able to talk them off the ledge, so to speak," Mather's Lindsay says.
When a Florida paper was considering dropping home delivery, K Group suggested an alternative: Don't increase the home delivery price, but add a delivery surcharge. "People accept that because they know that everyone else who delivers to them charges extra," says Kackley.
The price is right
Ironically, this new aggressiveness on price is not bringing newspaper pricing back to the so-called "published rate" or "base rate" that once determined the very definition of paid circulation. Instead, it has spawned a riot of pricing points.
"I don't think we're quite to the point of the airlines, where when you look at the guy next to you, and you know he didn't pay the same price as you," says NAA's Murray. But newspapers aren't very far from there, either, because there's such a huge emphasis on retaining subscribers. The median cost to newspapers of acquiring one new home delivery customer now runs $69, so the temptation is to keep an introductory price or just-above-introductory price going if a new customer balks at going to a higher rate. "It really throws out the old model of the discount," Murray says. "You see the customer almost setting the price."
There are several tactics to foil that, the most popular of which, these days, is market segmentation — identifying the loyal subscribers who go along with any increase and leaving the discounted rates for others. Sometimes, newspapers discover that those loyal readers have been getting too much of a break on price. K Group's Kackley, for instance, recalls a California market where one demographically attractive neighborhood was full of households that had been subscribing for more than eight consecutive years — yet every one of them was still paying an introductory rate.
At the Claremore (Okla.) Daily Progress, Publisher Bailey Dabney employs a simple tactic that has worked to increase circulation revenue and actually increase circ at the same time. Before this April's scheduled price increase, Dabney directed the budget money that would have gone toward trying to retain people canceling their subscriptions, and put it toward furiously selling new subs. When the price hike hit, there were cancellations — but after the smoke cleared, home delivery was up 10% from the year before. "And we increased circulation revenue 20%," he notes.
Dabney shakes his head at newspapers that have cut their subscription sales force in these hard times. "You used to get fired for doing that, and now ..." he says, his voice trailing off.
E-Z does it
The Arizona Republic did something similar in Phoenix, and it was so successful that the tactic has been adopted by more than half of its sibling Gannett Co. Inc. newspapers. When subscribers were notified of a price increase 30 days in advance — and given an option to convert to EZ Pay at a lower rate — 10% took the credit card option. That was 10 times the rate of conversion by a control group that was not notified of the rate hike. Those receiving a letter were twice as likely to renew than those who didn't receive a warning.
"As long as you give the customer some option other than accept the rate increase or nothing, they will take it," says Evan Ray, Gannett's senior vice president of finance and operations for U.S. Community Publishing.
Conversion to EZ Pay is a key part of Gannett's strategy of retaining subscribers, says Helen Hoffman, director of consumer sales. Overall, more than half (53%) of subscribers to Gannett's community newspapers pay with EZ Pay, she says. At one paper, the rate is 84%.
Gannett has taken an approach of "aggressively pricing" its subscriptions based on their value, says Ray. At the moment, the focus has been on selling Sunday subscriptions, with sales representatives stressing the editorial content and the value of its advertising package, especially the coupons. Gannett is also an example of a newspaper company that pursues revenue from one-off opportunities such as the Thanksgiving Day newspaper — the thickest of the year, with Black Friday ROP and insert advertising.
"We started that two years ago when we realized how valuable the Thanksgiving Day product was to our customers, so we began pricing it accordingly," Ray says. "It's been positive from a revenue and volume standpoint."
In its pursuit of the most profitable subscribers, the San Francisco Chronicle stopped all discounting and focused its subscription sales force on the days that generate the most revenue — especially its two-day package of Thursdays and Sundays.
This year, the Chronicle increased the price of a seven-day subscription by 63% to make up for the thin advertising in its Monday and Tuesday editions.
Those kinds of less-than-seven-day packages are common these days, of course, but what's new is that they are likely to be sold at a premium. And it's not a hard sell, says K Group's Kackley: "People expect that if you're not delivering seven days, well, sure, it costs more."
All this higher pricing is likely to benefit not just newspapers' bottom lines — but the nation's perception of newspapers, Mather Economics' Lindsay argues.
"When the price of something is higher, it almost signals a higher quality," says Lindsay. "I do think newspapers have undersold themselves and damaged their brand equity in some ways. And I think there is an opportunity to get that value back."
Mark Fitzgerald
(mfitzgerald@editorandpublisher.com)
is E&P's editor-at-large.
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