With Newspaper Stocks Trading Some 30- 40% Below Fair Value, They Needed Some Good News This Week, But the Semi-Annual Circulation Figures Issued Sure Didn’t Help The Cause

Philip M. Stone November 7, 2007

With publicly traded US newspapers undervalued by some 30-40% all it would really take is a little good news to get things moving in the right direction -- witness how the New York Times shares went up more than 9% on the day it announced improved Q3 earnings -- but unfortunately the latest audited circulation numbers out this week just pile on the bad industry news for lower daily and Sunday circulation.

There are some of the usual excuses -- distribution areas have been reduced, advertiser-paid deliveries are also down, but also in some cases there are higher bulk sales, too -- but the real bottom line when all is said and done is that US. circulation is still in decline – daily circulation was down an average of 2.5% and Sundays were down 3.5% according to the Audit Bureau of Circulations, based on a year on year comparison.

But if the comparisons were made not year-on-year but rather on just the past six months, the changes from last March’s official numbers, the results are even more startling.

At the New York Times where a newsstand and home delivery increase went through in the summer resulting in circulation revenue gains in Q3, actual circulation took a nosedive down 4.51% to 1,037,828 – perilously close to that psychological 1 million bar – when compared to the same time last year. But compared to the last six month reporting period  ending in March, The Times then had a circulation of 1,120,420 which means in the six month period it actually lost  7.4%, down  82,592 copies.

The Times and probably many other publications are studying very closely the expense of higher circulation. If charging a higher cost-per-copy results in some circulation losses but at the end of the day when everything is taken into account, less newsprint and ink used and the like, and the bottom line is stronger with the lower circulation then the accountants are going to win the day.

Another classic case study is the war between the New York Daily News and the New York Post.  In the last audit period for the six months ending March 30 The Post had finally pulled ahead of the Daily News, by some 6,600 copies daily. To celebrate the Post, that had been charging 25 cents since 2000,  doubled its newsstand price back up to 50 cents to be even with the Daily News. But the arch-rival was having none of that and announced that for a week or so it would cut its price to 25 cents.

And the result, apparently, was that The Post got slaughtered at the newsstand. Some Manhattan newsstands reported drops of 20% or so in Post sales whereby sales for the Daily News were said to have increased some 30%. The Post wisely backtracked to 25 cents, and the Daily News went back to 50 cents.

So what happened six months on? Basically, both newspapers got slammed, but the Post worse than The Daily News. In the March ABC the Post has  circulation of 724,748, nipping The Daily News at  718,174, but this time around The News came in at  681,415 – down 5.2% from March, but The Post scored just 667,119 down 8%, with both notably below that 700,000 mark.

The lesson learned there, of course, is that it is very very difficult to get a 100% price increase across, and  The Post discovered that while there is a section of New Yorkers willing to pay 25 cents for it, a sizeable number also figured if they had to pay 50 cents for their nightly read then they might as well buy the Daily News.  Not exactly the financial news that Mr. Murdoch really wanted to hear from his only US tabloid that still continues to bleed red ink.

And talking of Murdoch, he no doubt took note that the Wall Street Journal saw its circulation drop  by 1.53% to 2,011,862 on an annual basis , again perilously close to its 2 million psychological bar, but since last March the drop is 50,430 copies (2.5%).

And while much has been made of the Philadelphia Inquirer having a year on year increase of 2.31%, when compared on a six-months basis from March it is actually down 14,333 copies (4.1%).

USA Today shows strength on the annual and six months basis. Compared to a year ago its numbers are up 1.4%, and compared to six months ago its numbers are up  0.7%.

The newspaper industry understands full well that just announcing circulation numbers these days is only to announce bad news, so this time around the audit bureau has released, along with the traditional numbers,  figures from Scarborough Reports that give a total number of readers for some 200 newspapers for their online and print editions and it claims not to double count.

The basic results of those numbers is that for the past couple of years when total readership is taken into account the total readership numbers haven’t changed much, if anything they’re a bit up.

The big question is what will advertisers do with that information on overall reach? An ad sells for much more in print. A print reader  is considered a better “quality” reader than is the online reader. On the other hand the online reader tends to be younger and the demographic that advertisers crave. And how do you make an impression with an ad online? A banner ad, for instance, is said to be doing okay if the click through rate is around 0.25%. Where is the value for money? One print reader is worth how many online readers? One old print reader (let’s say over 45) is worth how many 20 somethings online?

Those are the kind of questions that publishers and advertisers are going to have to try and answer together. But for publishers the latest circulation numbers are only more proof, if any was really needed,  that they need to come up with the answers to those questions fast.

Real fast.

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