When it Comes to Delivery, It's All About Frequency

By: Jennifer Saba Around this time last year, executives at the Detroit Media Partnership decided some extreme measures were in order. The economic downturn had been particularly tough on the Motor City, and on the whole, joint operating agreements (JOAs) have not exactly panned out as the industry and the government envisioned. Several papers in big JOA cities -- including Tucson, Denver, and now Seattle -- are in danger of closing, if they haven't already.

David Hunke, CEO of the Detroit Media Partnership -- which oversees the JOA between the Gannett-owned Detroit Free Press and The Detroit News, published by MediaNews Group ? knew his company was in trouble: It was painfully evident in February 2008 that the newspapers wouldn't come close to meeting their advertising goals. "We were faced with doing the same old across-the-board cuts on every part of the operation," he says.

The press and distribution functions were already running like well-oiled, efficient machines. If the partnership wanted to reduce costs further, the burden would fall on the newsrooms. But slashing expenses that way wasn't going to help the papers.

So Hunke booked himself a trip to Europe.

While visiting Norway, Sweden, and Denmark, he found there were other ways of meeting the partnership's economic challenges. By June, Hunke formally approached Gannett, which controls 95% of the Detroit JOA, with an alternative, radical plan: Discontinue home delivery of both papers, four days a week. "There was a sense we had to do something drastic," he says.

Some smaller papers had already jumped on similar experiments: The East Valley Tribune outside of Phoenix; Wisconsin papers like The Capital Times in Madison and the Daily Telegram in Superior; the Herald and News in Klamath Falls, Ore., which dropped its Monday edition; the Kansas City Kansan (now online-only); and the nationally distributed Christian Science Monitor. But Detroit represents one of the first big metros to stop bringing papers to readers' doorsteps on Monday, Tuesday, Wednesday and Saturday.

It's a big gamble. When asked if the partnership could close one of the papers, Hunke says no. That said, are the Motown dailies an exception, or just in the vanguard to take this path? Are other metro newspapers ? all faced with a serious plunge in advertising revenue ? thinking of dropping days or home delivery too? And if so, what are the risks involved?

Shoot the whole day down
"It's not something we are considering here," says Dan Schaub, senior vice president of audience development and membership services at the Sacramento Bee.

While he acknowledges that every market is different, they're not ready to give up on days or home delivery in Sacramento ? the home base of parent company McClatchy, which is dealing with a burdensome debt load. "Our position is to increase frequency with our readers across all channels across the business," Schaub says. "Our role is to go to market and tout why they need a Monday paper, why they need a Tuesday paper." He adds that all of the Bee's products, from online to the daily to the niche pubs, are important: "We shouldn't short-sell ourselves."

Tribune Co.'s Baltimore Sun also plans to keep intact its frequency and delivery days. Gary Olszewski, the Sun's director of circulation marketing, says his preferred method is to offer customers a variety of delivery packages: The Sun is letting readers make the choice. "From a marketing perspective, you really can't go wrong if the customer is making decisions on what days of the week they want," he adds. "If someone picks a package that is better suited for them, they are going to stay longer as a reader."

One metro's executive who requested his name not be published says there are other ways to prune out a day or two of circulation. Papers across the country have started doing this in force over the last several years by reducing Newspapers-in-Education, hotel, employee and third-party sponsored copies. They've also tightened up distribution to routes that make the most sense.

This executive uses the electronic edition of the newspaper to cut costs. "We used the e-edition capability to allow us to exit print business that wasn't profitable," he says. That includes NIE, bonus days, upgrades ? the kind of circulation that newspapers used in the past to keep their volumes up. His paper offers print packages with e-editions hooked in ? hybrid subscriptions where a reader might get the print edition four days a week and the e-edition the other three days, the days that produce less advertising revenue, as a hypothetical example: "As we did that, we were able to to begin eliminating programs that forced circulation on those early days of the week."

But make no mistake, this paper still publishes the print edition all seven days, and offers readers the option to get it delivered to their doorstep. The strategy is to let circulation drift down to its natural levels instead of artificially supporting it on lighter days.

"In a sense, we eliminated a Monday," he says. Why make the true-blue, seven-day subscribers angry by making print available on only a few days? he asks. And by employing this strategy, the paper is saving millions. "Our position right now is the market has spoken," he adds. "If 80% of subscribers want [the print edition], let them have it."

Detroit a special case?
The Detroit market, though, has not been so kind ? and executives had to make some bold moves. While Hunke declines to comment on whether the JOA partnership is profitable, one could draw conclusions given the state of newspaper advertising revenue and the state of Michigan. Going back to the mid-1990s, the papers were severely hobbled by the newspaper strike, a standoff that caused circulation to slide 35%.

Hunke also declined to say how much Detroit is saving by eliminating four days of home delivery. Sources estimate it at about $50 to $60 million.

Prior to dropping home delivery, the papers accepted free-standing insert advertising every day but Hunke says that 87% of pre-print revenue is made from Thursday, Friday and Sunday editions ? the same days the partnership chose to keep home-delivery routes.

One-third of subscribers pay for seven- day home delivery ? a little more than 100,000 according to the News and Free Press' latest publisher's statement. When the days are fully eliminated ? March 30 is the goal ? those subscribers have three options for Monday, Tuesday, Wednesday and Saturday: They can take the e-edition along with print for $11 a month, they can drive to places like Kroeger, Starbucks or CVS and pick up a single-copy edition, or they can choose to have the copies mailed to their homes.

"I have a very specific goal for 2009 that I want to see us achieve ? not the least is completely reversing the trend on cash flow," says Hunke. "We have expectations on retention and the subscriber base." He adds that it will take about 13 weeks to see clear indications as to whether the new strategy is working.

Dangers of dropping
Editions delivered to the home ? asked for and paid for ? are one of newspapers' biggest selling points to advertisers. It's the type of circulation that newspaper executives love to tout: Yes, our average daily circ fell 6% but look at our home delivery numbers, they're growing!

Any break in continuity could have lasting and possibly disastrous effects on that selling point. "What about the readership habit?" asks John Murray, vice president of audience metrics at the Newspaper Association of America. "That is the big one that scares me." He says that at one point, a lot of newspapers on which he keeps tabs had considered dropping days ? only to decide against it: "Most of them have gone the route of consolidation."

Murray concedes the opening months of 2009 are proving to be even more dismal than 2008, and that by this spring publishers might be forced to reconsider more drastic options they had shelved.

Jeffrey Tucker, a partner in the media and entertainment practice at Booz & Co., deals with several newspaper clients in need of managing costs. They are looking at "what used to be unthinkable," he says: editorial partnerships between rival newspapers, cutbacks in distribution, newsroom restructuring.

Tucker echoes the same concerns expressed by the NAA's Murray. Cutting print editions on certain days of the week or scrapping home delivery on weak days could easily alienate readers. "To a large extent, you are playing with fire," he cautions. "You need to be quite careful to avoid becoming irrelevant."

It's not just any reader a newspaper risks by trimming its frequency and home delivery ? it's the most loyal readers. Newspaper circulation economist Matt Lindsay of Mather Economics says that whenever he does retention modeling, the seven-day customers are found to be the most devoted group. "If you have a price increase, they are the ones who absorb it," he notes. "Sunday and weekend customers are the least loyal. In turning all these seven-day customers into lower frequency [customers], my concern would be, you would lower the loyalty of your customer base."

Lindsay says that at one newspaper he works with in the Northeast, the seven-day subscriber yields an average $4.50 a week in preprint and circulation revenue. The production cost per week for that subscriber, on average, is $1.13, and the average delivery cost is 87 cents. Lindsay stresses it's important to look at the outliers: customers that actually cost newspapers 55 cents a week because they may not live in an attractive ZIP code, for example, compared with others, who bring in $5. Circulation can be trimmed by eliminating the routes that cost newspapers.

If a paper does opt to drop a day, it's better to eliminate the entire production run for that day rather than not delivering, according to Christine Urban of Urban & Associates. She says cutting home delivery does more damage than good: "It's disheartening to imagine the way we are going to save money is by taking away the most fundamental thing we offer to readers, which is home delivery."

Urban frames her concerns on types of readers. If circulation is divided up in three layers, the most loyal are the seven-day subscribers, who keep readership numbers steady (the reason why circ declines are in the mid-single digits, while readership is down around 1% to 2%). Readers in the second layer often, but don't always, pick up the print edition because the paper does a decent job covering the local market. The third type of reader is the most marginal, the kind that continually need to be convinced of the newspaper's value.

By cutting seven-day home delivery, Urban says, the paper is offending its best customer. "These home-delivery subscribers are not going to run down to the store" or start going online, she adds.

Dropping days also chips away at advertisers' confidence in newspapers. Christopher Cope, president and CEO of the preprint planning and buying company American Communications Group, thinks Detroit is a special case, given the embattled automotive industry. "Even in good times, they have not been the same paper since the strike," he says. "They have so little to lose."

Yet Cope warns that other metros thinking of dropping days could negatively affect their business. Like readers, advertisers appreciate continuity.

"Some of our clients have built up a cadence," he says. For FSI advertisers that place buys in hundreds of newspapers, not being able to drop inserts in, say, a Wednesday paper because some markets eliminated that day would have a significant impact. Using a hypothetical example, he says, "In Columbus we can do this and in Cleveland we can't, it will pose some issues."

It's become fashionable of late to beat up on newspapers, to question the usefulness of the print edition. But the industry shouldn't buy into that way of thinking, Urban stresses.

"I think we have so convinced ourselves its OK that print goes away" and that people get their news and information online, she adds. "There are hundreds of thousands of people in markets that do not get their news from the Internet and, thank you very much, don't want to get it from the Internet."