It was hard to miss the fanfare accompanying news of the one millionth digital subscriber to the New York Times earlier this month. Easier to miss were the line items in the company's second quarter results that illustrate how important printed newspapers remain to the profitability of circulation departments across the US.
Efficiencies and lower costs in its print business helped The Times cut operating costs by almost $18 million, or 4.9%, during the quarter. Print distribution costs alone were about $6 million lower. The headline-grabbing growth in digital subscriptions was able to offset lower print sales, resulting in a 0.9% increase in overall circulation revenues, but it was traditional print circulation operations that underpinned the 78% increase in quarterly net earnings.
That pattern is being repeated at local newspapers across the country, according to the 15th edition of the Newspaper Association of America (NAA) Circulation Facts and Figures report. Median bottom line contribution of traditional circulation departments has increased from 42.6% in 2011 to 56.1% in 2014, the NAA found, as newspapers increase revenues through higher cover prices and find efficiencies in their distribution, sales and customer service operations.
Twenty-seven percent of the 175 newspapers that took part in the survey said they now outsource some aspects of home delivery to independent contractors or distribution companies, up from just 15% of the 2008 survey respondents. Bigger newspapers have moved more aggressively on this front – 68% with circulations over 100,000 now outsource compared to 48% in 2008.
A small but growing number of newspapers have opted to cut distribution costs by cutting district manager positions and entirely outsourcing delivery to independent contractors or distribution companies. More commonly, distribution efficiencies are being achieved by partnering with other newspaper companies or distributors for home delivery and by delivering other products like magazines and catalogs that generate additional revenue.
Among the newspapers surveyed, 44% now deliver magazines along with their own publications and 47% deliver other printed products. Among larger newspapers with circulations over 200,000 the figures are higher still – 80% of them also deliver national or local magazines.
The increasing level of co-mingling between digital and print subscriptions is breathing new life into some aspects of print circulation. The fact that most print subscriptions now include a digital component has made the dramatic recent increases in cover prices more palatable to consumers. Around 58% of new subscriptions included both a print and digital component, according to the NAA survey. For newspapers with circulations over 100,000 the figure is above 70%. This is just as well. An average one-week print subscription price for the newspapers surveyed by the NAA has increased almost 57% in the last five years to $5.74. Single copy prices have doubled in that period to a median price of $1.00 daily.
Higher prices might lead to lower circulation volumes, but the inclusion of digital access holds the promise that a lot of print readers could also potentially become new sources of future digital advertising revenue. The reality so far, however, is that most appear to be uninterested in reading news online.
The NAA figures suggest only about a quarter of print subscribers ever activate their digital account, although the biggest newspapers have had more success with a 61% activation rate. Separate figures published at the end of last year by Nielsen Scarborough reveal about 52% of newspaper subscribers only read print editions, compared to 29% who read print and digital versions and about a fifth who read digital only.
Beyond the revenue potential, encouraging print subscribers to access the digital product offers plenty of other upsides for circulation departments. Most significantly, subscribers who regularly access the digital replica are easier to retain because of the ease of tracking their activity and reaching them with digital marketing efforts. At the other end of the savings spectrum, over 41% of newspapers surveyed no longer offer vacation credits for print subscribers because of the availability of 24/7 digital access.
Digital access is also fundamentally changing subscription sales strategies at many newspapers. Less than half of home delivery subscribers now receive a print newspaper every day of the week according to the NAA.
Sales of Sunday-only subscriptions (excluding voluntary starts) increased by more than 230% in the last five years for newspapers with circulation under 25,000 and almost doubled for newspapers with circulation between 25,000 and 50,000. Daily subscriptions, meanwhile, fell by 13.3% and 8%, respectively in that period. Larger newspapers with circulation over 200,000 saw more modest increases in Sunday sales (up 9.3%) but bigger declines in daily sales (down 58.5%).
The NAA believes this trend reflects both lower consumer interest in daily delivery and more aggressive marketing of Sunday-only editions, which have higher profit margin and still offer newspapers the opportunity to sell a digital component.
Monetizing digital access is the ultimate goal. As the New York Times results highlight, however, squeezing efficiencies from the print side of the business remains an important strategy, as highlighted by Times president and CEO Mark Thompson in a conference call with analysts earlier this month.
"Similar to the digital consumer side, we are putting more emphasis on print circulation retention, including increased focus on our delivery service experience, better use of customer analytics and improved customer service."
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