NEW YORK (AdAge.com) -- Newspaper executives are spending 2009 tearing their hair out for giving away online news instead of charging for it, like they do in print. The nostalgia for properly paid content, however, overlooks the reality that newspapers got dangerously addicted to advertising long before digital came along.
They got addicted to advertising, in fact, precisely because digital didn't exist yet to siphon away the ad revenue that piled up without major-market newspapers having to do very much to attract it. Readers were seen as eyeballs to sell to marketers, so the more of them the better. Discounted subscriptions and cheap home delivery proliferated. The big question is whether newspapers can still make a U-turn.
Publishers in the '80s and '90s could expand circulation 2% and know advertisers would accept a commensurate rate hike, as Hearst Newspapers President Steven Swartz pointed out at a "Future of Newspapers" panel last week. Where else were those advertisers going to go?
"The conversation with the advertiser started with 'Well, of course we're going to raise the rates 2%,'" Mr. Swartz said. "And then you'd say, 'Of course we need an inflation increase.' So let's start -- we're starting this conversation: 'You're going to pay me 5% more.' And then let's talk about bigger ads, more ads, whatever."
How it used to work
That's why publishers actually encouraged advertisers and ad agencies not to worry about how much readers paid for the paper. Paying customers count for a lot, the argument went, but so do other members of a household who read a passed-along copy; readers who buy the paper for a discount in the afternoon; and those who see copies sponsored by marketers and distributed free. And most newspapers saw TV as their main competition, so selling as big an audience as possible to marketers looking for wide exposure worked. More newspapers on the street and delivered to homes, largely funded by the advertising revenue, became the norm.
Many newspapers grew to rely almost entirely on advertising. In its most recent financial report before filing for Chapter 11, for example, Tribune Co. said it got 73% of its revenue from advertising over the first three quarters last year -- but just 16% from circulation. McClatchy Co. just reported getting 83% of its 2008 revenue from ads -- compared with 14% from circulation.
Now, however, newspapers face many more levels of competition, thanks to the internet, and its ability to target. In 2008, national papers' print ad revenue from display ads sank 9.6% to $1.6 billion from $1.7 billion, while local newspapers' ad revenue dropped 10.2% to $11.9 billion from $13.3 billion, according to a March 13 report by Nielsen. (Those figures do not include classified revenue.) The lopsided dependence on advertising is making it difficult for newspapers to keep their balance this year.
When diving into newspapers' circulation practices, it becomes apparent that readers haven't paid their fair share of the true cost for some time. Only three-quarters of the Miami Herald's "paid circulation" comes from people paying at least half the basic prices, according to its most recent statement to the Audit Bureau of Circulations. That proportion is 87% at the Seattle Times and the Chicago Sun-Times.
Post vs. Daily News
And in the trenches of one of the last remaining newspaper wars, "paid content" is even cheaper for readers. Just 85% of the New York Post's paid weekday circulation in the last period came from people paying at least half of the basic price, down from 97% five years earlier, its Audit Bureau reports reveal. Readers pay for print editions of the Daily News even less frequently: Just 78% of its paid weekday circulation garnered at least half the basic price, down from 90% five years before.
The proportion of overall readers paying at least half the basic price fell to 89% in 2003 from 94% last year, according to an analysis of the papers audited by the Audit Bureau in each of those years.
The Post and the News declined to discuss their circulation strategies. But the industry hasn't been shy. "I do think we can change that dialogue from 'How many units of the newspaper did we sell today?' to 'How can we help you reach your audience and your customer?'" John Kimball, senior VP and former chief marketing officer at the Newspaper Association of America, said in a discussion of the subject two years ago.
And media buyers have come along. Readers' engagement matters most, said Eric Blankfein, senior VP-director of channel insights at Horizon Media. "I don't think paid vs. non-paid is as much the issue as auditing the actual contact."
Still, two years later, the industry has not yet arrived at a good way to measure engagement.
More discounting to come?
Once the latest circulation reporting period ends March 31, moreover, new rules from the Audit Bureau of Circulations will encourage publishers to discount more deeply and often. The minimum price for a copy to qualify for "paid" will fall to one cent, for example, from the current requirement that a reader paid at least 25% of the basic price.
And rules that make publishers break out how many people paid at least half the basic price will be replaced by rules mandating a breakout for people who paid at least 25%. And that will get broken out only when at least 5% of paid circulation comes from people paying less. That whole breakout will also move behind a firewall.
As ad revenue craters in print and online, newspapers are suddenly talking up circulation revenue. This time, though, it's not to impress advertisers. It's to help save their bottom lines.