Saturday, November 01, 2008

It's all about advertising

One of the reasons why free daily newspapers have so much potential is that they're free. And if they're distributed widely, they can reach many more people than a paid newspaper.

Readers who are 40 and younger likely didn't grow up in homes that subscribed to newspapers. They're not accustomed to paying for a paper -- particularly if they have been getting news from the Internet and TV. Older readers, when exposed to a free paper carrying a lot of local news, will search for that paper again and again. And free papers have higher pass-along rates, meaning more people read each copy than a paid paper. Free papers capture the interest of the casual reader who long ago stopped reading paid papers (or never started).

Ultimately free makes the advertiser's buck go farther and puts ads in front of people who wouldn't normally pick up a paid newspaper.

Free can be a fantastic business model.

But that's not the opinion of Morris Communications, which has decided to flip its Bluffton (S.C.) Today, a 17,000-circulation free daily near Hilton Head, S.C., from free to paid (25 cents daily, 75 cents on Sunday) beginning Dec. 1. Bluffton Today was started by Morris three years ago as an experiment. Morris, by switching from free to paid, has essentially said the experiment is over.

Publisher Tim Anderson wrote:
    The question I’ve been asked most since we launched Bluffton Today was when we would convert to apaid newspaper. My reply has always been the same. We did not build the model with aplan to convert to paid subscriptions.

    The model was built to rely solely on advertising revenues to publish daily. Every member of the Bluffton Today team had confidence that we could make the free newspaper model work.

    And we did for more than three years. We continued to manage our expenses while experiencing revenue growth through the first of this year. But these are extreme times for most businesses, and newspapers are no exception.

    Over the past year we have experienced significant price increases in newsprint and ink. And newsprint price increases are projected into 2009. In addition to expense issues our advertising revenues began to “soften” in the second quarter. Our revenue was not covering the additional expenses. We tried several things to provide an acceptable bottom line. Restructuring departments and eliminating several positions going into this year provided little relief. We adjusted the number of pages in the paper but realized we weren’t providing you with some of the coverage we promised when we launched. So we had to find anew solution.
Anderson says his ad revenues are declining. How much more will those revenues decline when advertisers discover their ads are less effective than before? What will an advertiser who regularly runs a coupon think when he only gets 10 coupons a month compared to 50 when the paper was free?