Despite tanking circulation numbers, newspapers across the country plan to raise advertising rates anywhere between 3 and 6 percent in early 2007.
But this year, more than in years past, those increases will be met with strong resistance.
Big national advertisers such as Macy's department store are looking for rate drops, not increases, in light of declining circulations. And this is especially so from papers like the Los Angeles Times, which saw an 8 percent circulation drop in its latest audit and a 15 percent decline since ad rates were last set in March 2005.
"The newspapers want their advertisers to pay higher rates and advertisers want to pay lower rates. It's the oldest game in the newspaper business," says Mike Monroe, vice president of media and advertising operations at Macy’s, which advertises in four dozen newspapers and is one of the LA Times' largest advertisers.
What is new, says Monroe, is that media budgets are being more carefully scrutinized, and buyers will be quicker to look to other media.
"We don't want to pay more for less. We're certainly going to try negotiating rates. We take a lot of factors into the rates we are willing to pay," he says.
An increasing factor, one serving buyers, says Monroe, is the increasing options now available to advertisers that did not exist 20 years ago.
That makes it easier for advertisers to resist increases, and it also makes it easier to look elsewhere for the same or better results.
"Media is not newspaper-centric any longer," he says. "If newspapers begin to charge rates that don't yield the results the advertiser is looking for, they will move to a medium that does."
Monroe does not expect to see rate cuts, despite the circulation declines. "I've been in this job five years and I've never seen a rate card go down."
Industrywide, analysts say increases will average 3 percent to 6 percent for 2007. "Historically, they generally come out with a 3 to 5 or 6 percent increase," says Bob Shamberg, chief executive officer of Newspaper Services of America. He notes that the bulk of newspaper advertising agreements are renegotiated during the winter months, typically in the first quarter. "Our sense going into it is that newspapers will attempt to get higher rates, even those losing circulation," he says.
Among papers raising their rates are the New York Times, the Los Angeles Times and The Wall Street Journal. And at least for now individual papers appear reluctant to reveal what level of increases they're seeking.
The Los Angeles Times plans to raise its rates beginning Jan. 1 says spokeswoman Nancy Sullivan, but she will not give percentages.
"We treat each category of business separately and we reward client growth," Sullivan says. "To that end, we work hard to develop customized, multi-media solutions for our clients, so we cannot really generalize (the rate increase)."
The New York Times, whose circulation was down 3.5 percent in the most recent audit, says it plans a slight rate increase.
"We expect that advertising rates to increase in the low-single digits," Abbe Ruttenberg Serphos, director of public relations for The New York Times Co., tells Media Life. "The New York Times remains one of the best places to reach an influential, educated, high-quality audience. Advertisers continue to value that reach and are willing to pay a premium for it."
The Wall Street Journal, which saw a nearly 2 percent circulation decline, is planning similar increases timed to a major redesign that rolls out in January.
"Ad formats will remain largely the same under the redesigned Journal," says Emily J. Edmonds, public relations manager for parent Dow Jones & Co. "We are putting through a modest rate increase in 2007. This applies to all ad sizes and units. We are not adjusting our pricing because of the redesign."
To some degree, the push for rate increases is understandable. Newspapers are facing a whole raft of problems, beginning with circulation, which after modest declines in recent years is accelerating its pace, to 2.8 percent in the most recent ABC audit.
Advertising has been challenged as well, particularly for local papers. Overall ad spending in print editions fell nearly 3 percent on a year-to-year basis, to $11.2 billion in the third quarter, according to the Newspaper Association of America.
Compounding newspapers' problem is ever-rising costs, especially for newsprint.
But whether higher ad rates is the solution is quite another matter in the minds of media buyers.
"Given the significant and visible reduction in circulation, I think it would be extremely inappropriate," says Shamberg. "Advertisers feel they are continually paying for declining circulation and an aging demographic."
Shamberg says advertisers are more and more resistant to paying the higher rates against a deteriorating readership base. "Newspapers are selling from a less attractive vantage point. They don't command the percentage of the market that they used to and it's not the same audience or demographic," he says.
"They're putting some of their advertising base at risk if they don't control ad rates for 2007. It's a blueprint for scaring off more advertisers."
But Randy Craig, publications editor at Inland Press Association, believes that in many cases papers don't have much choice but to raise rates.
"Newspapers are just facing so many challenges right now that they are seeing what they can get out of advertisers. They are just in a situation where they still need cash flow. They are doing anything they can to keep surviving. I don't think it's greed, they are just trying to survive."
What's driving it all, as he and others observe, is pressure from Wall Street. Newspaper margins still run above 20 percent on average, making them tremendously profitable, yet stockholders have come to expect nothing less, and they balk at the very idea that profits will shrink, even as circulation and advertising declines and costs go up.
"The main problem with these publicly owned companies is that the people holding the stock don’t care about the newspapers or news, they care about the margins and they want 20 percent margins," Craig says. "When those margins dip below that, it is a signal of failure. Shareholder expectations are really throwing a wrench into the newspaper system."
But something must give, and likely it will happen behind closed doors when buyers and sellers sit down to talk. The rate card will matter less and less as newspapers come to become negotiated more like television, says Len Kubas, president of Kubas Consultants, a management consulting firm based in Toronto that assists newspapers in generating more profitable advertising revenues. "Newspaper revenue comes from contract advertisers that have negotiated rates much like television, radio and the internet," he says.
"You cannot count anymore on what’s published in the rate card to deliver the increase. If a newspaper says it's going to increase advertising 3 percent irrespective of circulation, that doesn't necessarily mean that everyone is going to pay a 3 percent increase."
Lisa Snedeker is a North Carolina writer.
