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The Profitable Newspaper Business Model -- Less Readers Paying MoreTucked away in the Q2 results from A.H. Belo was that circulation revenue now accounts for 29% of the newspaper company’s total revenue. And management is eyeing even more price increases with the goal of getting circulation and advertising revenues near equal.Circulation revenue rose 6.6% to $35.5 million while print and digital advertising revenue dropped 12% to $77 million. So in considering just advertising revenue and circulation revenue (and not other one-time revenue makers such as selling property) advertising accounted for 54% of income and circulation 46%. Overall the company reported a Q2 net loss of $171,000 compared to a $7.1 million loss for the same quarter a year ago, so continued cost cutting and that circulation revenue has made a big difference. Belo, with its Dallas Morning News flagship, has led the industry in getting the circulation mix right. Three years ago, for instance, the Dallas newspaper reduced its distribution to a 100-miles (160 km) radius of Dallas/Fort Worth, which resulted in a cost reduction of $9 million annually with little or no affect on advertising revenues. It has steadily increased newsstand prices. In May, 2008 the daily newspaper went from 50 cents to 75 cents and the Sunday increased from $1.50 to $2. In February, 2009, the daily increased to $1 so in less than one year the price of the daily doubled. The company’s policies were for the long-term, not the short-term. Back in 2007 Belo’s now Chairman, President and CEO Robert W. Decherd explained, “In actively marketing our products, the emphasis should be on attracting quality subscribers rather than seeking quantity at any cost. Instead of focusing on short-term performance, our goal over time is to deliver a stable audience with a demographic profile that is very attractive to advertisers -- and do so in the most cost effective way possible." Belo was one of the first to enter into distribution partnerships with a rival. In October, 2008, it did a deal with Metroplex rival The Ft. Worth Star-Telegram that The News would deliver about 5,000 daily copies and 7,000 Sunday copies of the Star-Telegram in Dallas, Cook, Denton and Ellis counties where the Dallas paper had by far the stronger circulation while the Star-Telegram delivered about 21,000 daily copies and 20,000 Sunday copies of The News in Tarrant, Parker, Hood and Johnson Counties where the Ft. Worth paper was the dominant player. “There are certain geographies where we both have significant distribution, and we’re sending two cars down the same street, each delivering one product of each of the two companies,” said Jim Moroney, then publisher and chief executive of The News. “If we can get one car going down the street, delivering both products, it lowers the cost of distribution for both companies.” Another Belo newspaper, the Providence Journal in Rhode Island, has also had major gains in circulation revenue even though circulation itself is down. Audit figures to March 31 show the newspaper’s circulation at 127,025, down a big 19% from the year earlier, but at the same time the newspaper increased the cost of home delivery by 14% as well as increasing its newsstand price. Since 2006 the newspaper says its overall circulation revenue has increased 19% while during the same period advertising revenue declined by around 50%. If it hadn’t been for the circulation revenue increase then what? No wonder, then, that Decherd said in an analysts conference call after the Q2 results were announced that the circulation revenue increases are “paying off in a big way.” He was very pleased that “We have some of the highest monthly subscription prices in the country.” For nearly all newspapers, as advertising revenue declines and digital revenues have failed to become the cash cows publishers once thought they would be, the Belo strategy seems right-on. Quality subscribers who appreciate the product and are willing to pay a fair price for it, while at the same time the company reduces the cost of delivery. The next thinking should be directed at those delivery trucks – why should they just be delivering newspapers -- perhaps they could double as a cheap in-town delivery service for local merchants? Other newspaper groups are having mixed circulation revenue results. Gannett, the largest US newspaper publisher, reported a very disappointing Q2 5.9% drop in circulation revenue. The New York Times Company reported circulation revenue up 3.2% although the company believes there could be fall-off of some 3-5% in Q3 when subscriptions at higher rates come up for renewal. Lee Enterprises, publisher of 53 daily newspapers said circulation revenue was basically flat – down 0.5%. Gone probably for good are the times when newspapers could depend on advertising for 90% or so of total revenue with the rest from circulation. A 50-50 match should now be the target. Even so there is still one big underlying truth to all of this – while getting more money from fewer subscribers and reducing distribution costs is absolutely necessary that still doesn’t near make up for the huge loss of advertising revenue. That additional circulation revenue is very welcome and sets the model for going forward, but newspapers are still desperate for advertising to return. The good news is that the advertising rate of decline gets lower with each reporting quarter, but it is still in decline and will take a long time to return to anywhere near what it was, if ever. So, with all the efforts still being put into digital platforms publishers should not neglect that now, also, is the time to aggressively get the circulation model where it needs to be. See also in ftm Knowledge...Media Business Models EmergingAfter a rough transition media business models are emerging. Challenges remain. There are Web models, mobile models, free models, pay models and a few newer models. It makes for exciting times. This ftm Knowledge file examines emerging business models and the speed-of-light changes. 123 pages PDF (May 2010) Available at no charge to ftm Members, others from €49 |
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