Some Papers Give Up Circ in Favor of Long-Term Growth

By: Mark Fitzgerald Over the last year, as the latest Audit Bureau of Circulations (ABC) figures show, the circulation of The Bakersfield Californian dropped like a rock. Never a very big paper to begin with, the Californian sold an average 6,387 fewer copies in the six-month period through this March than in the same time during 2003. At 63,341, the paper's daily circulation is 9.1% smaller than it was last year ? and 12.4% less than in 2002.

But Californian Circulation Vice President Graham Annett looks at those numbers and figures the newspaper is finally heading in the right direction. "Quite frankly, I have re-engineered our [circulation department] to set us up for long-term growth," Annett said in interviews conducted both by e-mail and telephone.

Behind the year-to-year drop that would make some circulation executives blanch are numbers many would envy: Fully 71% of subscribers now pay a half-year or a full year in advance or make payments automatically through EZ Pay; subscriber churn has fallen "substantially" to 28%; nearly 80% of new customers are still taking the paper 90 days later; and home delivery is up 1%.

The Californian's losses were the predictable result of a strategy adopted two years ago to stop selling subscriptions in areas with high churn ? and little attractiveness to advertisers. "We wanted to stop 'renting' circulation," Annett said. "I believe newspapers are renting a certain portion of their circulation [growth], with a lot of it coming from telemarketing. When you dig down into their numbers, there's a lot of third-party sales and heavy discounting, and home delivery circulation is actually down."

In an industry that has been shedding circulation for more than a decade ? and declining in household penetration since the TV set became ubiquitous ? this latest ABC FAS-FAX reporting period was nothing exceptional. A Newspaper Association of America (NAA) analysis showed overall daily circulation was off 0.1%, and only 37% of dailies reported an increase. Yet among that very long list of papers with declining or flat circulation are a small number of dailies that are dropping out of the chase to top their year-ago figure in favor of cultivating so-called "permanent" circulation.

The Dallas Morning News, for instance, reported that its circulation had slipped 0.4% to 529,879, Mondays through Fridays, and fallen 3.9% to 755,912 on Sundays. Yet the number that executives at the paper undoubtedly examine most closely does not appear in the FAS-FAX: the results from Collin County. Since March 2003, the Morning News has been adding extra pages of news, sports and entertainment to copies that circulate there. It's also bulked up its circulation sales and service effort there, even reducing the geographic size of districts. The idea is to build permanent circulation gains in a county that, according to the Dallas Business Journal, has a median household income of $70,835, or nearly twice the Texas average.

John G. Walsh, the Morning News' senior vice president/circulation, won't say how much circ increased in the county in this first full year of the Collin County initiative, as it's known internally. Circulation was up, he said, although not enough to offset losses elsewhere in the market. "We were really trying to figure out whether or not having a local seven-day effort would help us from an acquisition and retention standpoint, and, frankly, it's worked on both accounts," Walsh said. Subscription starts are up, and the county's retention rate is running 10% better than the paper's market as a whole, he said.

"Doing these things costs a little more on the expense side, but we think it's worth it in the long run," Walsh added.

This strategy of concentrating on permanent circulation gain is likely to become far more common ? whether newspapers like it or not. The arrival of the nationwide Do Not Call list has essentially taken away the option of telemarketing, which had become the crack cocaine for newspapers that wanted a quick circulation boost.

"The rules have changed ? and thank God," said Miles E. Groves, president of Washington, D.C.-based MG Strategic Research. Newspapers, he said, now will have to concentrate on long-term strategies of optimizing circulation from their markets, or creating new products to attract customers who do not read their papers. "The easiest way to make your rate base or maintain circulation was to turn on the telesales lever," said Groves, the NAA's former chief economist. "But it's also the most expensive way to get circulation, because those people drop out, and you have to spend more to replace them. Focusing on quality circulation, [and diversifying] the products you produce ? that always makes sense."

Groves noted a recent Deutsche Bank Securities study that concludes publicly traded newspaper companies do better with Wall Street investors when they build quality circulation in numbers that exceed what might be expected of their market.

But Groves said that many papers choose instead to post attractive margins, quarter after quarter, by cutting circulation costs via such tactics as retreating from traditional circulation areas. Indeed, the decade-plus decline in circulation coincides with the period when papers such as The Des Moines Register stopped distributing beyond their metropolitan areas.

"There are several newspapers out there that used to be state newspapers, and they're not now," he said. "A lot of things that we have done have helped accelerate the decline of circulation ... They may seem to be cheap up front, but in terms of circulation units, they become very expensive."

In Bakersfield, the Californian eliminated telemarketing two years ago, circulation chief Annett said. It also diversified its products, starting a Spanish-language paper, and, in May, launching The Northwest Voice, a weekly delivered for free in an area where most residents would subscribe to the Californian for only as long as they could get it for a deeply discounted price.

"We took a short-term dip," Annett added, "but we expect long-term growth for years to come."