Beyond 2Q Revenue Declines: AdMan's 9 Imperatives for New Growth

Last week’s Gannett’s 2Q report was an auspicious start, with the New York Times due Wednesday and McClatchy Thursday.

Start with the fact that Gannett, as both the world’s and US’s largest news company, commands about one of twenty dollars worldwide in the news trade. Add to that, the long-time industry belief about Gannett: they may not be lovable, but the guys (and increasingly) gals are great operators. When other news companies margins rested comfortably in the 20 percentile range, Gannett consistently scored in the 30s.

Gannett’s numbers – 18% down in classifieds; 8% down in retail; 14% down in national; 16% down at USA Today – show how stark and universal the newspaper downturn is. And it afflicts the Western world, from Japan through developed Europe. Gannett has had its own problem in UK as well, writing down its Newsquest subsidiary by $2.5B+ this year.

Gannett has made all kinds of right moves, directionally at least, from its major Seven Desks thinking shift in newsrooms to rolling out niche sites (60 Moms' site and counting) to centralized news video hosting and lately to joining AOL's Platform A network. The issue of course is that none of those moves, and others, will produce big enough soon enough.

The issue is near-term ad sales revenue. So I turned to AdMan (who first appeared commenting on Tribune math), an exec veteran of several big papers and their wars, for his Nine Imperatives on how to reinvigorate ad revenues, sooner than later. As we listen to news company CEOs  relate their travails, this week and into the next months, it'll be intriguing to see how many of the below topics punctuate the conversation.

1. News companies must double-time efforts to re-tool, re-hire to push online only. Online classified revenue has plunged, given its ties to print classified upsells. Gannett’s online classifieds 2Q slowed,” clearly a symptom of too much online revenue being tied at the hip to print classified. In boom times, that resulted in 25-35% growth rates; now the tables are turned.

2. Find new sales talent and reward it.  It’s hard to imagine anyone with exceptional talent and early in their career picking newspaper advertising as a career path. Yet, there is lots of sales turmoil in lots of industries right now, so putting on a new face can pay off. Possible solutions:

•  Offer creative new compensation plans. In the age-old commission/salary question, rumor has it that an major eastern metro is moving from commission back to salary, while a major western metro is moving the other way.  Like a lot of things in life, balance counts.  Full commission-only assumes that reps have more control of outcome than they may have in this environment. It overly rewards when things are good and overly penalizes when things are bad, especially on the larger territories that handle customers like Macy’s. In territories that handle smaller customers, commission starts to make more sense. 
•   Offer responsibility earlier than experience or results would traditionally merit.
•   Make experience in other industries such as a plus – not a minus. Radio guys for instance, have a lot to offer.

Whatever, wherever the source, nothing will get solved without a serious and fairly immediate talent infusion.

3. Create a workable sales structure that meets today’s challenges.  If I had 100 stock options  (Google, not newspaper!), for every sales structure change at the newspaper companies in the last five years, I’d be MoneyMan, instead of AdMan. On this point many get an A for effort, but there are still too few victories. Since time eternal, the question of sales staff structure has dogged business – this is not just a newspaper issue.  One eternal rub: Advertisers would generally prefer to deal with a single point of contact, while companies want multiple product lines to be represented more aggressively than a single point of contact can manage.  Packaged, single-point, multimedia solutions are the only way to win back market share.  That’s going to take strong product development, leadership, sales talent and sales technology.

4. Do everything you can to prevent Preprints from becoming the next Real Estate. Preprints have been a fairly stable business for the last dozen years providing a modest source of growth and becoming the backbone of Retail.  However, now its all about headwinds, and preprints could be headed for a catastrophic decline.  So many reasons, among them:
•    Paper prices are increasing 30% year over year.  It’s not newspapers that are cutting pages -- retailers will trim distribution to save cost
•    Gas Prices have doubled. Retailers will cut pages (and distribution) to save on shipping costs.
•    Circulation is dropping, an average of 3%+ a year, meaning newspapers have fewer copies to charge for.
•    Buying habits are changing and coupon clipping habits are changing. People will always like to save money, but not the same way that they used to forcing retailers to rethink the value of coupons. Consequently, grocers are questioning their investment in print coupons.
•    Print competition is tougher. The Advo/Valassis combination gives grocers and other retailers a new alternative, which will lead to price pressure on preprints beyond simply questioning the value proposition.
•    Online competition is tougher.  Virtually every large retailer, including Target (which is currently the backbone of newspaper distribution programs), is using online distribution of circulars.  How long will it be until one of them has the guts to say “cut the print costs?’  My bet would be that it is Sears and K-mart that have the least to lose.  Sears has traditionally run over 100 preprints per year.  Would it scare Eddie Lampert to drop newspapers?  I doubt it.

5. Moving on after The Department Store Bottom. A missed story in the midst of all of the misery is the consolidation and demise of the traditional department stores.  The combination of Macy’s and May company cut department store spending by more than half in most papers where both had previously run.  Department stores were the most reliable source of ROP advertising and therefore, were highly profitable.  Further, as May Company abandoned mall locations, Westfield, Simon and the like have filled those spots with retailers such as Target or Steve & Barry’s (now in chapter 11) that don’t run ROP advertising or value the newspaper audience.

It’s time to rethink A-section pricing.  A few options are market-driven, auction-style pricing or new pricing structures that reward online spending with bonus ROP; pure-play online can’t match that!

6. Use print classifieds more aggressively and innovatively. The stopper has been pulled from the bottom of the classified drain, and most folks are simply pointing at the sink saying “there it goes!” Why isn’t anyone aggressively leveraging print to drive its online position, for instance, including paid online listings for free in the newspaper. Or consider putting social networking elements into print. For example, how about testing the printing of some info from Facebook in ads – sort of a new age personals. The irony is of course that old-word social networking started in newspapers when they began printing birth, wedding and death announcements. Now social networking is online and more robust, but it can still have value in print.

7.  Tear up the pricing playbook. Salespeople on are on the defensive on price, as the marketplace forces concessions. Old-fashioned finance departments need to do more than monitor the average rate and engage in contentious battles with ad management.  Tearing up the playbook means starting over with new pricing schemes, one of the places that new, young talent  (that’s not mired in “the way we always did it”) could be helpful.  Get aggressive on print/online combo pricing that forces advertisers to step back and rethink their entire budget.  It can be done.

8. The times call for newspapers to be more acquisitive. Yes, capital’s never been tighter, but this is the time to grab more local market share, not settle for less.  Tough economic times are affecting all businesses, not just daily newspapers. In every market there are local shoppers, magazines and websites that combined slurp up a good amount of market share.  The prices for those assets are likely at their historical lows.  If newspapers want to diversify their revenue base, this a great time to buy up the local competition. It won’t make the journalists happy (I can hear it now – “why are you buying this crappy local magazine when you can add two more pages to the A-section?”), but it will start the process of building a multi-media fortress.  If I were the local publisher or Ad Director, I’d be evaluating everything including matchbook cover advertising.  Buy them, consolidate them, whack their costs, network their ads and build market share.

9. It’s not just about the newspaper companies, or the journalism, or the sales staff. Yes, there is a wider world out there. Yes, journalistically, content cuts are worrisome. But content is  not the biggest key to growing ad revenue. I have spent years of my life visiting retailers, large and small. Not once did anyone ever say to me “if you add more content, I’ll spend more with you.”  Nor did they say the opposite. And that’s not what Target (or Sears or anyone else for that matter) is saying now.  Revenue is declining as much or more due to structural changes in Retailing, Real Estate, the Recruitment process and Automotive, all backbones of the newspaper industry.  Those industries are changing (with as much or more drama than newspapers), and those changes are impacting newspapers.  Understanding the other guy's problems, and figuring out how to solve it with him, is the key.

Comments

[Wade]

Ps
Or might I be better off to start the shopper from scratch?

[Wade]

I have just found a weekly paper for sale in my area that I can afford. At the same time I have always thought that the area was ripe for a shopper, it doesn't have one now. Now I'm thinking of buying the paper and spinning off a shopper. There is also another weekly that would likely be ripe for picking soon on the other edge of what I see the shoppers boundries. Any thoughts?

[Simple Simon]

'Find new sales talent' is like 'throwing the baby out with the bath water' as my grandma would say! I'd hire a 'more experienced' sales rep ANY DAY over the younger less experienced prospects.
They are just as eager and have a far better work ethic!

One marketing manager tried telling me we should hire new staff and drop them off on the corner to sell door to door and pick them back up 4 hours later. Oh yes, now THERE's a way to build revenue albeit a path that completely lacks in building advertiser retention. I much prefer customer loyalty built through rapport and trust!

I understand the business theory of growth through disruption. That's not what we're talking about here though is it?

[edward]

Given what is happening on the stock exchanges, I think it will be the shoppers buying the newspapers, and not the other way around.

[David]

Hey nice.
This is quite interesting.
I recommend, everyone should read it once.