The disintegrating economics of newspaper circulation

Anna Tarkov calculates that the Chicago Tribune’s Groupon deal — two years of the Sunday ‘bune for $20 — works out to 19 cents an issue.

What’s at work here is the myth of legacy media, that every reader sees every ad thus every advertiser pays for every reader … thus every reader is equally valuable and it’s worth losing money holding onto any reader.

Those aren’t the economics of online, where advertisers pay only for the readers who see (or click on) their ads, and where abundance robs publishers of pricing power over their once-scarce inventory.

My favorite illustration of this is the Star Ledger killing its stock tables in 2001, shaving $1 million of costs and losting only 12 subscribers.That means that prior to this, the paper was spending $83,000 per reader to hold onto them. Papers had been scared of losing one reader because, in their economics, every reader was equally valuable. But no longer. I keep urging papers to calculate the net future value of readers and decide who’s worth keeping and serving and who’s not, economically speaking.

The Tribune is losing much money on every one of those Groupon readers — not only the lost retail value of every discounted sale but also the fact that the paper no doubt was already published at a loss — that is, it costs more to produce a copy than its sold for because each reader is valuable to advertisers. But is she?

What the Tribune is also trying to do here is hold onto its critical mass. When its Sunday circulation falls below a certain level, certain lucrative advertisers — coupon and circular advertisers — will stop using papers as their means of distribution. That will be a kick in the kidneys almost equal to the creation of craigslist and it’s coming any day. In fact, it’s already starting … that, surely, is why the Tribune is so desperately trying to hold onto every reader.

But those economics will quickly disintegrate. Watch it happen….

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  • Stan Hogan

    Not sure newspapers ever marketed as though every reader read every ad. Getting them in front of a large number of people in certain demographics who valued the product enough to pay for it seemed to be the pitch.

    Also, the loss of revenue for inserts is directly tied to circulation numbers, as you note, and that is a threat. But most newspapers also have a free TMC product that distributes those fliers to the non-subscribers, which you probably should have noted.

    Bigger picture, though, circulation declines have been an issue dating to before the current threats of online and the economy, some of it self-fulfilling. Newspapers for many years have been pulling in their distribution footprint, forgoing numbers for a more logical bottom line.

  • lg

    How long before real disintegration ?
    Internet is breaking the institutionnal models of newspaper and tv news.
    Smartphones are the first source of information during an important event or simply to have simple news, if the wireless network is working …

    In France, weekly magasines are still relevant but daily newspapers are struggling to exist in a new world were information is just there and not many people want to wait the next day any more.

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  • Harry Z. O’Neill

    There’s also another important message that has been missed here. A magazine business I have worked with reduced its subscription rates to a level where it barely covered postage costs, to maintain circulation at critical levels to sell to advertisers.

    The magazines typically advertised expensive property, kitchens and high end lifestyle items. Guess what? The bargain hunting low-price subscribers didn’t respond to the advertiers. And then didn’t renew when the year one , money off deal was dropped.

  • http://ComicsPundit.com Shawn Levasseur

    In trying to hold onto a “critical mass” Time-Life has apparently subscribed me to Sports Illlustrated. I’ve received no notice of this, no bill for it. Just an unsolicited magazine in my mailbox.

    I have no idea how I got selected for this, I get no other magazines from Time-Life, nor do I subscribet to any other sports publications.

    I’m pleased to get it, there’ve been some interesting articles, but this smacks of desperation to me.