Saving Money, But at a Price   

By cutting back on unprofitable circulation, newspapers may blow an opportunity to attract more national ads.

Just as the total number of viewer households defines the strength of television networks and stations, just as the total number of subscribers determines the success of cable television systems, so does the total circulation of newspapers tell the world how well the newspaper business is doing.

What the world has heard in recent years is not encouraging for those who care about newspapers. Since 1990, total daily circulation of U.S. newspapers has been in decline, leading to questions about their viability in a society increasingly plugged into the Internet.

What chance do newspapers have to survive in the new electronic world, wedded as they are to 19th-century production and distribution technology? The short answer is a very big chance. But efforts to brighten short term finances could jeopardize an excellent opportunity to expand advertising.

Newspaper circulation has lagged behind population growth for decades. From 1950 to 1990, U.S. population grew at an annual rate of more than 10 percent; weekday newspaper circulation during that period grew a little under one-half percent a year and Sunday circulation slightly under 1 percent.

There were a lot of reasons for this pallid performance, the most notable being the growth of television. Newspapers had been cheap family entertainment for many people, who turned to television, giving up newspapers altogether. This drove many newspapers out of business and reduced the circulation of many others.

Even with this sluggish growth, newspaper circulation in 1990 still equaled about two-thirds the number of the nation's homes. (This did not mean that two-thirds of all homes received newspapers, since some got more than one a day.) And the newspaper industry could claim its readership not only was still large, but also affluent, because newspaper readers on average were better educated and better paid than nonreaders. These facts underlie the industry's continuing success in attracting local advertisers.

The industry makes the same argument today, but from a weaker position. Since 1990, newspaper circulation has not only failed to match population growth, it has declined. In the five years ending in 1995, circulation declined at an annual rate of about 1 percent, on weekdays and Sunday alike. The population over the same period rose more than 5 percent a year.

The factors that contributed to the sluggish circulation growth up to 1990 – failed newspapers and heightened competition from other media – were at work over the last five years. But something new was added – a deliberate strategy on the part of many newspapers to cut back on circulation to save money.

This strategy took two forms – one, raising circulation prices aggressively (which depresses circulation), first to counter sluggish advertising performance during the recession in the early 1990s, then to offset rising newsprint costs in 1994 and 1995; and two, eliminating circulation in
areas distant from a newspaper's home market, in the correct belief that such remote circulation was of little interest to local advertisers and therefore unprofitable.

Both strategies had economically rational underpinnings, and both contributed greatly to the circulation declines. But as with so many cost-cutting strategies in the newspaper business, what is rational financially may not also be smart.

The newspaper industry is widely perceived to be in decline. No matter how profitable the industry might be – two to three times more profitable than typical non-media businesses – what shapes the industry's image more than any other factor is circulation. Circulation is tangible, it's audited, it's widely reported and, even in the canyons of Madison Avenue, whose denizens should know better, the newspaper industry's declining circulation taints its selling efforts.

Newspapers should now be poised to make serious progress in their dealings with those who place national advertising.

In 1955 national advertising accounted for 23 percent of newspaper ad revenue. Today it's about 11 percent because of television's success. But television is splitting into a swarm of channels. Mounting a national broadcast advertising campaign is becoming immensely expensive simply because there are so many outlets to cover. Newspapers, most of which dominate entire markets, could once more become attractive to those who distribute their merchandise nationwide.

Declining circulation, though, sends the wrong message. All circulation is the same to national advertisers, whether it is concentrated in a newspaper's home market or spread out into distant counties.

The circulation-depressing strategies undermine efforts to increase national advertising. It is not so much the lower numbers – the fall-off is relatively small – as it is the harm done to the industry's image.

Circulation in effect is the newspaper industry's capital account. As with any business, it is better for this to grow than to decline.