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

Philip M. Stone November 30, 2006

It’s a cycle that sees no end. Circulation drops, costs rise, revenues are flat and yet the business needs to maintain its 20% plus margins. But thankfully January is just around the corner so its fallback time -- raise those 2007 advertising rates by some 6%. But this time there’s a huge problem ahead -- many advertisers are going to give a whole new definition to the term “playing hardball”.
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For 2006 many metropolitan US newspapers that had lost circulation saw no reason not to ask for 6% increases. USA Today went for 6%.(see comment) And with few and far between exceptions most metropolitan newspaper have reported their 2006 advertising numbers less than 2005. Does it really take an MBA to explain to senior media executives that in this day and age with the Internet snapping away at advertiser’s heels that it is a very difficult sale to charge more for less – unmeasured less at that.

What’s a newspaper like the Boston Globe to do? In 2005 its circulation dropped 8% so it modified its 2006 rate increase, asking only a 3% increase.  This year advertising is down 10.2% for the year, including October’s 11.8% plunge. Daily circulation is down to 414,225 from 451,471 (-8.3%) and Sunday circulation fell below 700,000, from 707,813 to 652,146 (-8.25%).

So, with those kinds of numbers how much of a rate hike do you figure the Globe should be seeking? If you were an advertiser would you not be asking by how much the Globe is going to reduce its rates?

This writer, having negotiated with newspaper publishers over news agency contracts for his entire career, has a great admiration for their negotiating skills and no doubt all of those skills will be brought to the forefront as newspapers talk with their major advertisers about next year’s rates. But those advertisers are already letting it be known that in this downward environment if a publisher gets to keep rates at the status quo, let alone an increase they’ll have done well.

Jouette Travis, an executive vice president and managing director for Carat, recently told the Media Life web site that publishers need to play fair. “If circulation is going significantly south, be careful of rates,” she warns publishers. “They can’t raise rates as they lose circulation.”

And her biggest fear? “That newspapers will try to charge more for advertising. I think it would be smart not to make undue increases. I think newspapers have to be careful about attempting to recoup losses by charging advertisers more against declines in circulation.”

And lest the publisher think that a media buyer has little choice but to continue with the newspaper spend no matter what the rate, then think again.  “I believe the Internet is the fastest-growing medium and outdoor is the second fastest.”

Given all the competition out there, Travis, who has spent the last 20 years buying newspaper space, says, “Above all, they should avoid raising rates and look to how they can fit in long-term.” So there’s that shot across the bow.

The Los Angeles Business Journal says that national and local advertisers are ready to take on the Los Angeles Times if it tries to get smart with its 2007 advertising rates. The recent six-month audit for the Times saw circulation down 8%, although management will argue that was mostly getting rid of bulk copy sales and the like that advertisers aren’t really interested in, anyway.

Macys now wields tremendous power since it has amalgamated so many different department store brands under just the Macy’s umbrella. It is one of the Times’ biggest advertisers and it doesn’t see why advertising rates should go up when circulation has gone down.

“Papers, as general rule, are reluctant to identify the exact relationship of circulation to rates, Mike Monroe, Macy’s vice-president of media and advertising, told the Journal. “As a general rule, newspapers don’t offer decreases in rates. So, whatever rate is paid eventually is something the publisher and the advertiser will agree upon.”

The Times has not issued its 2007 rate card, but advertisers are making it known they are ready for tough negotiations and as far as they are concerned they believe downward circulation should translate into downward advertising rates. To use the shorthand of Internet messaging – lol (lots of luck!).

And it’s not that newspapers are negotiating from a position of strength. Average paid circulation fell 2.8 percent on weekdays and 3.4 percent on Sundays, according to the recent newspaper audit. May’s audit showed average weekday circulation fell 2.5 percent in the six months ending in March, while Sunday circulation fell 3.1 percent, so as the year went on the problems grew worse, and there is nothing to indicate anything will get any better in 2007.

Not only that, but advertisers are getting more and more into the measurability that television and Internet can provide, but which is still very difficult for newspapers. The deck is stacked against publishers except …now is the time to really play the newspaper web site trump card.

If ever there was a time for advertising convergence – packages for web and newspaper – that time is probably right now. Publishers have the figures to show that by combining the readership of the newspaper and its web site then readership is actually up.

The psyche of advertising buyers is that they like to think they are getting something  more for their money, not something less, and so the print/web combination really fits.

That web site just might be worth its weight in gold after all.

ftm Follow Up & Comments

USA TODAY Corrects - December 1, 2006

Steve Anderson, Director of Communications at USA Today, corrected the ad rate increase; 6% rather than 8% reported in the articles' original version.

"We announced in a letter to advertisers a 6% increase for 2006 (and we have done the same for 2007). I believe that we increased 8% for 2005."