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Nieman Journalism Lab
Pushing to the future of journalism — A project of the Nieman Foundation at Harvard

The Newsonomics of the fading 80/20 rule

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Jim Moroney thinks he may be on to a new formula. It’s not as great — not nearly as profitable — as that old newspaper formula, but it’s one that may sustain his company into the future.

“The Dallas Morning News now gets 38 percent of its revenue from circulation, 54 percent from advertising, and 8 percent from contract printing plus,” the Morning News’ publisher tells me.

Those numbers are a far cry from the way it used to be for newspaper companies. They long used one of the many 80/20 rules out there: 80 percent of their revenue came from advertising, and 20% came from circulation.

Now, as ad revenue has been on a precipitous decline — down from almost $50 billion in 2000 to $24 billion in 2009, and still sliding a bit more — that old formula is out the window.

While the digital news world seems consumed with conversations about paywalls and memberships, it is old-fashioned print circulation revenue that is the gainer in the post-80/20 formulas. Sure, advertising’s ski slope decline has greatly altered the 80/20. So has, though, the significant up-pricing of both subscriptions and single copies over the past three years.

At the Morning News, Moroney — aided by research from consumer products company The Modellers — took monthly subscriptions from $18 to $30, in one fell swoop. Many other publishers have upped prices, though most have done it more gradually. Pick up a slim copy anywhere in your travels, and you see it now costs 75 cents or a buck; it used to be the “25-cent or 35-cent?” discussion that consumed executive committees.

The impact of the pricing moves is still uncertain. Short-term, they seemed to work. Though circulation continued to decline, circulation revenue was mildly up. The central notion: Get those with the newspaper habit to pay more of the freight, figuring that few would drop the newspaper because it cost two Grande Mochas more.

As we look at last quarter’s financial reports, we have to wonder how the up-pricing of circulation will work. As many companies showed a decline in circulation revenue in the second quarter as showed an increase.

A few of the numbers:

  • McClatchy: down 2.5%
  • Lee: down 4.4%
  • Gatehouse: down 2.5%

Moroney’s own company, A.H. Belo, of which he is an executive vice-president, reported a 6.6-percent increase. Additionally, The New York Times Company reported a 3.2-percent increase and Scripps a 4.5-percent increase (from 1st quarter data; 2nd not out until Aug. 9). Significantly, I think, each of those companies may have done a better job of minimizing newsroom cuts and reinvesting — at least a little — in that now higher-priced product.

While the jury is out on the stickiness of price increases, it’s clear the old 80/20 rule is gone.

Broadly, in research I conduct annually for Outsell, we track the global moves in ad, circulation and digital revenue. In 2009, circulation revenue was up more than a point over 2008 to 41 percent. Significantly, Japanese publishers continue to get a majority of their revenue from circulation, while much of Europe and UK see their percentages in 35-45 percent range.

ln the U.S., let’s just pull some data from the second-quarter reports. They show:

  • New York Times: Circ: 40%, Ads: 53%, Other: 7%
  • Scripps: Circ: 28%; Ads: 67%; Other: 5%
  • Gatehouse: Circ: 27% , Ads: 71%, Other 2%
  • Lee: Circ: 24%, Ads: 70%, Other: 6%
  • McClatchy: Circ: 20%; Ads: 76%, Other: 4%

Several factors will continue to push and pull the new ad/circ breakdown.

For one thing, we’re moving into an era of “reader revenue,” one that will roll up print subscriptions, single print copies, digital pay per view, digital subscriptions, all-access (across platform) subscriptions, memberships and more. For a next generation of reader revenue, tablet access is the big prize in the sights of publishers; witness, for instance, the likelihood of a News Corp. “iPad division.” Further, advertising will continue morph greatly, as digital marketing replaces some of that spend, enlarging and changing definitions.

Finally, don’t forget “other.” For A.H. Belo, it’s 8 percent now, but growing at at 35-percent clip. As news companies find “other” ways to make “other” revenue, we’ll see new formulas begin to make sense.

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  • Helen

    You still need reporters and journalist to do the personal interviews and researchers & other news people to do other media work. so even though the news is on the internet readers pay to read on the internet right??

  • Dave Lieber

    Many dailies are actually a dollar a day, not the coin amount stated in the story. Yet the papers have fewer pages, fewer news and feature stories, and seemingly (but not) more ads. And the widths are getting another inch chopped off. How can people justify paying twice as much for half as much? My takeaway from this story: For each traditional longtime subscriber and the less reliable convenience store impulse buyer out there … for them, deciding what to do is an intensely personal buying decision. How do you rebuild that intensity to increase the chances of a BUY decision?

  • Gernot schwendtner

    “Other” as you call it, is growing. Depending on ideas and possibilities of the publishing houses.
    I am working in this field in Austria – Business development.
    I would find it interesting to read more about this “other” and certain ideas.

  • Nick Orichuia

    I think people will buy newspapers at higher prices if newspapers deliver a substantive amount of good quality journalism. If weeklies like the New Yorker can afford to sell at $4.99, I see no problem in newspapers costing between $1 and $1.50.
    I come from Italy, where daily newspapers are between 30 and 50 pages. Last time I was there a year ago, the two main national dailies cost 1.10 euro (approx. $1.40). I’d buy both every day. They had so much content it was overwhelmingly satisfying. U.S. papers, on the other hand, are often disappointing for their reduced content. No wonder some people only but papers on Sundays. It’s the only day the paper actually comes in a decent size and with numerous sections!

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  • kp

    @ helen
    Unfortunately, this is usually not the case. You have to pay for access to certain newspaper sites, but many people don’t use these. Eventually, this could create a bigger problem.

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