Newspapers Lower Ad-Rate Increases

By: Lucia Moses

As advertisers look more than ever for reasons to justify their ad budgets, a number of newspapers, large and small, have decided they can’t get away with the same rate increases next year as they have in the past.

Some are planning increases one or two percentage points below last year’s jumps. Others will be looking at whether circulation gains in the wake of the Sept. 11 terrorist attacks will hold up and justify normal rate hikes. Newspapers that do try to raise rates, however, are likely to face resistance from advertisers and media buyers.

“I don’t see any justification for rate increases,” said S. Scott Harding, chairman and CEO of Downers Grove, Ill.-based Newspaper Services of America, which placed $1.6 billion worth of newspaper advertising last year. In an unprecedented letter sent to 2,500 newspapers last week, he wrote, “With other competitive media, including television, radio, and magazines, offering double-digit rate decreases for the first time in over a decade, this is not the time to try and recoup lost revenues/profits from retailers.”

For each of the past 10 years, The Hartford (Conn.) Courant raised overall ad rates by 4% to 5%, but next year the paper plans to seek only a 3% to 4% boost, said Mark Aldam, senior vice president for advertising and circulation sales and marketing. “Clearly, the economy is going to have an impact on our ability to pass on the type of rate increase that we think we should,” Aldam said.

The New York Times‘ overall rates will likely increase 5% or so next year, down from 7% each of the past two years, while The Wall Street Journal‘s net effective general ad rate will be up 3.3%, slightly below recent years’ increases. As parent Dow Jones & Co. Inc. Chairman and CEO Peter Kann explained during a conference call with analysts, “This is not the kind of ad environment when one wants to appear to be greedy to advertisers who perhaps have their own problems.”

At Cox Ohio Newspapers, which includes the Dayton Daily News, the net ad rate may be slightly higher next year, but, due to the effect of discounts, said Mark Stange, vice president of advertising: “I would say we’ll see very little net gain in average net rates next year. … There’s a lot of pressure to maximize rates when our margins have shown pressure from the sliding economy. But … we know our customer base is feeling the same pressure we are, and they need our help more than ever.”

With one forecast seeing total U.S. media spending down 6% this year and 1% next year, other media are making similar adjustments. “Magazines are adjusting themselves in terms of the price-value ratio,” said Mickey Marks, president and CEO of media buyer Creative Media in New York, “and the expectation from my seat would be that newspapers would follow along the guidelines of general macroeconomic principles to remain competitive.”

Newspapers’ rate increases have outpaced inflation for most of the past 30 years, but pricing seems to have hit a wall in the past few years, analysts said.

Still, some papers are bent on raising rates in line with recent years. Circulation decreases haven’t stopped newspapers from raising rates in the past, so circ increases since Sept. 11 may provide a justification for some rate hikes next year.

USA Today‘s general rate will go up 4%, as it has in recent years, Senior Vice President of Advertising Jacki Kelley said: “Our position has always been to increase rates in relation to circulation and readership.”

Others are bullish on a recovery. The Houston Chronicle plans to raise daily ad rates about 5%, only slightly below last year’s hike, said Gary Randazzo, senior vice president of sales and marketing. “While the downturn is significant now, … we think that, because of the [federal] stimulus package, … next year may begin getting back to some normalcy,” he said, adding that advertisers may benefit from wider use of volume discounts.

Merrill Lynch media analyst Lauren Rich Fine said she was “intrigued” by some papers’ plans to increase rates as much as 4% on one hand, while offering plentiful volume discounts on the other. “I don’t understand how you raise rates,” she said, “if you’re just going to offer the discounts.”

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