From AJR, December 2000 issue
Ray of Hope
Can buying up suburban dailies and weeklies save No. 2 papers in metro markets?
By John Morton
John Morton (firstname.lastname@example.org), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
THE CONVENTIONAL WISDOM in the newspaper business is that, with few exceptions, only one daily can prosper in a market. The newspaper graveyard is full of examples that buttress that view.
However, a new business model has emerged, most notably in Chicago and perhaps now in Boston, that could upend the conventional wisdom in some of the few cities in which dailies still compete commercially.
Newspapers that have closed in cities across the nation have shared several characteristics. Usually they were afternoon papers, with circulations significantly smaller than their morning rivals'. They carried less advertising than the larger papers, which had a profound impact on revenue and the papers' attractiveness to readers.
The principal blame for the unhappy fix second newspapers found themselves in lay with advertisers. If advertisers had apportioned their spending according to the relative shares of circulation--say giving 60 percent to the paper with 60 percent of the circulation in the market and 40 percent to the second paper--a lot of these dead newspapers would still be alive. But advertisers did not think that way.
Instead, they focused on how much it cost to reach each newspaper reader. This inevitably gave an advantage to the paper with the largest circulation, since the cost of advertising is spread over a larger number of readers.
Second papers faced a quandary: If they reduced advertising rates enough to match the larger papers' average cost to reach readers (known in industry parlance as the cost per thousand, or the cost to reach a thousand readers), the resulting revenue from advertising and circulation was not enough to cover operating costs.
If the second papers kept their rates high enough to cover costs, advertisers shifted a greater proportion of their spending to the larger papers, with the same consequence for smaller papers. It was not unusual for newspapers with 40 percent of the circulation in a market to garner only 20 to 25 percent of available advertising revenue.
Had advertisers been smart during the decades of newspaper deaths, they would have made sure second papers got enough advertising revenue to stay in business, preventing a future in which the sole remaining newspapers would have few competitive restraints in raising advertising rates.
Second newspapers found that their scanty advertising turned off readers, causing circulation to fall, and their lowering circulation turned off advertisers, causing even sparser advertising, and turning off even more readers. Thus was born the ³downward spiral² that brought the deaths of dozens of newspapers.
Nor is the downward spiral solely a thing of the past. E.W. Scripps Company, in seeking a joint operating agency for its Denver Rocky Mountain News with the Denver Post, acknowledged to the Antitrust Division of the U.S. Justice Department that in 1997 it feared the News was approaching the downward spiral and had launched a series of discounts to build circulation. Unfortunately for the News, advertisers were not impressed, and revenue did not significantly increase.
What is happening in Chicago and Boston is a new way to counter the downward spiral. The Chicago Sun-Times was in a classic second newspaper fix against its rival, the Chicago Tribune, and conventional wisdom suggested the Sun-Times was doomed. But the Sun-Times started buying up suburban weeklies and dailies--most recently Copley Newspapers' four dailies and 13 community publications--and now has nearly 100 suburban titles that it cross-sells with the Sun-Times. Last year, the Chicago operation as a whole achieved an operating profit margin of 12 percent, a remarkable achievement for a second paper.
The Sun-Times was the first metropolitan second paper to follow this strategy successfully, but it was not the first to try. The Los Angeles Herald Examiner in the 1980s bought 18 suburban community papers in an effort to bolster its weak market position against the Los Angeles Times, but the effort did not keep the Herald Examiner from closing down in 1989. Probably the Los Angeles market was just too diverse and competitive for 18 papers to make much difference.
The Boston Herald's recent acquisition of four dailies and 87 weeklies in Boston's suburbs from Fidelity Capital seems to emulate the strategy of the Chicago Sun-Times. It is too early to tell whether this will help the Herald in its battle with the hugely dominant Boston Globe, but it is a strategy that worked once. Maybe it will again.