Problems and solutions for national newspapers – can advertising still be the saviour?

For national newspapers the last couple of years certainly seemed to be a near-death experience. Bear in mind, though, the national press has had a see-saw flirtation with forecast death for many decades, writes Guy Zitter, who spent 25 years leading the Daily Mail's commercial operation.

If you go back to 1972, 75% of the UK population were readers of UK national dailies. The Sun was selling 4.25 million per day, the Daily Express 3.4 million, the Daily Mirror 2.6 million and the Daily Mail 1.7 million. Figures are not available for the profitability of the national newspapers in 1972 but the Mail was certainly running at a loss and its activities had to be funded by other interests of the Rothermere family.

By 2002 total UK national daily newspaper readership had dropped to 53%. Every title but the Mail was down in circulation.

The other interesting difference in 2002 was all newspaper profitability was massively greater by then. A combination of money from floating Reuters, revolution in the industrial climate (Margaret Thatcher) enabling printing cost reduction and the introduction of colour had laid the foundation for a complete change in newspaper economics. Ad revenue on the Daily Mail was at near record levels, having risen 280% during the 90s, and profitability was 330% up over the same period.

Jump forward to today and the picture is very different. Circulations down but circulation revenues remain relatively stable in the stronger titles. Paid for circulation is in decline, hardly surprising with Metro and the Standard giving away 2.2m copies, but cover prices have frequently risen to mitigate the revenue loss. Where the money has been haemorrhaging is advertising.

Classified advertising

National newspaper advertising revenues have a range of identifiable problems. Taking the traditional classified sector first; it became clear in the 90s the internet was going to be massively disruptive. Search for a job, house, holiday, car on the internet and in moments you can see what is available without having to buy a newspaper. The only way to counterbalance this was by investing in or starting your own businesses which enabled the company to be in the up-lift as well as the down.

The Guardian and AutoTrader are prime examples. Without that investment the Scott Trust would have been unable to continue funding the Guardian. The Mail tried PeopleBank as a CV search platform in 1996, which was the right concept but too early. DMGT then bought Jobsite which ran on a less disruptive model and clambered into the property market with Find a Property and Prime Location. All of these traded profitably but their income could not replace the money which had been coming into the print classified revenues in regional Northcliffe Newspapers, the Standard and the Mail.

The capital value of these new businesses, however, attracted far higher price to earnings ratios than those available from the more traditional business so sale or flotation did in fact generate huge returns rather than trading income. One way or another, therefore, the classified revenue damage has been counterbalanced, at least by the Mail and the Guardian.

Display advertising

The category which traditionally held up especially well was retail. It is still the largest category today. The reason was simple. It worked to the extent it was measureable, that is if Sainsbury’s normally sold five tonnes of sausages on Saturday and it sold 50 tonnes after it put an offer in the Daily Mail. This model is under pressure because of the growth of databases which are being built up by almost every advertiser and enable them to email the offer directly to their own audience. It is cheaper and can be targeted. The problem for the advertiser though is all of their competitors are doing the same and they are only marketing to their existent database.

On the face of it national newspapers’ advertising revenue problems should not be as severe as recent figures suggest. National dailies, if Metro and the Standard are included, still sell or distribute more than nine million copies per day. The Sundays come in at 6.2 million. National titles in combination with their internet sites are actually reaching a higher proportion of the UK market than ever before. Total readership across print and digital news brands is 35% of the total UK population daily, 63% weekly and 90% monthly with the highest monthly reach among the youngest groups (18-34) who tend to access via mobile devices. Arguably national newspapers should be able to take a large, or nearly as large, slice of the cake as before. They are reaching a higher proportion of the UK population. That is not happening. Why?

All of the national newspapers’ digital audiences can also largely be found via retargeting, so unique access has gone and with it control of pricing. The internet provides almost infinite advertising opportunity and clearly marketing budgets are not infinite so price pressure is downwards. Nevertheless, on the surface it would appear a model which produces an audience in a trusted environment should be able to be monetised.

Media buying

This is more difficult than it looks. The vast majority of advertising revenue comes via media intermediaries. They, in theory, the guardians of their client’s marketing/media budgets, guide the money into a relatively small proportion of the large opportunities the internet provides. A great deal of discussion has taken place around how this is done and the transparency (or lack of) in these deals.

Used properly the internet can provide excellent returns and very cost effective marketing but in many instances there is insufficient understanding of exactly what is going on and scrutiny of it. According to Ebiquity (the largest UK media auditor) 75% of the money in the marketing pot does not actually reach the publisher from an advertiser using ‘programmatic’ or automated bid-based advertising on the internet. If this huge percentage is being lost in the pipe between the client budget and the media owner there two very obvious questions, firstly, where has the money gone and secondly, how can the money possibly be effective when most of it is not reaching the target audience?

To answer the first question one has to look at the media buyers as this money is placed in their hands by the client company’s marketing department. The transparency in this process resembles wet cement. Some media buyers offer their clients a guarantee of cheaper space/time if no transparency is required. This kind of contract protects the media buyer from accusations of sharp practice or fraud.

The Association of National Advertisers in the US published a report in mid-2016 which found: ‘Non transparent business practices were pervasive across the media agency spectrum.’ It also acknowledged the existence of cash rebates and rebates in the form of ‘service agreements’ in which suppliers paid for low value consulting/research or provided free inventory. The ‘potentially problematic agency conduct’ included the agency or its holding company acting as principal to purchase media on its own behalf and reselling it to its client at mark-ups of up to 90%. In some cases the answer to where the money has gone has to be in large part to the agency itself.

To answer the second question we can take a quote originally attributed to Lord Leverhulme: “I know 50% of my advertising doesn’t work, I just don’t know which 50%.”

The 50% of the advertising budget which does not work is almost certainly the 50% which does not even reach the publisher or target audience. Agencies which feel unfairly accused of this practice can or should resolve the issue by simply providing full transparency to their clients and/or the media owners.

The new competition

These are not the only problems as newspaper websites are competing with huge opposition. The Guardian’s web traffic grew in the first quarter of 2016 but its digital revenue declined. In the same quarter Facebook’s net income increased 300% and its margins jumped from 26% to 37%. In effect 90% of the increase in mobile revenue is going to Facebook and Google. They are omnipresent. Combine this with agencies’ own income influencing advertising decisions, and the internet begins to resemble a monopoly based around algorithms and not a supposedly neutral distribution platform.

So, actual print is in decline but the audience accessing news content from the print parent is at an all-time high.

Will newspapers survive and if so how?

They cannot make expensive mistakes. Why the Guardian thought it was feasible to print in Berliner proportions is bewildering. Broadsheet or tabloid printing capacity was freely available and could have been done under contract. If the desire to own the presses was a priority then at least buy some that would be able to contract print for other clients in the UK and amortise the capital cost of press over capacity across a broader business base. Get the printing done as economically as possible.

Hang on to existing circulation

Do not lose any of your existing print customers. They are older, in the habit of buying a newspaper, and probably very loyal. They are gold dust, and must be treated as such. No sudden changes in editorial direction, format or large price movements. Any change has to be gradual evolution not revolution. There may be opportunities to increase circulation and to find these the obvious route is to examine what has worked historically.

Magazines are under less pressure than national newspapers at the time of writing. Some, for example the Spectator, are putting on sales. There were two instances where the Mail managed to capitalise by adding a magazine to its newspaper offering. The first was six months after the launch of the Mail on Sunday. Circulation had gone past the million mark at launch but fell back to just above 600,000. The company gambled, with Vere Rothermere’s money, and launched You magazine. Circulation doubled overnight to 1.2 million and continued to climb.

The second was with the launch of Weekend magazine. There was a large and heated debate about the viability of Weekend. Saturday went from being the worst circulation day of the week at circa 1.5 million to 3 million at peak. TV listings had been deregulated and the monopoly of the Radio Times and TV Times was broken. Weekend is still the largest and most comprehensive TV listings product in the market and Saturday still way outsells every other day of the week.

Those bold moves were right for the time in terms of scale and scope but there are always opportunities to stretch into another stream of content. The trick is to find content that, when added to what is already in the existent newspaper, increases the appeal to the extent people will pay more for it or pay for it separately. As part of a digital package this could be video.

Creating more commercial revenue

Part of the problem is internet oversupply and the very large media buying middlemen putting pressure on price or not using national newspapers at all for a variety of reasons. Strategies to counterbalance this must include developing and maintaining direct advertiser contact. If the client is convinced of the value of the newspaper to his business the agency will have to work very hard to knock the newspaper off the schedule.

Google and Facebook have teams selling direct to clients and one way or another the national newspapers must do the same. Why would newspapers expect to be part of the expensive marketing process unless they have demonstrated their worth to the people writing the cheque? The audience newspapers have to offer in print is older but they have 79% of the savings wealth of the country at their disposal and 70% of the income. They own their houses and have substantial pension schemes. This is the first time the generation following them is unlikely to be as wealthy. They are also living longer and longer as healthcare has improved. This is an incredibly valuable audience and this will need to be explained and proven to clients and their agencies time and again.

The media buying practices outlined earlier have to become unsustainable. National newspapers have a very powerful voice and in the end they will have to confront the shortcomings and abuse of the system by writing about it. The fear this may damage their short-term revenues may be giving them pause for thought but publicising the problems will engender a reaction which eventually must change the practice or produce legislation which forces that change. To do nothing to resolve this is not an option as no model based around any advertising revenue on the internet can survive otherwise.

Thinking beyond the traditional model, all the national newspapers are now running with significant advertising inventory unsold. This either shrinks the pagination to the point where consumer value is called into question or is handed over to journalism which otherwise would not have made the cut. This inventory is not only huge, it is hugely valuable in both print and digital. Newspapers have the opportunity to trade this inventory for equity. A huge number of startups come to the market each year all of which need marketing to get off the ground. The newspapers could become incubators for these businesses, taking the return for the inventory in capital value rather than income. Run properly this may prove more profitable than normal advertising space sales.

This different approach to the use of print and digital inventory has to be mirrored by an open-minded management with a strong entrepreneurial bent. Identifying what may or may not work is akin to an investment banking process rather than normal commercial sales.

All of these measures and the success/survival of Britain’s national newspaper industry in the end depend upon one single factor which is having a highly motivated team of people across all of the different disciplines who believe in their publications. The pace of change is increasing and the decisions made today which seem to be correct may have to changed in a matter of months as technology evolves and people’s behaviour changes with it.

National newspapers need to run to where the ball is going not where the ball is, as does every other business. The problem is the ball may change direction and so the business must as well. This is not a comfortable experience but adaptability is vital. The newspaper companies with the right management will survive. They may end up putting animated cartoon figures into their interactive digital news content in order to get the under 30s to read it.

Profits are still pretty robust. The Telegraph made £48.3m in 2015 with a circulation of under 500,000. The Mail still is at around £100m in print alone. Done properly there will still be print editions in 15 years’ time and their digital offshoots could be large and very profitable.

Guy Zitter was advertising director of the Daily Mail 1989-1994, and managing director of the Daily Mail 1994-2014.

This is an extract from Last Words? How Can Journalism Survive the Decline of Print? Edited by John Mair, Tor Clark, Neil Fowler, Raymond Snoddy and Richard Tait, and published by Abramis on 23 January at £19.95. Readers of The Drum can order copies at a special pre-publication discounted price of £15 from Richard@abramis.co.uk

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Guy Zitter

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