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Panpa Bulletin : May 2006
May 2006 PaNPa bULLETIN | 27 Exploring new newspaper adver- tising pricing models Leonard Kubas, president of To- ronto-based Kubas Consultants, presented on sustainable and profitable newspaper revenue growth. Today's newspapers are facing a declining share of the advertis- ing market, continuing erosion of circulation and readership, and difficulties increasing and sus- taining profitable advertising rev- enues. The industry's defensive culture has resisted the changing demands of the modern mar- ketplace and instead, focuses on costs and cost-cutting. The new media and competitors they face call for better strategies. Kubas said that newspapers could unearth revenue by re- thinking obsolete rate structures and pricing practices. There are opportunities at hand if news- papers re-engineer how they are marketed. He recommended that managements focus on what they control. While newspapers have little influence on economies and new media, the can change their business practices. Newspapers must begin by re- storing pricing discipline. Pricing must be transparent, simple and standardised,andpublishingrates should be aligned with reality. Newspapers must also be vigilant against unwarranted discounts. Published rates are a problem, but much greater issues lie with nego- tiated rates, discounts and allow- ances, non-standard contracts, advertiser-specific and flat rates, and contract compliance issues. Simplified and standardised pric- ing programmes make it easier to buy and sell advertising. Keep to this path through detailed ac- count analysis and documented buying and selling behaviour. Kubas recommended his au- dience apply spending-based discounts to advertisers. Reward them for all advertising spend- ing, including display, classified, colour, inserts, internet, position, and otherwise. Discounts should be consistent. Eliminate chaotic discounts and conflicting specials through incentives that do not al- ter the fundamental pricing struc- ture. Propositions should be clear and simple to increase advertiser spending. The example that Ku- bas gave was: For every 20 percent increase in advertisers' spending, they receive an incremental dis- count of 1 percent. Use a curve that works best for the individual newspaper and apply it consist- ently across all of its advertisers. Unlike other media, news- papers still accept almost any size advertisement. These un- controlled ad sizes can be very costly, requiring excessive filler and house ads, increased pro- duction time and cost, and pro- duces awkward, less readable product. Placing more promo- tional and filler advertisements actually compete with paid ad- vertisements. To meet these is- sues, Kubas said, newspapers should consider the produc- tivity benefits of a modular approach to advertising sales. More and more major dailies are adopting a modular ap- proach. It reduces the number of awkward sized ads and gen- erates significant cost savings, as there is less filler and unpaid white space on the page. Paid advertisements are more effec- tive in this environment and the newspaper looks and reads better. Modular advertising benefits the newspaper, adver- tisers, and the readers: Newspapers: Newspapers receive lower production costs, less unproductive newsprint, and the potential for larger ad- vertisement sizes. Advertisers: Advertisements contend with less clutter on the page and better visibility. In turn, they enjoy more impact and are easier to buy and plan for advertisers. Readers: The newspaper becomes easier for readers to use and the advertising gains greater utility. Compact formats have gained a lot of attention lately as newspapers adopting the format have found circulation gains on the other side. Kubas warned publishers planning on making the leap to take the time to do it correctly. How ad- vertising is priced, packaged, and sold is important. Adver- tising should be priced by the modular unit, not by lines, inches, millimetres, and the like. While the newspaper page becomes the benchmark unit, it can be broken down into multiple modules. Advertising should be sold by module and by impact. It can take time for advertisers and sales staff to adjust to the new system. But once they have adjusted, then is the time to convert to com- pact. The development of online advertising revenues Vin Crosbie, senior associate of Borrell Associates in the United States, took a look at the growth of online revenues and what it meant for newspaper advertis- ing. Newspaper web sites are earning their owners signifi- cant amounts of new revenue. But 'speed to market' is still es- sential, Crosbie said, as news- papers could forever lose the classified advertising business. While the newspaper is well positioned against new com- petitors such as Google and Ya- hoo for advertising revenues, it must act quickly to counter these new entrants into the lo- cal advertising business. The internet has become a primary source of news for an increasing share of the popula- tion. Among people between 18 and 29 years of age, 36 per- cent use the internet as their number one news source. This figure stands at 31 percent for people between the ages of 30 and 39, and 29 percent for peo- ple 40 to 49 years old. In the United States, adver- tising on the internet exceeded US$17 billion in 2005. Local advertisers accounted for US$4 billion of that. Already, internet advertising has surpassed out- door advertising and maga- zines in size. It is slated to pass yellow pages in 2006 and should exceed radio in by the year 2010. Over the past three years, newspapers' internet reve- nues have kept up with purely internet companies, with both groups averaging compound annual growth rates of about 33 percent. Adding Google into the mix changes this balance. Including Google's performance ups the growth rate of purely internet companies to 45 per- cent. Online, 80 percent of advertis- ing is national. This is in contrast with the even split seen between national and local advertising, and is reminiscent of that seen during the early years of broad- cast television, which also re- ceived most of its advertising from national advertisers. How- ever, local advertising has been gaining ground online. More and more major dailies are adopting a modular approach to advertising sales. Modular advertising benefts the newspaper, advertisers, and the readers. advertising