Rumbo: The Last Paid-Circ Start-Up?

By: Mark Fitzgerald Normally, news that an ambitious newspaper start-up has been forced to retrench in its second year is not exactly a stop-the-presses occasion.

But these are not normal times in the newspaper industry, and the goings-on this spring at the Rumbo Spanish-language newspapers in Texas may well represent the end of one era in newspapering -- and the beginning of another with profound implications for the paid-circulation business model that has sustained U.S. newspapers since before the days of the penny press.

When Rumbo launched in the summer of 2004, it had a brilliant plan, backed by a ton of research, to become that increasingly rare thing: a paid Spanish-language newspaper. So when Meximerica Media Inc. announced that it was converting its Houston, San Antonio and Rio Grande Valley papers to free distribution, cutting their frequency from five days to three, and folding its fourth paper in Austin, to help finance the changes, I called CEO and Editorial Director Edward Schumacher Matos to talk about what went wrong.

"I'm beginning to think we may be the last company to launch a paid newspaper in any language," Schumacher Matos says with a rueful laugh.

Every newspaper situation is unique, and Rumbo had plenty to set it apart from mainstream newspapers besides its Spanish-speaking target audience. Meximerica started papers in four cities simultaneously and entirely from scratch. The five-day dailies faced tough competition from free Spanish-language papers in their biggest markets. Advertisers liked the daily concept in theory, but in practice they bought space just once or twice a week. And Meximerica lost its original financial backer, Pearson Plc's Madrid-based Recoletos Grupo de Comunicaci?n less than a year after launch. (Rustic Canyon, a private equity firm founded by former Times Mirror Co. executives, and Pinto America Growth Fund of Houston soon stepped in with an $18 million investment.)

But it's Rumbo's similarities with almost every other recent newspaper startup that poses the question of whether the venerable paid-circulation business model is at long last defunct -- and not just for niche papers.

Because if Rumbo could not make it as a paid-circulation daily, you've got to wonder who can. Rumbo had some heavyweights behind it, starting with Schumacher Matos himself, who was the founding editor of The Wall Street Journal Americas. Urban Associates researched the concept, and Roger Black of Danilo Black designed the tabloids.

Most impressive of all, though, was Rumbo's plan to move from launch to paid circ. Most papers just print a cover price, sample for a couple weeks, and hope for the best. Rumbo hired the Miami-based guerrilla marketers Estrategia Hispana, which in each city identified hundreds of Latino hangouts, from bus stops to taco stands. Crews of 25 were sent to mix and mingle, handing out the paper with a cleverly scripted one-on-one sell job. As the campaign progressed, the marketers would hand out tokens to be exchanged at retail shops for a copy. Eventually, according to the plan, people would reach into their own pockets for the quarter cover price. The campaign cost some $2.7 million.

There was no reason to think it wouldn't work. Focus groups were enthusiastic, and the price was no barrier. "What people say and what they do are two different things," Schumacher Matos says now.

Hispanics, who skew young as a demographic, proved no more regular a reader of paid papers than the young people who are forcing mainstream publishers to chase after them with quick-read giveaway papers. "If they read Rumbo once or twice a week, they'd call themselves 'frequent readers,'" Schumacher says.

Whether aimed at niche or mainstream audiences, newspapers are finding increased resistance to paid circulation. Just a couple of months before Rumbo's announcement, the Dallas Morning News' Spanish-language daily, Al D?a, went to free distribution. The Chicago Tribune's tabloid daily RedEye went free last September, after three fruitless years of trying to get its 18- to 34-year-old target audience to spend a quarter for it. Every other quick-read start-up never even bothered with a cover price.

In a way that not even radio and TV newscasts were able to do, the Internet has taught an entire generation to expect to get news for free. Right now, that attitude is having its greatest impact on niche start-up papers, but this information-must-be-free thinking is already hurting the single copy sales of mainstream newspapers.

Daily newspaper cover prices have been stuck at 50-cents for what feels like forever. Only a few papers -- The New York Times, USA Today, and a handful of entrenched monopoly dailies in isolated markets--have been able to make cover prices north of four bits stick. How long will it be before even this Reagan-era price becomes a barrier to sales?

Mainstream papers can take some comfort in Rumbo's travails. Since going free, Schumacher Matos says, the paper's pick-up rate has tripled in spots that were the worst selling. Free papers are valued by readers, not disparaged as advertisers, publishers -- and journalists -- long feared.

At the time of Rumbo's launch, Schumacher Matos says, "The editorial staff was admanant about being a paid paper because it gave them a sense of self worth.

"Now, they're adamant about being free -- because they want to be read."