Nine quick fixes

The following originally appeared in somewhat different form in Presstime, the magazine of the Newspaper Association of America.

Long-term planning and strategic goals are important, but sometimes a newspaper executive just needs results now, especially when circulation volume, ad revenues or profits — or all three — are declining.

Over the years, the American Press Institute in Reston, VA, has helped about 1,200 high-potential newspaper managers understand this during its Executive Development Program, generally held four times each year. The seminars use a computer-assisted, case-study-based simulation of the publisher's job, based on real-life events placed in either a seven-day metro (roughly 200,000 circulation) or a six-day community newspaper (roughly 41,000 circulation).

In the program, API assembles teams of from different companies and with a mix of functional backgrounds from news to advertising to operations. Every team starts at the same market position: generally speaking, when they begin their simulated newspaper is profitable (in the teens), but with shrinking ROP ad demand, growing preprint demand, flat circulation, and great potential. Five simulated years later, the newspapers are quite different.

Some teams have taken these newspapers and their all-too-familiar lackluster performance and after five years have dream jobs, producing rivers of cash from advertisers attracted to their solid circulation and penetration gains.

A few teams, every bit as talented and with the same tools at their disposal, live a publisher's nightmare. They manage to turn their profitable (if unspectacular) newspapers into virtual money pits, with circulation and penetration below where they began and ad revenues trailing.

The differences in their results and the decisions they make suggest that we can learn something in the real world from their experience in a simulated one. That's especially important given how uninspired many newspapers' circulation sales have been while the country has been growing and the public's media choices have exploded. Newspaper owners are demanding a rapid end to the decline.

So here are some things that can have an immediate impact in both the real and the simulated worlds, but as always, there are tradeoffs. What works in the short term may not be a good idea in the long term.

Because many profitable business — newspapers included — are managed tactically rather than strategically, a series of unconnected and seemingly prudent separate business decisions can have all the right short-term effects and still have long term negative consequences. Without a long term plan, which may or may not also incorporate some of these actions, the decisions can combine to form a kind of mosaic of small tiles that ultimately form a picture of falling circulation and a damaged enterprise in the long term.

And these decision patterns can take on a life of their own. The greater the pressure on managers, the more irrationally short-term their thinking can become. David Lee, a consultant who has studied people under stress, put it this way in Training & Development magazine: "Their thinking becomes increasingly simplistic, unimaginative, rigid — and even primitive."

So what do API's publisher wannabes do?

1. Promote Circulation: Some people would say that the untreated
cause of the steady drip of circulation losses in our business is that too many
newspaper managers don't act as if they believe a core article of the faith:
that advertising a consumer product can increase its sales. There's evidence
of that disbelief in the simulated world, to be sure.

Only a few Executive Development Program publishing teams have made very significant additions to their circulation promotion budgets. They're not well targeted when the teams take over the newspaper, but the total amount in the budget adds up to several hundred thousand dollars. It's set to seem like a reasonable amount by newspaper standards, but it isn't very much on a per-household basis and is well below what we routinely suggest advertisers should spend as a percentage of sales.

In their efforts to drive circulation, most simulation teams just tinker at the margins of these expenditures, adding a little here and taking out a little there. They rarely "swing for the fence" in baseball terms, so their message just doesn't break through the advertising clutter to potential readers.

The law of circulation gravity, like its counterpart in the physical world, suggests that it takes a lot of promotional energy to stop something that is falling and get it to start upward again. But as we tell advertisers, a good product or service that has been neglected can be promoted heavily and well. And it will grow.

We demonstrated this dramatically with one publishing team that included a newspaper marketing VP, someone whose prior career had been in ad agencies. His ability to sell the value of advertising in other media had dramatic effects on circulation and penetration. In the simulated newspaper as they were running it, doubling or tripling these expenditures helped circulation grow even as his team was trying to save its way to greatness in other departments.

But promotional dollars alone usually aren't enough to move the needle, especially in major markets where media costs may be high and penetrations may be low. Every circulator and marketer ultimately returns to the need for other market development activities to reinforce promotion: a great product that meets reader needs, having the paper available whenever and wherever readers need it, and a price that reflects the readers' perceived value. Newspapers around the country are recognizing the need to promote and build their brands, reminding readers and non-readers that they can't live without the value the daily newspaper delivers.

"Promotion is not marketing," cautions Jonathan Markey, president of the Hackensack (NJ) Record. "(People) need to put money into marketing and market development." Markey's newspaper, published in the highly competitive New York suburbs, has an ongoing campaign that stresses the uniqueness of life in Northern New Jersey and the essential role The Record plays in that life.

2. Change The Product: Cutting newshole is
a quick way to save money and is guaranteed to fix the bottom line faster than
improving the product in order to sell more of it. That's true in the Zenith
Advocate and the Westfield Journal, the two newspapers in the
simulation, and in newspapers like them in real life. The cuts in news space
don't have to be large or Draconian. Newspapers can achieve substantial savings
with a thousand small cuts, too.

The opposite course — bulking up the paper to offer
more in exchange for the reader's time — often gets pretty short shrift from
the talented managers in the API program. But the shrinkage discussions don't.
They are often accompanied by tortured explanations of how shorter stories,
fewer stories and smaller photos of local people are really a reader service.
According to this way of thinking, a thinner, less-newsy newspaper helps loyal
readers who claim to have no time to read.

"That no time to read' just translates to no perceived value," Markey said. "I'd chase other things out of the paper first." He cited "house ads", those sometimes uninspired in-paper promotions that reach only current readers, as an example.

"Too often (our industry) has resorted to reducing our commitment to our greatest
strength through shortsighted cost reductions," said Anthony G. Chavonne, general
manager of the Fayetteville (NC) Observer. "What other business do you
know that reduces the quality of its product, elects not to tell people about
it, and then wonders why they're not successful?"

The API simulation has built-in rewards for building quality newspapers, and
we tell participants that most of what they need to do to make the newspaper
grow is fairly obvious: adding reporters, improving news presentation, making
the content more relevant and local, and investing a larger share of resources
in news than the "previous" publisher are all examples.

3. Cutting People First: One executive described his simulated
newspaper this way: "We are proud of our human resources, but we just have too
many of them." From what we've seen, too many newspaper managers in today's
world see their writing, sales and distribution talent as expensive and expendable.

We have over a decade's perspective, and it wasn't always so. Until newspapers
began laying off real people in the early '90s, most simulation participants
were reluctant to do so in our world. Nowadays, they cut to the chase and sometimes
to the bone. Those unwilling to do large scale layoffs tend to opt for hiring
freezes — what might be called "layoffs lite". Like Agatha Christie's "Ten Little
Indians", the people most involved in the story, often the best ones, just keep
disappearing while the lights are out.

Some people recognize the truism that if you want to do more and sell more in a talent-based business that isn't growing, more people and not fewer may be part of the answer.

While there's no question that staff reductions can save a bundle in salaries and benefits, it's tough to sell ads without salespeople, create compelling packages without copy editors, or ensure timely delivery without district managers.

"Rethink processes before cutting people," Markey advised. "Streamline the functions, but retain the talent." The Record is doing just that. It has invested heavily in new sales training and it was one of the original pilot sites for NAA's "Partners 2000" project. That project helps newspapers institute cross-functional teams in an effort to streamline processes in advertising, circulation and other departments. The goal isn't staff reduction, but better, more highly-leveraged use of the staff and improved service and responsiveness to customers.

But it still seems that a lot of people who come to API believe in the Business Tooth Fairy. In news, advertising and circulation, they don't like the obvious requirement to have people around to do the work of growing a business. They say that a better product, improved service and greater sales pressure can grow the business, but they don't like having to pay for the people to make it happen.

4. Use Every Circulation Tool in the Box: Many of those attending
the API program are aggressive as can be (and sometimes more than they ought
to be) on the ad side of the revenue budget. But they tend towards caution on
the circulation side, where they may see the hot stove of volume losses that
they've touched once too often at home.

We give them a newspaper that relies for circulation growth on price incentives
sold over the phone by telemarketers. The simulated newspaper seeks thousands
of new orders at just under half price.

Circulators know the problem all too well. They want to stop discounting new home delivery orders as soon as possible, but fear the loss of order production that may occur. Some teams address the problem by setting a five-year strategic goal of offering limited discounts, reducing them a little each year but increasing the sales pressure elsewhere.

We offer the opportunity for would-be publishers to spend about the same amount
of money, but on higher quality new orders sold face-to-face on value: at the
reader's doorstep or at community events or shopping malls. Their effort is
directed at reducing "churn" — the constant inflow of new orders needed to replace
the constant outflow as discounts expire.

We don't see much experimentation with pricing. Although newspapers here and
abroad have found that circulation does respond to price incentives, in the
simulated world price reductions are generally out of the question; it's happened
only once or twice over the length of the program. Static pricing seems to be
the favored option, avoiding increased circulation rates except as a last resort.
Their fear might be best expressed this way, though they rarely say it: "We
don't want to find out how dispensable we really are to our readers."

Some newspapers offer a wide array of home delivery options, including various
combinations of days of the week, different prices in different areas, radically
different Saturday or single-copy products, automatic credit card renewals or
optional content such as stock listings. But the so-called "tailored newspaper"
— a unique package of content delivered when and where the reader wants it on
only the days the reader wants it — is well in the future.

5. Create New Products: The good news is that tapping new
sources of revenue can and does work, using any vehicle from new zones to extra
sections in the main paper to freestanding specialty publications. And over
the years the focus of API's simulation participants has indeed shifted toward
enhancing top-line results: bringing in more business, rather than spending
less to produce the existing business.

But the bad news is that those fiery young managers of today, like some of their elders, only want to bet on sure things. Virtually everyone comes to the simulation with a success story or a horror story from home — a new product that succeeded wonderfully or one that failed miserably. Though the market and the newspaper we give them clearly isn't their own, this collective memory tends to limit their choices, or at least their thinking.

In the simulation, for example, ideas for products to reach Hispanic readers or seniors are dismissed as "never profitable." Some assumed to be "always profitable" are launched and never given the opportunity to find their market. Overall, API's rising stars think first of replicating what someone else has done successfully for near-immediate profitability. This is a high hurdle, especially when the economy is soft and the new revenue source is most needed. Some products take time; some work in some places and fail in others, depending on the market and on the quality of execution.

In the long run this can hurt newspapers, in the simulation and in real life, when they fail to grasp opportunities or cut them short too soon. Very often, a competitor emerges to launch something that serves a similar need, whether it is a weekly business publication or a monthly classified guide for cars, boats or apartment rentals.

"As newspaper managers we're spoiled by a history of instant gratification," Fayetteville's Chavonne said. "Too often we don't look at marginal but healthy business opportunities because they don't meet the returns we enjoy in our (core) business. Too many good ideas are discarded, only to be picked up by the hungry entrepreneur not burdened by unrealistic goals and expectations."

6. Courting National Business: Attracting more of this low
cost, high rate business quite frankly doesn't seem to be a priority with many
newspaper managers who attend the Executive Development Program. Instead, they
tend to take what they can get and charge whatever they can get away with for
it.

It's a moneymaking strategy, to be sure, but it doesn't address the more fundamental issue of how to attract more of this business in the first place. In the simulated newspapers, and in many real ones, making sales calls on national accounts to ask for their business is an almost-forgotten skill, like blacksmithing. And for many newspapers, it's seen as just as useful.

National sales in most newspapers is delegated to rep firms and NAA's sales arm, NNN, but personal selling doesn't happen much except in the largest metros. It's not that newspapers are ungrateful for the business they get. They just seem to act towards it as the ancients did to a solar eclipse: an unpredictable and awe-inspiring statement of the gods that appears briefly and just as quickly disappears.

It would take a concerted sales effort — probably more than NNN can do on its own on behalf of clusters of newspapers — to determine if the level of national business is a self-fulfilling prophecy: there isn't much business there so it isn't worth pursuing, and it isn't pursued because there isn't much there.

7. Pursuing The Local Angle: More care is taken with local
than with national accounts because more sales reps have to look them in the
eye. But there is so much money here in most markets — much of it already flowing
to newspapers — that even small adjustments in rate can produce a cash gusher.
And when the market is healthy, double-digit and mid-year increases are often,
and without apology, on the table in API's simulation.

Markey, running a metropolitan newspaper in the wealthy suburbs of the country's
largest market, is emphatic. "This is the heartbeat of this business," he said.
"(We should) raise service levels and produce more results for advertisers and
raise margins by better packaging of rates."

In general, that would mean increasing the level of sales support, shortening turnaround times for proofs, reducing errors, and offering later deadlines — many of the goals of the "Partners 2000" program. And where once the rate card was a simple affair measured in inches and presented as Gospel, special rates are increasingly developed on an as-needed basis and expressed in dollar volumes that allow advertisers to mix and match products and programs to earn volume discounts.

The newspaper simulations try to keep the rate-setting process simple, allowing participants to simply set their target for earned, average rate for a particular class of business. But this method sometimes encourages participants to be inflexible, in part because they believe they must never allow their average rate to erode even when advertisers demand something different and will walk away if they don't get it.

"Protecting average rate is a dead end," Miller said. "One publisher actually canceled all local contracts because the average rate was too low. Just think what that action did for creating a partnership between the newspaper and the customer! But I talked to one advertising manager whose average rate in one category dropped by 30 percent, yet whose revenue increased by 50 percent."

Miller and others know the story isn't the average rate itself, but the total revenues generated. While the simulation avoids the level of detail that would be required to show this, the principle is simple: "When rate concessions are granted in exchange for big contract increases, it's a good thing as long as you don't give away the farm."

And at API, there isn't as much discussion as there ought to be of how larger-than-inflation ad rate increases will be sold when circulation is stagnant or declining. More than once we've been told by participants that their simulated newspaper's higher pricing is just fine — it's the market that must be wrong because it isn't willing to pay those prices for the privilege of being a newspaper advertiser.

8. Cut, Cut, Cut: There's no doubt that not spending the money
you already have is a quick way to fix financial problems, and there are almost
always savings somewhere in the building. As many new publishers have found
in the real world, sometimes it's just a question of stopping the spending momentum
that can quickly develop when times are good.

But so many promising newspaper managers are so hypnotized by cost control that they sometimes lose sight of which dollars do something useful and which just add to overhead. The distinction isn't always obvious or appreciated. Despite hundreds of requests, API's program presenters have resisted adding a button that allow expenses to be cut indiscriminately, usually by some across the board percentage. We believe that allowing such button in the simulated world might suggest that this is a good way to manage a business in the real world, in effect teaching them that they should know the cost of everything, but the value of nothing.

"Focus on value-adding activities," Markey advises, "and increase spending in those areas…Invest in what can provide a sustainable competitive advantage." In that category, many managers would include marketing and research, sales and design expertise, dependable on-time delivery, and news that readers can't live without.

The "value-added" label may not apply to all capital investments — such as more color capacity — unless the market demands it. For example, the API simulation offers ample opportunity to spend big on presses and such with little obvious justification, and about 75 percent of publishing teams spend as much as their simulated corporate office will allow. "If we build it, the revenues will come" is what they say. But most of these big spenders wind up explaining later how much more profitable they could have been if it weren't for the payments they must make on millions of dollars in new plant and equipment.

9. Get Expert Help: The national trend to outsource services
to experts in favor of concentrating on core strengths isn't widely accepted
in our business, and those savings can be shortsighted.

We are so good at what we do in publishing daily newspapers that a lot of managers assume they are experts at everything else, too. Saving money and gaining control are the usual justifications for bringing everything inside — avoiding advertising agencies that might do better promotional creative, and avoiding telemarketing contractors who sell over the phone for a living, avoiding direct mail specialists who can produce outstanding circulation sales pieces.

"(You) should use outside help," Markey suggests, "but you should know what you need, establish measurable goals, and tie payments to performance."

So if the question is, "How can we save some money?", lots of things work in both the simulated and the real worlds. Misapplying these probably won't ensure long-term growth of the franchise and they can backfire in both worlds, but they can sure buy time in the short term.

They're all viable "quick fixes", basically short-term steps that can quickly be pushed too far. The danger isn't that they work, but that they will work too well, saving money while starving the business for growth.

"Newspapers have been spoiled by double digit margins and monopoly markets throughout their history," Chavonne observed. "Our greatest competitive advantage has not been our responsiveness to the market but rather the level of capital required to publish a newspaper. It has served to restrict competition in most markets in the country. We're losing that competitive advantage.

"Competition can be as close as the local college student's garage or from a directory company on the other side of the country. Our future success will depend on us focusing on our unique strengths, understanding our markets, investing in our franchises, and aggressively marketing ourselves."

© Copyright Newspaper Association of America; used with permission.