Newspapers should consider raising their subscription price

By BOB BOBBER

The worm is turning.

It was only a few years (or maybe it was months) ago that the great discussion in the world of newspapers was, "should we go free?" Now there seems to be a move in a totally different direction: a change that hits the heart of the basic newspaper economic model.

Newspapers, especially the metros, are aggressively pricing the newspapers in an effort to increase their circulation revenue to offset their losses in advertising revenue. Just about all major newspapers have moved to 75 cents for their single-copy price, home delivery prices are back in vogue and the percentage of circulation revenue in relation to a newspaper's total revenue is on the increase.

Over the years, the philosophy of where circulation revenue fits in the overall revenue picture of a newspaper has changed from time to time. In the primitive beginnings of the newspaper business, the cost of a newspaper was a major portion of the profit and bottom line. As advertising became more sophisticated and widespread it moved to the head of bus and by the mid 1900s it drove the bus. Circulation revenue became less important and the thought shifted to a simpliï¬ï¿½ed concept of, “if it can pay for itself, we’re happy.” Circulation revenue became analogous to basketball revenue in a major college athletic program. Football pays for everything else and basketball pays for itself—same thinking in the newspaper industry. Things began to change in the early ’80s. Led by the legendary Al Neuharth and Gannett, there was a feeling that newspapers were underpriced and a series of price increases ensued.

The single-copy price went from 10 cents in the late ’60s to 50 cents by the mid ’80s.

Sunday rates followed a similar pattern.

An increase of 500 percent in a matter of approximately 15-20 years. Home delivery rates rode the increase as well but still stayed under the price of daily single-copy rates. Single-copy rates stabilized in the ‘90s but home delivery rates continue to rise. Often it came perilously close to the daily single-copy rates.

Then this thing called the Internet came along and home delivery rate increases came to an abrupt end. Single copy remained at what was now an archaic rate of 50 cents.

Well, the worm has turned.

Newspapers now believe they have lost all they are going to lose and that they are down to their core readers who are willing to pay a higher price to get their favorite reading material. If you think about it the price of a newspaper is still in a reasonable range. Isn’t it really worth as much as a bottle of water, pack of gum or a candy bar? Perhaps the best example is the Dallas Morning News and the A.H. Belo Co.

An aggressive round of rate increases has moved the needle to the point that circulation revenue now accounts for 29 percent of the newspaper company’s total revenue according to second quarter numbers. Word on the street is that they are not through. More increases are in the works and they envision an equal split between advertising and circulation.

Last year the San Francisco Chronicle raised its weekly subscription rate 63 percent and went from losing $50 million to breaking even. Granted, I am sure not all of that was the result of circulation rate increases but it certainly helped. The list of other aggressive price increases by groups is long.

I reported back in May that this trend was changing the job description and affecting the work of circulation directors. It bears repeating: The secret that only chief ï¬ï¿½nancial ofï¬ï¿½cers will talk about is that less circulation means less newsprint and distribution costs. Circulation rates up till now have never covered the cost of newsprint, ink, mailroom, trucking, circulation personnel or promotion costs. Even when newspapers claim that they are making a managerial margin or proï¬ï¿½t in circulation, they are only using direct circulation expenses to calculate this proï¬ï¿½t. They rarely if ever include newsprint, press time, mailroom costs and support costs. So it only makes sense that if there is less circulation there will be less expenses and they combine that with increasing rates then circulation will drop more money to the bottom line, perhaps signiï¬ï¿½cant money.

Stay tuned.

© Bob Bobber 2010

Bob Bobber is a newspaper consultant specializing in circulation sales, training and public speaking. You contact him at rjbobber@bellsouth.net.

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