All Prices Negotiable   

Newspapers used to have set-in-stone advertising prices. Now rate-card figures merely start the bargaining.

In a way, the history of the advertising rate card serves as a proxy for the competitive woes that have beset newspapers through the years.

Thirty years ago a newspaper's rate card was practically sacrosanct. In effect, newspapers told advertisers: "This is what we charge; this is what you pay." Deviating from this orthodoxy would be newspaperdom's version of mortal sin. I can recall an antitrust suit against a newspaper in those days in which the plaintiff's lawyer, with genuine shock in his voice, accused the defendant of "selling off the rate card," thus permanently damaging his client's smaller newspaper.

As a securities analyst back then, one of my jobs was to estimate the likely advertising revenue of a newspaper company in the coming year, which was not a difficult task. It entailed analyzing economic data to calculate the probable percentage increase or decrease in advertising linage, then adding to that the average percentage increase in advertising rates. Another sign of those halcyon days was that even when the economy and linage were down, newspapers still raised advertising rates.

My, how times have changed. There are still rate cards, of course, but for major newspaper advertisers they are often points of departure, with the final destination to be arrived at through negotiation. Newspapers have lost the power to be arbitrary about rates. How this happened can be traced to developments in the marketplace, and underpinning all of them are an increase in competition and newspapers' gradually declining coverage of households (put simply, the ratio of circulation to the number of homes in a market).

First, newspapers got into the junk-mail business. In the late 1970s, the U.S. Postal Service sharply increased junk-mail rates (an action with unintended consequences for the Postal Service--it lost a lot of business). Junk-mail advertisers turned to newspapers, the only other entities that delivered to almost every home in most markets. Newspapers charged delivery rates lower than the Postal Service, but high enough to ensure solid profit.

Two problems developed for newspapers with the onset of junk-mail delivery (newspapers call this stuff preprinted advertising inserts, or simply preprints). First, entrepreneurs figured out that they could create private delivery systems that could compete for this business by undercutting newspaper delivery prices. Thus were born Advo and other competitors for preprint delivery and intense price competition--off the rate card--for what had become a major newspaper revenue stream.

The second and more important problem was that major advertisers--department stores, grocers, car dealers and the like--that previously had been limited to buying space in a newspaper's regular pages now had a cheaper alternative: preprint delivery. Newspaper preprints were especially attractive to these advertisers because, unlike most papers then, preprints offered high-quality color on glossy paper.

Thus began a major shift of spending among traditional newspaper advertisers, from display ads to preprints. Newspapers started to counter this trend by offering special deals "off the rate card" to keep advertising in the newspapers' pages, sometimes promoting combination rates for preprint delivery and regular advertising.

Another development that changed how newspapers do business was the growth in the number of television stations, each of them increasingly seeking a portion of the local advertising-revenue pie. Seeking more local advertising was a logical response for local television stations that for years had been experiencing declining shares of ad revenue from networks and other national sources due to competition from cable and a greater number of networks.

In an interview I had a few months ago with the manager of a major local television station, he remembered when his station received only 25 percent of its advertising from local sources. Local is now close to 80 percent, he said, and it has been growing steadily.

The conventional perception of how local advertisers spend their money is that they depend on newspapers for price-and-item advertising, since only a newspaper has the ability to list lots of merchandise and prices. Television traditionally was reserved for image advertising--getting a department store's or car dealer's name before the public.

Increasingly, though, local advertisers have been attracted, spurred partly by aggressive selling, to television advertising that combines image and a few price-and-items--hence the growing share of local advertising on television. And, hence, greater pressure on newspapers to negotiate prices off the rate card to keep their traditional advertisers in the paper. What once was sacrosanct is no longer.