The problem with Sunday papers: Why rising numbers are not what they seem

For several years, Sunday editions have been the brightest star in a fading constellation for print newspapers. When circulation numbers were falling, Sunday routinely did better than daily. As recently as the Audit Bureau of Circulations spring report six months ago, Sunday was up 5 percent year-to-year.

But in a new ABC report released late last month, Sunday outperformed daily by a bare fraction of a percentage point -- up 0.6 percent versus daily circulation down 0.2 percent. Not a horrible result, but a marked turn for the worse. Why?

Sunday growth slows

One factor is that the super-couponing craze, at its peak in the spring and summer of 2011, has run its course. Editor Neil Brown of Poynter's Tampa Bay Times told me that the decline in couponing, together with a price increase, was the main culprit in a 5.9 percent year-to-year Sunday decline for the paper.

John Murray, who directs circulation research and training at the Newspaper Association of America, said in a phone interview that he too thinks the phenomenon of coupon enthusiasts buying multiple copies to increase savings has waned or stopped.

"When circulation executives were budgeting 2012" a year ago, Murray said, "some of the smart ones used 2010 rather than 2011 as their basis," figuring the couponing windfall would not be sustained.

Murray added that the complexity of new ABC rules and reports might also be a factor.  Some papers may be skipping the expense of additional auditing charges to verify results in multiple platforms, he said.

Neal Lulofs, executive vice president for communications of ABC (now known as the Alliance for Audited Media), said that the total number of papers audited has not changed much. Agreeing with Murray, Lulofs wrote in an e-mail that papers began counting their Sunday Select distribution (packages of inserts to non-subscribers) in early 2011, but some are having difficulty meeting requirements for qualifying those numbers under ABC rules. As my colleague Andrew Beaujon noted previously, that kind of compliance problem accounted for most of a 20 percent reported Sunday circulation loss at The Washington Post.

When NAA did a print circulation estimate for the entire industry earlier this year, it found a 2011 Sunday total of 48.5 million, up from 46.1 million in 2009. (ABC measures only audited papers reporting results in both six-month periods being compared).

Where Sunday circulation grew

Murray's analysis of the new results shows that all the growth, daily and Sunday, comes from a group of 40 larger papers -- those with circulation of 250,000 and higher. They are achieving that with paid digital and branded editions (including Sunday Select and groups of papers adjacent geographically and under common ownership).

For the very largest papers, those with circulation over 500,000, according to Murray's calculations, only 64 percent of the total circulation claimed is traditional print -- the rest is made up of various digital offerings and the branded editions.

Neither digital nor branded are important factors yet in the totals for smaller papers.

Sunday circulation trends show gains in largest papers, fueled by digital growth
Circulation size % Change total avg. circ. Print % of total avg. circ.
500,000+ 13.3 64.2
250-499,999 0.8 80.7
100-249,999 -1.8 89.4
50-99,999 -6.4 89.7
25-49,999 -5.7 95.5
Less than 25,000 -5.2 95.8

Last month, Murray and NAA published another annual survey of circulation trends, Circulation 2012: Facts, Figures and Logic (only available free to members). Based on a survey of circulation executives, it paints a surprisingly positive picture given the long-term trend downward in circulation numbers.

The lead finding is that circulation revenues fell just 4.6 percent in the five years since 2006, while circulation marketing and delivery expenses were down 28.4 percent over the same time period. Obviously, successful price increases are part of that story. But the report also finds papers using more sales channels to obtain new subscriptions, bringing renewal rates up and steering new customers to credit card payment and automatic renewal (so-called EZ-Pay), another way to build retention.

The survey found that only 7 percent of papers, mostly small ones dropping a Monday edition, had reduced daily print schedules at all. However the mix of subscription packages is directing readers to Sunday-only or Sunday in combination with other high-advertising days -- a move that effectively makes the same number of copies circulated more valuable to advertisers.

My own take is that the industry deserves credit both for stabilizing numbers (with a growing dependence on paid digital) and for increasing circulation profitability with a series of barely noticed cost-cutting moves.

But I also came across a qualifier I had not considered, as individual companies like Gannett and The New York Times are moving away from a heavy dependence on advertising and getting readers to pay a bigger share of the expense.

I missed, but The Wall Street Journal's Keach Hagey and analyst Frédéric Filloux picked up, a curious exchange in the New York Times Co. earnings conference call October 25. An analyst asked why margins had fallen for the quarter even though circulation revenue gains roughly made up for print ad revenue declines.

Times Company Chief Financial Officer James Follo replied:

Well, look, margin is always a function of our advertising revenues because when you lose $1 advertising revenue, you're losing at very high margin, we tend to think about 80% to 90% ... While we're adding good dollars on the circulation side, we spend marketing dollars against that. Incrementally, $1 subscription especially on the digital side is quite profitable. (But) It is very hard to offset a weak (ad) environment like this.

Follo is certainly right, especially if I understand him correctly to be talking about marginal cost rather than average. The next 100 new subscriptions are much more expensive to sell than the rest of the base, largely made up of loyal readers who can be counted on to renew.

On the other hand, selling more ads entails higher commissions for the sales force and slightly higher production costs. But each additional unit sold is close to pure gravy.

Does that mean that advertising revenue is still king in the newspaper business model and that getting it headed in the right direction is essential to stabilizing the industry economically? l'm afraid so.


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