By: Jennifer Saba
Halfway through 2008, executives at The Dallas Morning News realized they had a big challenge on their hands. Advertising revenue was declining at an alarming rate, a slide that has yet to subside for Dallas or the industry at large.
The model that newspapers have worked to great success for years — wring 80% of revenue from advertisers and 20% from readers — is in tatters. The harsh reality facing publishers is when the economy snaps back to resemble some sort of recovery, advertising revenue levels — never mind classifieds — will never again reach the highs of even a decade ago.
Dallas, however, is working on reconfiguring revenue ratios to depend less on advertising and more on readers. “We looked up and said that we have this circulation revenue, which is a considerable base of opportunity,” said Jim Moroney, publisher of Dallas Morning News and executive vice president of A.H. Belo. “We wanted to leverage that base and make up for some of the shortfall in ad revenue and decrease the dependency on advertising.”
Circulation hews close to this formula: An increase in price results in a decrease in volume. To ratchet up circulation revenue, publishers need to know how far to push pricing while mitigating the effects a precipitous drop in the number of copies sold could have on any potential revenue gains.
Dallas went out and hired Salt Lake City-based market research firm The Modellers to work on circulation pricing, and figure out how far they could hike the price without damaging household reach and, in turn, hurting advertising. “We wanted to talk to our core readers and find out if you raise the price what happens to sales on home delivery,” said Moroney.
The Modellers conducted surveys for the Morning News drawing from a pool of 1,500 customers who have subscribed to the paper for three or more years. The firm didn’t just poll on cost. More important they added a second lever to the price elasticity model: “We felt we needed to tie it to content,” said Randy Hill, vice president of client services at the Modellers.
The results were startling. When asked about the perception of content in tandem with price increases, the survey found a four to one gap in price versus defection. For example, if the paper raised the subscription price 100% and readers felt they were getting more content, the fall off in volume would be around 10%. At the same price, if readers felt like they were getting less content, the volume would decline more than 40%. Check out the chart, here.
The Modellers also surveyed what content areas are most important to readers. Hill explained that varies from paper to paper and market to market. In Dallas they found that the following subjects in descending order, had the most impact on price: Nation, Town and City, Business, Texas, Sports, Investigative Journalism.
They also found that of those subjects the Morning News could stand to improve its Town and City and Investigative Journalism coverage.
Executives decided to add back pages — something they could afford to do given the practically nonexistent levels of debt at A.H. Belo. John McKeon, president and general manager of the Morning News, said news hole at the flagship is in excess of 300 pages a week.
In one year, Dallas has pushed prices of home-delivered copies up 66% from a monthly cost of $18 in May of 2008 to $30 in May of 2009. New subscribers have to pay $33.95 a month for the print edition, which includes access to the e-edition. Eventually, longer-term subscribers, who receive free access to the e-edition for now, will pay that price too.
They jacked up the cost of single copy editions from 50 cents to $1 in about a year span.
Moroney said they went out and tested the price increases against control groups to make sure that the curve proved to work in the marketplace. As forecasted a price increase to $30 indicated a 13% drop in volume.
The Morning News reported that for the six-months ending September 2009, daily circulation (Monday-Friday) fell 22.1%. The paper attributed half the loss (including single copy) to the price hike. For daily home-delivered editions, out of the 55,748 copies lost, 21,463 were due to the price increase. The paper took other actions as well such as reducing short-term churn.
Dallas is sticking to its plan only discounting slightly should a subscriber balk at the increase. A customer will receive a 10% discount if they ask. If they wont’ take that, and they are a “desirable” subscriber, the paper will offer a 25% discount off the highest price, over the next 12 months and if they agree to go on EZpay or pay a minimum of 6 months in advance.
So far 40% of the subscriber base is on EZpay and 60% pay in advance. The goal is to have that split even by 2010, said Mark Medici, director of audience development at the Morning News.
To back fill the volume declines and calm the fear of advertisers worried about market penetration, executives in August 2008 launched Briefing the free broadsheet distributed Wednesdays through Saturdays to specific households that do not subscribe to the flagship. Briefing is delivered to 200,000 homes of which, almost 80% once subscribed to the Morning News according to Medici.
Moroney would not reveal circulation revenue at the flagship but indicated it will grow by double-digits this year. Currently the ratio of revenue at the Morning News stacks up this way: 66% advertising/31% circulation/3% other, such as printing contracts. By next fall, Moroney hopes to move the needle to 56% advertising/36% circulation/8% other.
“I believe newspapers around the U.S. have a lot of pricing room if they are willing to research,” Moroney said, “and if they haven’t decimated the product.”