USA Today’s Circulation May Have Dropped 1.3% In the Last Audit, But That Hasn’t Stopped It from Seeking a 6% Advertising Rate increase For 2007

Gannett has already reported that USA Today’s October ad revenue dropped 3.2%, with ad pages dropping to 419 from 454. Some sectors such as travel and entertainment did well, but others like automotive and financial not so good.

But January is just around the corner so it’s time to resort to what publishers like doing best – but hate having others do unto them – and that is raise their pricing.

Steve Anderson, director of communications at USA Today, had written ftm last week to say we had erred in saying USA Today had sought an 8% increase for 2006. In fact it was 6%, but in the two years previous, it had sought 8% increases. So we took the opportunity to ask him what was to happening for 2007 and he told us that the newspaper had written to its advertisers in 2006 asking for 6% “and we have done the same for 2007”.

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Those Newspaper Publishers Who Believe It’s Business As Usual and January Means A 6% Hike In Advertising Rates Had Better Think Again

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We asked him in the e-mail exchange what justification USA Today could give to a 6% hike in 2007 when its circulation is headed the other way, but as publishing time arrived there was no response.

The answer, of course, is that publishers are caught between a rock and a hard place – costs go up, revenue stays flat, circulation goes down and shareholders and senior corporate management are not happy. There seems to be just two avenues to get margin back up again – cut costs and increase advertising rates. But as more and more digital opportunities arise newspapers have far more competition for those same advertising dollars than they once did. Nothing is simple any more.

Newspaper publishers are desperately trying to hold onto their 20% margins, but the average slipped this year to around 17%; they are attacking costs with great gusto, but here many publishers unfortunately are so short-sighted as to judge editorial their biggest cost-center rather than the main revenue center (publishers continually refuse to believe there is a direct relationship between the quality of the editorial product and advertising revenue, just as they don’t want to accept there is a relationship between price of an ad and the newspaper’s circulation). With editorial the real newsroom issue is not so much how many bodies there are, but rather what each of those bodies is doing on a daily basis to increase the value of that newspaper to its readership, and by winning on that front it will win on the advertising front, too.

And then there are those newsprint costs that keep increasing no matter how much publishers shrink their page sizes, although it appears from October statistics that price hikes may have crested on a supply and demand basis. North American producers are once again looking at cutting back on production, hoping to create shortages, resulting in higher rates, but the Chinese may have chosen just the right time to try and enter the market and keep pricing stable, if not lower.

USA Today needs a strong pickup in national advertising. This year, according to the Newspaper Association of America (NAA), national advertising revenue is down an overall 5.4%. Is a 6% rate increase going to encourage national advertisers to spend more with USA Today? Take automotive – that sector is really getting the feel for the Internet where performance is finely measured. What enticement to bring automakers back to unmeasured newspapers at the level they once were? If it’s not going to be on price then one wonders what publishers have up their sleeves? Possibly advertising convergence with their web site, but is that enough?

The NAA actually paints a pretty bleak newspaper revenue picture. Newspaper print ad revenue is forecast to drop 1.1% this year, which will be the first such annual decline since 2002. And yet the stock market has been telling us that, overall, the economy is picking up very nicely and the Dow this year has reached a new all-time high. But newspaper revenue is down; it should show a direct correlation to the nation’s growth, but it isn’t. How could that possibly be?

As reported in the last newspaper audit, circulation is down almost everywhere in large metropolitan areas. Advertisers simply do not believe they are getting value for money when circulation drops and ad rates increase. There is a relationship between circulation and how much advertisers are will to pay for their advertising and newspaper publishers need to get on board. Guaranteed – newspaper publishers would agree with that correlation if their circulation was heading north!

Add to that many advertisers, while not necessarily decreasing their advertising spend, are making it stretch further by increasing the number of mediums used. Thus, digital is snapping up dollars from everyone else. So you really have to tip your hat to those publishers who, in those circumstances, are able to persuade advertisers to pay more for less.

Make no mistake, newspaper advertising remains a big business at $46.9 billion this year, but the NAA forecasts that figure in 2007 will grow only marginally while some financial analysts predict further drops. Even newspaper online ad growth is forecast to drop from 28.7% this year to a 22% gain next year.

And for all the talk about newspaper web sites, their revenue is expected to hit only $2.6 billion this year, or just 5% of total newspaper ad revenue.

Newspaper retail advertising was basically flat this year, the losses in classified ad revenues are expected to grow next year and with the housing market cooling classified could be in for more of a shock than many expect.

The trend now seems to be for newspaper companies to partner with online classified sites – LiveDeal, Monster, and Yahoo as three examples -- but can that really save the classified day? It certainly can’t hurt, time will tell how much good it will do.

So, basically all around a newspaper’s revenue stream is downbeat. And on the cost-cutting side it has gotten to the point where they’re seriously cutting into the bone. So it seems the only hope left is to charge advertisers more but advertisers aren’t playing that game as they once used to. They have many more hands reaching for their money and some of those Internet opportunities look very appealing.

Here’s a novel idea for a newspaper – why not cut ad rates by the percentage of circulation drop over the past five years. Could that not possibly entice higher spends from existing customers and bring new players into the game so that at the end of the day the revenue grows? Time Magazine recently announced an 18% decrease in advertising rates as it slashed its promised circulation numbers, and advertisers really took to that. Something for a publisher to think about.

Newspaper publishers who increased their rates by 6% in 2006 know only too well how in many cases that negatively impacted revenue. If that happened in 2006 can’t newspaper publishers learn from their mistakes? What makes those publishers believe the same action will get a better result in 2007?

It’s time for newspaper publishers to get back to marketing basics – think value for money. After all, that is what advertisers are thinking all the time.

USA Today’s Circulation May Have Dropped 1.3% In the Last Audit, But That Hasn’t Stopped It from Seeking a 6% Advertising Rate increase For 2007

USA Today has the highest US audited daily circulation at 2,269,509, but that’s a 1.3% drop from its previous audit. So how come it is asking its advertisers for a 6% increase for 2007?