Who Is More Important To A Newspaper – The Reader Or The Advertiser? Knowing The Right Answer Can Make All The Difference

Philip M. Stone September 17, 2009 Follow on Twitter

US documentary filmmaker Michael Moore is a master of provocation and thus his tirade this week on why the American newspaper industry isn’t doing too well these days could easily be shrugged off, but he did raise some fundamental questions that go directly to the roots of newspaper failure including whether it is the reader or the advertiser who is most important?

“Why aren't the newspapers in Europe going under?” he asked. “It’s not that newspapers in Europe are having an easy time - again, we're in an economic recession that's worldwide, but why aren't they going under? The American newspapers, oh they say 'It's the Internet. Papers are getting killed by the Internet.' Last I've heard they've got the Internet in Europe. And they've got the Internet in Japan. So why aren't their papers folding like ours are going under? European, Japanese, other countries for many, most, of their newspapers, the primary source of their funding is circulation. Advertising is second. In our country (the US), advertising is the primary source of funding, circulation is second.

“Anytime you say that the people who read your newspaper are secondary to the business community you've lost; eventually you're not going to survive at that point when your primary concern is the advertiser. In Europe, they know in order to keep circulation up they better put out a damn good newspaper. They better put out something that people read, and they better not cut too many reporters because if certain beats aren't being covered, people aren't going to read the paper.

“I interviewed David Simon, he used to work at the Baltimore Sun, and of course did The Wire (hit TV show) and other projects, and he was talking about way back in the early 90s, when he left, when he was bought out, when they were trying to downsize the Baltimore Sun, they got rid of the courts beat, they got rid of the crime beat, they got rid of the labor beat, they got rid of the poverty beat reporter. I don't know if you've ever been to Baltimore, but poverty? courts? labor? If you stop reporting on the things that the people in the town are really concerned about, they may stop reading your newspaper.

“But the bottom-line bean counters who have come, the corporations who've bought out these newspapers, they come in and they say, 'How can we get more news for less money, less employees? Same theory of General Motors that I watched 20 years ago. How can we get rid of half the employees but still put out the same number of cars? We'll just make everybody work twice as hard and we'll save money doing that. And that's what happened to our newspapers.”

He then digresses into the evils he sees in the Republican party but then he returns with a simple summary, “It is not the Internet that has killed them (newspapers). It is their own greed, it is their own stupidity, and it is capitalism that has taken our daily newspapers from us (no coincidence his latest documentary is called Capitalism: A Love Story that sums up his disgust with corporate America and how ordinary people suffer.)   

And indeed it does seem the number one problem that has gotten so many American newspaper groups in trouble is their debt load. Cash flow took care of added debt payments when everything was going fine, but when the economy tanked, when Craigslist took away so much of the classified revenue, there was no Plan B except to cut and cut and cut and in the end all that cutting couldn’t save some houses made of cards. Capitalism at its finest?

 Without our getting into his rights and wrongs of capitalism, Moore’s basic view on newspapers is that if you take care of the reader as your primary function then everything else will eventually fall into place. But in the US how many newspapers that have cut their editorial product so savagely can look their readers in the eye and say their print product today is as good and complete as it was two years ago? It is truly amazing that US newspapers still have the readership they have, given their editorial cutbacks.  

And for the past year or so American newspapers have been testing how loyal their readers are – not only is the editorial product far less than before, but now readers have to pay far more for the privilege of reading what’s left.  On Monday, for instance, the Atlanta Journal-Constitution raised its newsstand price from 75 cents to $1.

At the New York Times circulation revenue some five years ago accounted for about 27% of the total whereas advertising took in some 67%; today circulation revenue has jumped to 39% while advertising revenue has dropped to 54%, and while these percentages may be affected by overall lower revenues, The Times, to offset advertising drops, has raised it price several times in the past 15 months -- in July, 2008 a newsstand copy cost $1.25; today it is $2.

Newspaper share prices have risen lately because Wall Street thinks all the cutting has done the trick and now the cost side is right, given today’s revenue. As  advertising increases will newspapers plow some of that revenue into a better editorial product to entice readers back?

Newspapers no longer like talking about circulation but rather total readership but advertisers really care more about how many copies of their ad are circulated and they base value for money on that. At McClatchy’s flagship Sacramento Bee, for instance, where circulation dropped 7% last year, a full page ad once pulled in some $15,000; today it is some $4,000. It’s going to be a hard sell to tell advertisers that once the economy picks up to start paying that $15,000 again – once people have tasted the well of discounts that’s where they want to stay.

Classified are most probably gone forever. As circulations decline so, too, will insert revenue as that is based, also, on how many papers get distributed. So given there is a direct correlation between circulation and advertising income should publishers be rejoicing just because Wall Street is viewing them in a more positive light? Probably not. While advertising may be showing some improvement, advertisers are eyeing today’s circulation figures and figuring out their value for money accordingly.

Newsprint savings have made a big difference this year – prices down some 40% although for the past couple of weeks there has been a tiny uptick off the bottom,  does that mean newsprint pricing is on the way back up?  Publishers have cut back on pension fund contributions, cut back on community and charity activities and the like,  and no doubt will continue to find further economies.  But if they don’t invest in enticing readers back to print then advertisers will take note and they have plenty of choices these days where to place their spend.