May 7, 2003
From the desk of Jane Galt:I think the New York Times circulation drop has been somewhat overblown -- their circulation is down onlly off the massive post-9/11 spike, and that after a 33% price increase. While it's true that the Post's circulation was up, the New York Post probably wasn't the paper that most out of town people turned to to find out what was happening here in the days after 9/11.
Nonetheless, I think the fact that the NYT's circulation is dropping as the Post's rises probably does indicate a swing towards conservatism in these insecure days. And this argument, which I've heard in multiple places, is wrong:
They raised prices 33-1/3% and circulation dropped 5.1%. What is everybody? Stupid? They made money on the drop. (100 copies at $.75 equals $75 dollars; 94 copies at a dollar equals, er, um around $94) Their strategy is to simply lop off the less well heeled and build an advertising base of big hitters who can buy show tickets at $125 per seat, Knicks and Ranger tickets at $500 each, trips to Europe at $10,000 per person, and so on. They don't want Joe and Jane Lunchbucket to be SEEN reading the snooty New York Times. Howell Raines is a hero to the suits upstairs.
That would be true if newspapers made their money off of subscriptions. But subscriptions are only a fraction of their revenue. If you check their financial statements for 2002, you will see that subscriptions are barely more than 1/4 of revenue. The lion's share of revenue is advertising, and advertising revenue is predicated on the number of eyeballs that see the ad. So while hiking the cover price may increase subscription revenue, it may well do so to the overall financial detriment of the paper. Indeed, if you check the revenue figures (See Consolidated Statements of Income on Page 54), you'll see that while subscription revenues are up slightly, advertising revenues are flat despite a slight recovery in the advertising environment from 2001's lows.
There are some caveats. There's the aforementioned advertising slump making it hard to raise ad rates; the subscription hike was no doubt a response to this. There's also the fact that companies do occasionally have to raise their prices to keep up with inflation. This is because subscriptions serve as a sort of signalling mechanism to advertisers, telling them how committed readers are to read the paper. If your paper is too cheap, advertisers will assume that your readers have a very low committment. They'll also assume your readers are -- well, in an unattractive income demographic. If it's expensive, on the other hand, they figure that you're damn well going to read the thing, eyeballing their ad as you do. This is why free papers apparently make the vast majority of their revenue on personal ads and rooms for rent. Nonetheless, it's clear that the New York Times didn't significantly improve their overall revenue picture this year, despite a major price hike.
Posted by Jane Galt at May 7, 2003 8:51 PM | TrackBack | Technorati inbound linksadvertising revenue is predicated on the number of eyeballs that see the ad
I'm no expert but surely the 'quality' of the eyeballs matters?
I remember reading that Moneyline is CNN's most profitable program even though it's not the most watched.
Ad revenues vary depending not just on the number of eyeballs but on what those eyeballs can buy.
So if the NYT appeals to very high income demographics then they must charge more. Until recently at least CNN would charge more than Fox for its ads even though Fox had more viewers because CNN's viewers were more desirable from an advertising point of view.
Well, yes, but the NYT can't really move upmarket. Raising subscription prices thus doesn't improve the demographics; it just chases away the marginal reader. Those readers may not have the same utility to advertisers as the ones who stay (although that will vary depending on the product), but since increasing the price doesn't add any new readers, it's still a net loss from their point of view.
hi jane,
"Nonetheless, it's clear that the New York Times didn't significantly improve their overall revenue picture this year, despite a major price hike."
as a comparison, do you know if the ny post significantly improve its overall revenue and revenue-cost (profit) relationship in the same period?
Well, ad revenue does depend on circulation, of course, but so does production/distribution cost. At the margins, providing a paper to a few more readers may cost more than you can recoup on ad rates. That is, advertisers may pay no more for 500,001 readers than 500,000; so selling the 500,001'th paper for 25cts when it costs 90cts to supply may be a losing proposition. There can even be little step functions hiding in there... for example (contrived) suppose the extra reader will buy from a rack. The truck that fills racks on the relevant route may be at capacity. Adding another paper might require a second truck, or costly rejiggering of routes.
So newspapers sometimes deliberately shed readership to improve profitability, *especially* in a weak advertising market (that is, one that won't pay more money for a little more circulation).
There's no breakout for the Post's revenue, because it's owned by News Corp, which has so many properties that any one is trivial. Any revenue contributed by teh Post would be dwarfed by the television properties.
I've been wondering just what the effect of being able to read the whole NYT online for free has had on subscriptions. I live in Chicago and I've never subscribed, so I wouldn't count as a lost subscriber, but perhaps some of the decline may be attributed to readers switching from dead trees to electrons? Could it also be that the demographics of NYT readers are such that more of them would be likely to read it online than the post, thereby exacerbating the difference in the decline? I really don't know how to quantify that, but it makes some sense to me.
Alan
FWIW, since the big change, almost everyone I know at the NYT left. I can't believe that readers care that much about who they read, though.
I stand by my post regarding the fact that all daily papers are chasing away the lower income reader. They only want high end readers and they only want advertisers who can pay the emormous ad rates they charge. There is an article in the Colubia Journal Review http://www.cjr.org/year/97/2/fringe.asp that spells out this drive for the high end reader. Check the NYT, who can go to Bergdorfs, Tiffany, the insanely expensive art galleries? Who buys hard cover books at $25 per copy? What counts is the aggregate income of the readership.
I live in LA, and I think the LA Times was the first to actually impliment this policy. Now they actually publish in Korean, Spanish, and other languages, but the drive is still the same: high end.
Every daily in the U.S. has gone in the same direction. There is plenty of documentation out there if you choose to find it. This is a quote from the Tribune Company meeting: "So the pitch to advertisers is simple. Don’t not buy the three national papers, just buy less. But buy Tribune’s top 3 combinations and significantly increase your reach in high income homes in the most critical markets. Plus it’s a more cost efficient buy." They openly brag about their high income reach; at
http://www.tribune.com/investors/transcripts/ssbarney_01.html
You can go HERE:www.peoplenewspapers.com/static/distrib.html
and read about Dallas. It's all over. This is now picked up in foreign papers as well.
This is fact. I didn't make them up.
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