Push Comes to Shove

By: Jennifer Saba Newspaper circulation has been gently erod- ing for decades. It's a given that every time a FAS-FAX report rolls around there will be some decline, usually by small percentages. But this spring saw a larger dip than usual: The industry experienced the steepest drop in circulation in the past 10 years. "These are bad numbers," says Merrill Lynch analyst Lauren Rich Fine.

For the six-month period ending March 2005, daily copies fell 1.9% and Sunday slipped a surprising 2.5% for the 814 daily and 643 Sunday newspapers measured in the report, according to the Newspaper Association of America (NAA). That performance would have looked even worse had Newsday, the Chicago Sun-Times, The Dallas Morning News, and Hoy ? all of which are under censure for inflating circulation ? been included. (Dallas, for example, later reported huge losses, as did a non-censured paper, the San Jose Mercury News.) Many other dailies suffered too, from San Francisco to Boston.

Of the top 20 newspapers, only four reported increases in daily circulation (see chart), and barely, at that. As for Sunday, only two of the top 20 papers could claim victory. Meanwhile, the losses stood out. While only a handful of major papers usually report decreases in the 5% range for any six-month period, this time 5% or more was nearly the norm. As expected, Tribune papers lost the most, with The Sun in Baltimore down a shocking 11.5%.

The reasons for the sharp declines include the usual suspects ? excuses of bad weather and shifts in demographic trends. However, more factors were at play this time, explains NAA Vice President of Circulation John Murray, including the full effects of the Do Not Call list, changes in Audit Bureau of Circulations regulations, and the deliberate weeding out of certain types of unappealing circulation. But is there more to the story than that? What can be done to halt the slide? Or, no matter how hard the industry fights back and maybe even rallies, is this essentially a losing battle?

Don't call me, I'll call you

Though no new papers have come forward or been outed with circulation fraud, the industry is still reeling from last summer's upheaval. New ABC rules implemented in the wake of the circulation scandals are starting to take hold.

The big one affecting larger metros is the "days-omitted" rule. Newspapers used to enjoy a soft cushion when they were allowed to strike as many as 40 low-selling days, citing such factors as inclement weather or holidays. Now they can take only 10.

Aside from new rules, newspapers are just now starting to feel the full impact of the federal Do Not Call list, which went into effect in October 2003. Murray says that roughly 40% of all available U.S. phone numbers are now on that list, as opposed to 10% two years ago. "That's dramatic," he says.

Certain newspapers that relied heavily on telemarketing felt the restrictions. The Press-Enterprise in Riverside, Calif., for example, a paper that often proclaims circ increases, was down this spring 1.8% in daily and 3.2% on Sunday ? and that's in a growing market.

Belo's Vice President of Investor Relations Carey Hendrickson explains that the paper is now relying on door-to-door crews for new starts, as opposed to the telephone. Record local rains, he says, impeded efforts on foot, hence the slip in circulation. Hendrickson points out that since 1999, the paper is still up in circulation 13% daily and 7% on Sunday despite the soggy March numbers.

The Chicago Tribune felt the same blow even though the paper has been making an effort to cut its dependence on sales calls. "I'd say telemarketing was a big factor," says David Hiller, president and publisher of the Chicago Tribune Co., while adding that "there was also some falloff in response rates from door-to-door contractor channels." Hiller says he is not satisfied with circulation decreases, and expects trends to significantly improve in the balance of the year. Still, he concedes that the Tribune will be down modestly in upcoming months.

To goose the circ numbers, the Tribune launched a branding campaign and new sections like "At Play," which focuses on entertainment. Hiller denies the youth- oriented RedEye swiped readers from what corporate calls the "blue" paper, adding that the impact, if any, was minor.

Some papers, however, aren't willing to give up on telemarketing. Circulation Director Jay Gillespie says telemarketing ?with a twist ? is responsible for much of the fast growth of the Citrus County Chronicle in Crystal River, Fla.

"After the Do Not Call list was initiated, our telemarketing production jumped," Gillespie says. The Chronicle still uses updated lists to call out, but now also emphasizes call-ins. On Sundays and again on Tuesdays, the paper promotes two-hour call-in specials on Tuesday evenings. But callers must agree to a year's subscription, prepaid, to get the best deal. "We're averaging 40% prepaid from our telemarketers, and averaging about 50 calls on Tuesdays," he says.

In the most recent FAS-FAX, the Chronicle reported that daily circulation grew 2.1% to 28,475, while Sunday was up 2.7% to 32,112. Since 2003, daily circulation has grown 7.5%, and Sundays 8.6%. Located two hours north of Tampa along the Gulf Coast, Citrus County is a growing area ? but the Chronicle is growing faster. "We're 0.75% ahead of the growth rate," Gillespie says.

Getting away from 'other paid'

As newspaper executives wrestle with new ways to find starts, they also have to contend with the growing chorus of discontent over the "other-paid" circulation category ? another outgrowth of the circulation fraud. This category includes hotel copies, Newspapers in Education (NIE), and third-party sponsored copies. During the first-quarter earnings call, many executives pre-announced bleak circ figures, adding that the dropoff often had to do with a renewed focus on home-delivered and single-copy sales.

Claiming that the most significant factor in the latest numbers was the outgrowth of the circulation scandal, Peter Appert, an analyst with Goldman Sachs, says, "You're seeing companies cleaning up their circulation, focusing on quality. Which begs the question, what were they thinking about before?"

Merrill Lynch's Fine agrees, but noticed a variance in what executives said they were doing and the story the numbers told. After analyzing a handful of newspapers, Fine found that other-paid circulation still grew, and the 50%-or-more-paid category was down 5% daily and 7% on Sunday.

Furthermore, the increase of copies in the 25% to 50% paid category was staggering, up almost 41% daily and 86% on Sundays. She notes that at least this "shows a willingness that people will pay for your product. If you can still make money with a discount, that's great," she says.

The growth in the 25% to 50% category illustrates what newspapers will do to hook new starts, offering potential subscribers extended discounts and incentives to continue taking the paper. It also keeps them on the phone line. Newspapers are allowed to call them as long as they are customers. Once they drop the paper, odds are their number will show up on the Do Not Call list.

The Baltimore Sun's change in direction caused its circ to nosedive in double digits when the paper greatly reduced the number of other-paid copies for conventions, hotel rooms, and NIE programs. "The reason why we did this is because our advertisers said this is not the circulation they wanted," says Alonza Williams, the newspaper's public affairs manager.

The days of our lives

The Sun is one of the few papers already reporting day-by-day numbers, foreshadowing another ABC rule change that will show up in the next FAS-FAX. This new regulation gives advertisers a certain transparency for which they have been clamoring in recent years. Instead of heaping daily circ into one lump, mitigating declines with a daily average, the new rule will expose weak circ days for newspapers.

"The reality is, advertisers know that papers may sell more [copies] on Thursday than on a Tuesday," says John Kimball, the NAA's senior vice president and chief marketing officer, by way of example. Kimball also sits on the NAA/ABC liaison committee, where executives have been hammering away at this new rule for months. "There are no particular surprises," he says. "Advertisers want as much information as possible."

However, advertisers ? specifically ROP advertisers ? never had the numbers to refer to. There's some concern that the new data will put pressure on rates, as advertisers use the information for different pricing strategies.

The Sun, one of the canaries in the coal mine in this case, found that Wednesday and Friday circulation dropped a staggering 16.7% and 14.4%, respectively. Williams notes that they were big NIE days. The paper phased out the program late last year.

The Plain Dealer in Cleveland and The Record in Bergen County, N.J., also went day-by-day but reported little fluctuation, save for a spike on Fridays. The Rocky Mountain News in Denver showed solid gains on both Fridays and Mondays.

The Chicago Tribune was all over the map, with the following weekday numbers, starting with Monday: 467,534/466,133/ 670,529/ 590,428/684,199. That factors out to a weekday average of a little better than 570,000, with two days far above that ? but two days well below. A check of the day-by-day numbers shows that "other paid" represents almost 10% of the Thursday numbers, far less on all other days.

The Orlando Sentinel, another Tribune paper, is located in a city where conventions play an important role in the economy. It pinned its decline on "a change in strategy with respect to hotel visitors," Kathleen Waltz, CEO of Orlando Sentinel Communications, says in a statement. "We decided to change our single-copy strategy and to intentionally minimize Orlando Sentinel distribution to out-of-town-visitors."

It's still unclear whether advertisers will warm to the idea that executives are sweeping up bulk copies. "I don't know if a lot of advertisers look at these numbers, and that's the disconnect," says Fine. National advertisers and agencies pay attention, but locally it's another matter, she explains. Local advertisers probably base their buys more on whether ads drive traffic to their businesses, not on circulation reports.

John G. Miller, a managing partner at MediaAge:cia in New York, thinks there might be a silver lining in the declines. "Maybe the numbers are really more valuable. Though the circulation is smaller, it's addressed to the people we want to talk to," he says. "If that's the case, they really need to sell that."

Miller's concern is the lack of industry response to the steady and sometimes steep declines: "I want to see some action."

A shift to long-term thinking

Yet it's not just the big metro papers that are paying attention to other paid. Analysts' reports (some published by E&P last year) that detailed the fast growth in other-paid circulation made Mark Cedeck, circulation director for the Daily Journal in Park Hills, Mo., take heed. "I was concerned and upset by it," he says, referring to the Deutsche Bank report that came out late last summer. "It pointed out the category of home-delivered [papers] was very important to the community and to advertising. It was a matter of pride and competitive desire to succeed in that category."

In the latest FAS-FAX, his paper went up 2.6% to 8,612, and on Sundays rose 7.3% to 8,838 copies ? all by concentrating on home-delivered copies. "I wish I could tell you there was a razzle-dazzle formula, but we just used steady start pressure and quality customer service," Cedeck says, adding that 80% of subscribers pay the paper directly rather than carriers.

The strategy of cutting other-paid circulation may work for some papers though there's also the risk they could be pushing it too far. NIE copies, for example, are valuable in intangible ways because they capture new and young readers. "It's a very dangerous balancing act," says Goldman's Appert. "[Newspapers] are working hard to protect their profitability, but you want to make sure you're not ruining your long-term product. Pesky analysts like me are always whining about one thing or another, particularly profitability. That's the problem with being a public company. NIE is a long-term investment in your franchise ? but it's money out the door, right now."

Not all papers are slashing that category. Scott Heekin-Canedy, president and general manager of The New York Times, says since 1999 the Times doubled its NIE circulation. Including its college readership initiative (which doesn't fall under NIE), those copies account for 10% of the paper's circulation. "We believe it's a strategic commitment," he says. The Times claims a high percentage of college students read the print version of the paper on a weekly basis. "It's proof that the efforts we have made over the last six years have had an effect," he declares.

Not a full-gainer, but a success

As much as the FAS-FAX shows major declines, there are papers both large and small that have experienced growth. E&P Online ran a list of 70 papers that gained both daily and Sunday, but they were mainly smaller papers showing tiny increases ? a mere two or three copies in some cases.

The Fort Worth Star-Telegram was one of the few larger papers to make gains, advancing 0.4% in daily copies to 235,060 and 0.3% in Sunday copies to 333,933. Happy with the growth, Vice President of Circulation Weldon Whiteman says part of it is just location: "We are blessed with a market and a product that fit well together." Forty thousand of those subscribers pay a year or more in advance, he notes. "We don't have mass transportation, we don't have a tremendous single-copy presence. Bad weather doesn't really affect us." Roughly 85% of the paper's circ is home-delivered.

Whiteman explains the paper's relatively low other-paid category, about 9% of total circ, also helps. However, that grew 26.7% when compared to the same reporting period last year (see page 60). But he notes that other paid is a very useful tool. The Star-Telegram picked up 1,600 subscribers last year from third-party sponsored copies: "Third party often gets a slam ? but the customer our advertiser wants is the one I want."

It's an opinion shared by Keith Tanoos, regional director of circulation for Tahoe/ Carson Area Newspapers. One of the papers under his watch, the Nevada Appeal in Carson City jumped a whopping 9.8% daily to 16,804 and 11.8% on Sunday to 22,888, according to the latest FAS-FAX.

The paper went through a major redesign two months ago that helped the numbers, but the Appeal also reaped benefits from mass distribution days where every household and business in the market receives a free paper, sponsored by advertisers. Tanoos says the advertisers love this approach because it drives traffic to their business, and the paper loves it because they pick up single-copy sales and home subscribers.

Some papers like the Sarasota (Fla.) Herald-Tribune attribute readership initiatives and new marketing methods to circulation increases. The paper's daily circ rose 1.6% to 123,231, though its Sunday circ fell 1% to 145,084 (due to Hurricane Charley, it claims). Telemarketing orders accounted for 21.8% of new starts during the six-month period, while direct mail accounted for 31.3%. The direct-mail starts retained readers 25% more than telemarketing.

The Herald-Tribune also named a readership editor. Trying to capitalize on the Readership Institute's initiatives, the paper is pushing content promotion, including a section called "Hot Topics" in which editors introduce a newsworthy subject and then publish an explanatory piece urging readers to respond. Their feedback is published the following week. "We are putting a great deal of emphasis on local news, and I think it's the keys to the kingdom," says Publisher Diane McFarlin.

The Bulletin in Bend, Ore., is making a concerted effort across the board and is seeing results, with 4.8% increase in daily copies to 27,989 and a 3.2% increase in Sunday copies to 28,871. Of the nearly 1,300 copies gained by the paper, 60% of those were home-delivered. Twenty percent came from single-copy sales, NIE accounted for 15%, and 5% consisted of third-party sponsored sales. "We believe in quality, not quantity," says Keith Foutz, corporate circulation director for Western Communications. It's the little things, he says, that count toward retaining customers, even something as simple as sending out thank-you cards with a free packet of coffee.

What happens next?

Though some papers made gains, many industry experts and executives predict the next couple of reporting periods will be just as bleak ? particularly as they continue to slice circulation in certain programs. "I think [the industry] can have one more really bad period," says Fine. "I get a sense we haven't cycled through this."

A year from now, those few papers that increased circulation in March 2005 will have more difficult comparisons. The Star-Telegram's Whiteman says that the next year is "going to be extremely tough" for his paper. So does Sarasota's McFarlin, who says that while she is budgeting growth, the percentages will go down.

Even McClatchy Chairman, President, and CEO Gary Pruitt, whose company consistently adds readers, concedes the path ahead is difficult. He thinks the decline will, at least, slow to around the old norm of about 1% a year. "It's troubling," he confirms, "but at the same time, we're holding on to our audience better than competing media in the local market."

Most McClatchy papers are in markets growing faster than the national average, which certainly helps ? though many other newspapers in similar markets experienced drops this period. While Pruitt says there is "no silver bullet," certain factors like a high-quality product, appropriately priced with excellent circulation service, provide a lift.

On the flip side, most papers next year will have an easier time improving upon this year's weak numbers ? that is, if the trend does not accelerate downhill.

Tribune Publishing's Vice President of Circulation Vincent Casanova says that circulation for his papers should improve as they focus on individually paid circ and move away from the telemarketing crutch. But he says he's aware of the challenges the industry faces: "We believe we are going to live with lower subscription sales volume and hopefully retain them better."

Meanwhile, publishers are slowly pushing towards a readership model, which will help. "The industry isn't wringing its hands [over the numbers], they knew they had a problem and I think we're just now finding out," says Fine. She notes that the launch of new products like youth-oriented and ethnic papers will help the industry to survive.

The NAA's Murray says, "I think that every day they sell by readership, and let go of that bottom-line circ number, will help. "That needs to be a paramount goal," he adds, "and papers should go to market with that in mind, because I don't see the circulation numbers turning around."