Jim Moroney, executive vice president of A.H. Belo Corp. and
publisher and CEO of The Dallas Morning News, has overseen some of
the most dramatic changes ever to have occurred at the publisher’s
flagship paper. He cut circulation, instituted some of the
industry’s steepest subscription rates, and earlier this year,
instituted a paywall. So far, the strategy appears to be working,
and partially as a result of these steps, A.H. Belo was able to
declare a dividend, its first in three years. Moroney spoke with
News Tech Editor-In-Chief Chuck Moozakis last month.
News Tech: A.H. Belo recently declared a
dividend and posted a first quarter financial report that, although
the company reported a small loss, seemed to indicate that you are
in good shape for the rest of the year. What can you say about the
strategy A.H. Belo has in place to compete in a marketplace that
still remains very shaky for most newspaper publishers?
Moroney: The strategy that we actually began
several years ago was to focus on quality circulation and get out
of just distributing copies indiscriminately to increase reported
circulation and hope we could raise rates. That may have been a
successful formula 15 years ago, but the media landscape has
changed. Targeting has become much more important, and mass
circulation just for the sake of mass is not where things have
gone, nor where things are going.
In early 2008, we saw another factor: significantly declining ad
revenues. We asked ourselves, what would we do if revenues
continued to decline into 2009 in the same way they were declining
in 2008? These circumstances led us to conclude that we had to
change the mix of revenues for our business: The traditional 80/20
model (advertising to circulation) wasn’t going to support the
business any longer; we needed to become less dependent on ad
revenues and obtain revenues from other sources, and one of those
sources was the consumer.
We believed there was an opportunity to test the elasticity of
home-delivery pricing to determine if we could raise the rate to a
much greater degree than the volume would drop; in other words, was
there significant inelasticity in our home delivery price? Through
research, we found out we could increase our subscription rates at
The Dallas Morning News by 40 percent and only face a 12 percent
decline in volume.
But we didn’t want to leave a gap in our distribution due to the
volume decline, so we decided to develop Briefing, a
Wednesday-Sunday broadsheet newspaper of 12-24 pages delivered to
200,000 homes that would fill in some of the places where we would
experience a decline in penetration.
We raised the subscription price to The Morning News by 40
percent in one step, in May of 2009. Since that time, we’ve been
able to grow our circulation revenue through 2009 and 2010, and
that has been measured in incremental millions of dollars. It’s had
an important effect on our total revenues. (Editor’s note: Monthly
subscriptions at The Morning News are priced at $33.95.)
News Tech: Does maximizing the revenues
you can get from print subscriptions remain a viable strategy for
you in 2011? Are newspaper publishers guilty of not charging as
much for their product as they should?
Moroney: I don’t really understand why the most
important thing we do, which is to create quality journalism, why
do we then turn around and give away copies of our newspaper for
pennies apiece and call it paid circulation? Why do we devalue our
content – our most valuable asset – in this way? I truly don’t
understand it.
News Tech: What were some of the other
sources from which The Morning News is attracting revenues?
Moroney: We ramped up commercial printing and
commercial distribution, which presently generates close to 10
percent of our total revenue.
News Tech: So what’s the mix today?
Moroney: Instead of 80/20, it’s more like 60
percent advertising, 30 percent from subscribers and consumers, and
the rest commercial printing and commercial distribution.
News Tech: How did your strategy to
diversify revenues integrate with your decision to begin charging
readers to view The Morning News’ content online? (Editor’s note:
The Morning News launched its paywall in March, charging $16.95 per
month for access to all digital content.)
Moroney: Our monthly digital subscription rate
is lower than our print subscription, but it’s high enough to
generate meaningful revenue. This way we can charge a rate that
passes on some of the savings (associated with eliminating the cost
of newsprint and distribution) to subscribers but at a level at
which we can build a business.
Our thoughts going into this were these: First, our best
customers are our home-delivery customers. They are paying $33.95
per month for the paper and we want to give them additional value.
Second, how are our home delivery customers interacting with our
digital content and how are nonsubscribers interacting with our
digital content? What are the similarities and what are the
differences? Knowing this information is critical to how we
continue to transform our business to a more digital one. In order
to get at this information, we had to be able to segregate print
subscriber access from non-print subscriber access. That’s why we
had to have a pay model that is not as porous as the metered model
and others.
The doomsayers cry out, “But your page views will drop!” Our
response: How valuable are pages that you’re selling at 70 cents
per thousand? I’m not worried about the loss of page views that are
sold at remnant rates. There’s very little financial value there.
We expected a 40 percent decline in page views, but in the first 12
weeks the average weekly decline was only 19 percent. That’s less
than the percent of our page views we were selling at remnant
rates.
In fact, since the day we launched our subscriber content
initiative, our digital ad revenues have increased, not declined.
Frankly, I’ve never thought there was anything wrong with creating
a bit of scarcity. Also, more than 65,000 of our print subscribers
have authenticated through a registration process in order to
access out content through our digital platforms. That’s a great
run rate for 90 days.
News Tech: How has the monthly
subscription strategy fared for The Providence (R.I.) Journal and
Press-Enterprise in Riverside, Calif.?
Moroney: It’s worked in Providence; we are
charging $30 per month for subscriptions there. We didn’t meet with
the same success in Riverside. That’s a particularly competitive
DMA and a reader can get a yearly subscription to certain papers’
Sunday editions (competing papers in the Los Angeles DMA) for only
$10. It is hard to effectively price lead in that environment so we
have hired a consultant to see if we can be successful with
segmented pricing targeted to specific households.
I do believe that many newspapers have a lot of headroom in
their home-delivery price. If they raised it, it would yield them
significantly greater circulation revenue, lower expenses due to
less newsprint and distribution costs and lower marketing expenses
because they wouldn’t be buying and replacing all that discounted
churn circulation.
News Tech: Some industry leaders say it’s
important to learn to live on digital dimes instead of “print
dollars” that have supported newspapers for decades. Do you agree?
Can A.H. Belo do that?
Moroney: I think what John Paton at Journal
Register Co. has done is remarkable. And I have a great deal of
respect for him. But there is one area, when it comes to digital-ad
revenue, where we might not see eye to eye. And that place is this:
In the first quarter of this year, more than 1 trillion digital ad
impressions were served in the United States. That represents a
supply/demand problem that won’t reset itself for years to come.
There is no way to aggressively raise CPMs in the digital space
with so much inventory being created and made available. I’m afraid
we’re not trading digital dollars for digital dimes; we’re trading
digital dollars for digital pennies.
Here’s the math: At the Morning News, we did approximately 40
million page views per month. If we had three ads on each page, and
if we sold every ad on every page every day, and you assume a $10
average CPM, we would generate just over $14 million annually. We
invest $35 million in our newsroom. I just don’t think digital
dimes will get you there. And certainly digital pennies won’t.
Metro newspaper sites just won’t scale to make those dimes and
pennies add up anywhere close to the revenue being lost in the
print product. We must find different ways to realize the value of
our digital audiences than just CPM based advertising. Go ahead and
stack the digital ad dimes. Yet at the same time, I’d be looking
for sources of revenue other than advertising.
News Tech: You’ve been a proponent of
ensuring that The Morning News has the reporting staff it needs to
cover the market. What’s your rationale?
Moroney: It’s my belief that a durable business
needs two things: a sustainable competitive advantage and something
that’s differentiated. The advantage that a local newspaper company
has is the breadth and depth of its reporting based on the scale of
its newsroom. If you keep scaling down the newsroom so that it’s on
par with, say, a local television news operation, you lose your
competitive advantage in the marketplace and your reporting won’t
be differentiated from local television news reporting. You’re
leveling the playing field for your competitors. And that’s
generally not a good thing to do.
News Tech: The iPad, tablet computers and
smartphones have led some industry analysts to say that mobile
represents a second chance for an industry that made more than its
share of mistakes when it came to exploiting the Internet. Do you
agree?
Moroney: Absolutely. I believe in mobile so
much that I am leading a mobile national ad revenue taskforce with
assistance from industry colleagues and the Newspaper Association
of America.
The idea is the following: to allow national advertisers to
purchase mobile ads across newspapers through a single transaction.
As an industry, we can come together as a group to offer a one-buy,
one bill opportunity through a sales organization representing
these newspapers and get it right and make it easy for national
advertisers. As an industry, we didn’t get this right in print. We
didn’t get it right with our websites. We have a chance to get this
right with mobile. I hope we have something in shape before the end
of the year.
News Tech: The Dallas Morning News has
invested money in upgrading controls and associated systems at its
presses in recent years. Do you have plans for additional
investment in Dallas? What about in Riverside and Providence?
Moroney: Those upgrades have been great
investments for us. Production plants in all three markets put out
a great product.
We still have excess capacity in all three markets, but by the
end of 2011 or 2012, if we pick up a few more commercial contracts
we could be out of headroom.
There are some things we are looking at on an ROI basis to
increase efficiency and then there is the possibility of getting
different equipment than what we have now that would have a
different ROI across the entire value chain of printing.
To do that, we have to believe we’ll be printing newspapers in
10 years, which we do believe. Then we’ll have to see how much
savings will be accrued to generate the ROI. We’re still
investigating.
News Tech: In late 2010, it appeared as
if some of the worst was behind newspapers, but first quarter
reports this year have been largely disappointing for many
publishers. Are you still optimistic about the industry?
Moroney: The hope was that the decline in core
business ad revenues would attenuate in 2011, but so far we haven’t
seen that. I don’t think anybody has any visibility as to what the
rest of the year will be like. At this time, there doesn’t appear
to be any predictable, consistent pattern to newspaper print ad
revenues.
We’re living in uncertainty right now, yet I’m still optimistic.
Newspaper companies have fantastic audiences. We have to find ways
to monetize those audiences in ways that go beyond traditional
advertising.
These audiences represent a tremendous reservoir of value we can
tap into, and I’m confident that as an industry we are going to
figure it out.
What won’t go away, as long as we produce quality journalism, is
that we will have loyal, quality audiences that are important to
marketers. We must find a way to extract financial value from those
audiences that goes beyond CPM-based advertising. There are lots of
smart people in the industry. If we think it through, we’ll find
the answers.
