By: Jennifer Saba
Circulation numbers plummeted the farthest in modern history when the Audit Bureau of Circulations released its semi-annual results in late October. For 379 reporting dailies, weekday circ fell 10.6% year-over-year ? a first in double-digit territory ? and some top papers even managed to perform twice as poorly (see charts). Sunday circ plunged 7.4% for the 562 ABC-filing papers.
Print has ceased to wield the power it once had as a mass medium; executives are instead trading volume for dollars. You want to read a newspaper in print? You?re going to pony up and pay a decent price ? a price that?s on the rise. At the same time, newspapers are developing digital strategies to reach consumers through Web sites, mobile applications and e-readers.
An ABC analysis of Scarborough data on combined online and print readership revealed, for example, that in New Orleans, The Times-Picayune?s net combined audience (past seven-day print/30-day online) rose 7% year-over-year. The Roanoke (Va.) Times? net combined audience was up 6.3%, while the Houston Chronicle advanced 4.7%.
Remarkably, even after five years of pruning, publishers across the country maintain that the continual shedding of non-profitable circulation is still having a marked effect on their final numbers.
For the most part, publishers are seeing higher subscription prices stick, judging by their increases in circulation revenue. In Q3, circulation revenue grew 6.7% at McClatchy, 11% at Media General, 11.6% at A.H. Belo and 6.7% at The New York Times Co.
San Francisco Chronicle Publisher Frank Vega cited a 63% jump in the paper?s weekly subscription rate over the past 18 months (to $7.75) as one of the reasons for the startling volume plunge there. The increase in revenue means the Chronicle is turning a profit during some weeks after losing $50 million last year, Vega told his paper.
What remains to be seen is just how much publishers can squeeze from hardcore fans of the print edition ? and if they have applied those price changes too late. USA Today founder and former Gannett maven Al Neuharth decades ago implored the industry to increase papers? prices. That thinking is now in vogue, as advertising revenue skids and will most likely never snap back to double-digit growth. Yet the print edition of today is nowhere near the size and heft of what it was even 10 years ago, and readers have taken notice. You can only increase cover prices so much without consumers sensing they?re being hoodwinked.
The tightrope act
The recent volume and revenue numbers from Gannett serve as a caution flag. During a Q3 earnings call, Gannett CFO Gracia Martore explained that virtually every paper at the company aggressively raised its prices, but added that the company plans to tread lightly in making more such moves in the future.
According to Gannett?s analysis of the latest FAS-FAX ? a breakdown posted by the blog Gannettoid ? the company collectively lost 13% of its daily circulation for the six months ending September 2009 at its U.S. Community Newspaper Group. That percentage does not include USA Today, which in October 2008 saw a price hike of $1 and is still suffering along with the hotel and travel industry on which it depends.
Daily circulation fell 17%, knocking it down to the No. 2 slot among the top circulated newspapers in the U.S. ?The Nation?s Newspaper? lost a significant amount of hotel copies (which are paid for by hotel chains). Home-delivered copies were flat.
Unlike some at other places, circulation revenue at Gannett fell as well partly due the impact of USA Today?s decline. In Q3, circ revenue dropped 4.9% while volume during the same period was off in the 10% to 11% range.
Martore signaled that the company reached it?s pricing limits at its other newspapers during the call, ?Clearly we are going to be very careful on continued pricing actions, and it is not dissimilar to what we?ve seen in the past where when you take aggressive pricing actions, you see a fall-off in circulation and then you spend some money on retention efforts and on start pressure and the like, and that circulation builds back up.?
The executive suite in McLean, Va., wasn?t alone in making this observation. McClatchy similarly enjoyed a nice circ revenue boost in Q3, but indicated it probably reached the end of that surge. McClatchy CEO Gary Pruitt said during its earnings call that increasing prices at the expense of volume was the right move to make, though he said the loss of copies was more than anticipated: ?We have seen steeper declines than usual in circulation. We are aware of that, so we plan to be less aggressive going forward in pricing than we have been in the recent past.?
Testing the core readers
It?s basic circulation economics that when a newspaper raises its price, its volume is guaranteed to go down. The trick in the past has been to figure out how much volume decline can be sustained without offsetting any advances made in circulation revenue. But that?s not the only factor in determining price. Content, and the perception of content, play a huge role in just how high prices can be hiked.
That?s what executives at The Dallas Morning News found when, in mid-2008, they realized that a near-term ad revenue rebound wasn?t going to materialize anytime soon. A shift needed to happen in which readers picked up more of the tab for the production and distribution of the print edition. The old ratio of 80% advertising revenue to 20% circ revenue ? a ratio that served Dallas and the industry well until recently ? has to be reassessed if newspapers are going to survive.
?We looked up and said that we have this circulation revenue, which is a considerable base of opportunity,? James Moroney, publisher of the Dallas Morning News and executive vice
president of A.H. Belo, tells E&P. ?We wanted to leverage that base and make up for some of the shortfall in advertising revenue and decrease the dependency on advertising.?
Dallas has shed a lot of circulation over the past three years (striking the years affected from the circulation mis-statements of 2004). In this latest six-month period ending September 2009, Dallas saw one of the largest circ fall-offs among its peers ? down 22.1% on average Monday-Friday. Since 2007, Morning News circ fell by more than 109,000 daily copies (nearly 30%).
The paper attributed half of its September 2009-reported losses (including single-copy) directly to a price increase. In one year, Dallas jacked up the prices of home-delivered copies 66%, from a monthly cost of $18 in May 2008 to $30 in May 2009. New subscribers have to pay even more: $33.95 a month for the print edition, which includes access to the e-edition. The paper aims to drive long-term subscribers, who currently receive free access to the e-edition, to the same price point.
Before the Morning News made such an audacious move on pricing, Belo did some homework by hiring The Modellers, a Salt Lake City-based market research firm with clients like Toyota, Starbucks, AT&T, Burger King and Gatorade, to create some price elasticity models. The group turned to 1,500 ?core? Dallas Morning News subscribers who had taken the paper for three years or more. Moroney recalls, ?We wanted to talk to our core readers and find out if you raise the price, what happens to sales on home delivery.?
Executives wanted to see what threshold proved too high even for the most loyal of readers. And if they quit the paper, would they turn to the Web site for news, or public media organization The Texas Tribune?
As an experiment, Dallas kept raising the prices on the test group in search of the breaking point. When the survey group was asked what their next choice for getting news would be, just 2% said they would go to DallasNews.com.
The group wasn?t just asked about price. The graph also included a curve on news coverage. ?We felt we need to tie it to content,? says Randy Hill, the Modellers? vice president of client services.
The results were startling. When asked about the perception of content
in tandem with price increases, the survey found a 4-to-1 gap in price versus defection. For example, if the paper raised the subscription price but 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, volume would fall by 40%.
There were nuances in what sort of content readers would consider valuable; a paper couldn?t just bulk up randomly for thickness? sake. Readers were very keen and sensitive to specific topics of coverage. Hill says it varies from paper to paper and market to market, but in Dallas the following subjects in descending order were the most important to readers: Nation, Town and City, Business, Texas, Sports, and Investigative Journalism.
They also found that of those subjects, the ones the Morning News could stand to bolster the most were its Town and City and Investigative coverage.
The content/price connectionhit home, and executives decided it was necessary to add back pages. John McKeon, the Morning News? president and general manager, says newshole is now in excess of 300 pages a week.
Filling in the gaps
That trade-off in circ revenue also can potentially alienate advertisers who are already feeling miffed by rate increases. The risk of estranging preprint advertisers is even worse, since they are most sensitive to circulation data and household coverage. That volume decline leaves holes that need to be filled to appease advertisers who still enjoyed the benefits of print, but were increasingly worried about its effectiveness since it was reaching fewer people.
To amp up its Dallas penetration, A.H. Belo started Briefing in August 2008, a free quick-read broadsheet aimed at non-subscribers. More than 200,000 copies are distributed Wednesdays through Saturdays to households with desirable demographics. Almost 80% of the households once subscribed to the main daily, says Mark Medici, the Morning News? director of audience development.
Dallas isn?t straying far from its price increase, caving to subscribers who might balk at the higher cost of getting the paper: Customers who request a break can receive a 10% discount. If they won?t take that, and they are a subscriber the Morning News wants to keep, the paper will offer a 25% discount off the highest price over the next 12 months if they agree to go on EZ Pay or pay a minimum of six months in advance.
Medici notes that 40% of the subscriber base is on EZ Pay, while 60% pays in advance. For 2010, the paper?s goal is to have at least 50% of its subscribers use EZ Pay.
Moroney adds a heartening piece of advice to newspapers looking to swell circulation revenue: ?I believe newspapers around the U.S. have a lot of pricing room if they are willing to research ? and if they haven?t decimated the product.?