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Small Towns, Big Profits: How Many Papers Survive Slump.

Good riddance, 2007. Sure, with a recession looming, mortgage re-sets heralding a continued housing slump, and an ad climate looking ever more Darwinian, 2008 could be even worse. But for now, last year will be remembered as one of hemorrhaging real estate and automotive classified revenues, repeated head-count cuts, squeezed operating margins, and cratering stock prices.

But how will Edward Seaton, editor-in-chief of The Manhattan (Kan.) Mercury and a part owner of six other Seaton Group dailies in the Plains, remember 2007? "We had the best year we've ever had financially, not just at the Mercury, but for all of our papers," he says.

How about you, John Tompkins? He founded News Media Corporation with one Rochelle, Ill., weekly as a 21-year-old in 1975 and now publishes 71 papers in communities that are tiny dots on the maps of nine states. "Well, with our West Coast papers, mostly in California, business has been difficult, but even there we've made up for a lot of [the slump]," he says. "But throughout the rest of the country from Oregon to West Virginia, the numbers have been up."

Surely things couldn't be that good for Pioneer Newspapers, right? After all, they're headquartered in the Emerald City, where the Seattle Times just made headlines by lopping $21 million from the budget and fretting that ad revenues were down by more than 25% since 2000. How about it, Pioneer President David R. Lord? "We did fine, our revenue was up, but the best year ever? No, I wouldn't say that -- well, wait a minute. Yeah, I guess it was our best year ever," Lord laughs, adding he hadn't previously thought of 2007 that way.

Welcome to the newspaper business in much of small-town America, which in 2008 can still, at times, be portrayed in the sunny style of Norman Rockwell. While Wall Street analysts predict a future for newspapers in ever more apocalyptic terms, the fact is: Many small-market papers are not just surviving, but thriving.

In this America, the wailing and gnashing of teeth by big-city publishers is the faintest rumbling in the distance. And all those headlines about newspapers' impending doom are, well, kind of irritating.

"It's depressing to read so many stories about the industry dying," says Jeff Pelline, editor of The Union in Grass Valley, Calif. It's also, he adds, a disconnect for folks at the Swift Newspapers-owned Union, where circulation is strong, Web traffic is booming, and Craigslist, founded just 150 miles away in San Francisco, has yet to meaningfully penetrate the 16,000-circulation daily's market in the Sierra Foothills.

Gloomy coverage of the industry is a common complaint of publishers in the National Newspaper Association (NNA), says Executive Director Brian Steffens. NNA members are more likely to be like News Media Corp.'s 2,022-circulation Clinton (Ill.) Journal than the Chicago Tribune. "A lot of the smaller papers say, hey, I'm not experiencing that," says Steffens.

Instead, many smaller papers had a year like Clay Morgan's. He's the publisher of two paid Texas weeklies that between them don't quite sell 5,000 copies: the Aransas Pass Progress and the Ingleside Index. The papers ended 2007 up 14% in ad revenue from 2006. "We are planning for a similar 2008," Morgan exults.

And even some of the community publishers typically cited as examples of the industry slump are actually doing pretty well. Consider GateHouse Media: In 2007, its first full year as a publicly traded company, GateHouse shares plunged 52.7%. But among its individual papers, the news is often a lot better. In Missouri, for instance, the aptly named 2,700-circ Boonville Daily News and its weekly sibling The Record expected to end the year with ad revenues up 7% from 2006.

"The smaller papers are doing very well," says Nancy Lane, who has a broad perspective on their performance as executive director of Suburban Newspapers of America (SNA). "They have the same challenges -- the real estate decline, for example -- but you don't see the big circulation declines, not to the extent the metros have." According to an analysis of the Audit Bureau of Circulation's September FAS-FAX, daily circulation for papers with circ less than 25,000 declined 2.4% -- versus papers in the 250,000 to 499,999 category, where it dropped 3.9%.

National accounts are finally taking notice too. SNA organized and co-founded LocalPoint Media, a national ad service for suburban and community newspapers. Lane also serves as president of LocalPoint and happily relays that since its founding last summer, LocalPoint has issued 75 proposals in Q1 and expects most of them to come through. "We are seeing tremendous interest from national media buyers -- not just in travel, but that is where we are putting energy," she says. "We are seeing it in national, political, automotive, and financial." Even better, LocalPoint is projecting $7 million in incremental revenue for its newspapers this year.

Houston Community Newspapers (HCN) publishes two dailies and 33 weeklies in the Houston area. Ad revenue there grew 8% in 2007.

Kevin J. Barry, president/CEO of ASP Westward (HCN's parent company), says he took the advice of advertisers to heart. HCN papers are distributed to households for free. But advertisers don't blink that subscribers aren't shelling out money for the product. They like the demographics of the households that HCN delivers, Barry contends: "I can remember for years Bill Dillard, the head of [department store] Dillard's, would tell all of us daily newspaper publishers year after year -- you have to get into more households. I don't think he said you have to go out and get more paid subscribers."

Taking It To The StreetsMetro dailies have noticed this success, and are rushing to publish look-alike hyperlocal print or Web newspapers, hoping school lunch menus and profiles of crossing guards can bring back readers in a way that dispatches from Washington, D.C., and the Democratic Republic of the Congo no longer do. After all, they figure, they can report "local, local, local" news just as well as the Huron (S.D.) Plainsman, partly by depending on the readers themselves to submit the news.

But will it turn out to be that easy? Or are metros setting themselves up for ... not failure, exactly, but the kind of so-so payoff they got in the 1970s and 1980s when they loaded up on locally zoned sections?

Of course, the viability of smaller-market newspapers varies across the board. The NNA' s Steffens says that if a paper is in a rural community with a shrinking population and struggling business environment, they're probably not doing so hot.

Some of the better-performing little papers offer weak journalism or design, since they dominate the market anyway. At least for now.

Just because the newspapers on the flip side of metros are doing well, doesn't mean they are invincible to the forces battering big-city dailies. Bob Scaife, a Newspaper Association of America (NAA) vice president of marketing who concentrates on smaller-market newspapers, warns that competing media and broadband penetration will eventually reach markets that are now sitting comfortably. "They have to keep an eye over their shoulder with what is going on out there," he says.

So how do small-market newspapers do it, and are there things metros could learn from them? Here are some of the ways these operations are making gains. Think of it as "Seven Habits of an Effective Small-Market Newspaper."

1. Local News, Sure -- But That's Not All

Many discussions of the small-market newspaper's advantage begin and end with the obvious fact that it has an enviable stranglehold on its community's local news.

"The absolutely most significant factor that drives the stability and success of smaller properties is that their franchise is in local news -- not local news plus regional news plus national and international news," declares John T. Cribb, partner in the Bozeman, Mont., newspaper brokerage firm Cribb, Greene & Associates. While the Internet has turned most news into a commodity, local news remains a unique newspaper asset that's a reliable moneymaker.

But that seemingly simple observation does not explain everything. For one thing, all local news is not created equal.

"That whole term 'local news' is so overused," says News Media's Tompkins. Metros, he argues, in particular have a skewed idea of what "local, local, local" should be: "So much of what passes for local news is feature-y, magazine-type stuff. People will read that if they have the time and nothing else to do, say, if they're sitting on the toilet, but they may also figure, 'This doesn't interest me.'"

That's why News Media newspapers dole out big story counts of hard news -- traffic accidents, fires, crimes, village council news, small-town politicking. "This is news our readers have to read," Tompkins says. And, he notes, it hearkens back to the origins of the small-time editor who wasn't trained at a j-school but loaded up his pages with real news, not "human interest" profiles.

What's more, you can't do it on the cheap, says Jon K. Rust, publisher of the Southeast Missourian in Cape Girardeau, Mo., and co-president of Rust Communications' 18 dailies and more than 30 weeklies: "We make significant emphasis on quality local journalism, and we definitely believe that investing in local journalism is absolutely imperative to our success."

2. Diversifying Ad Revenue

In the oft-told story of small-town economics, Wal-Mart opens a store at the edge of town, the downtown retailers more or less quickly close up shop -- and the newspaper is traumatized by the loss of advertising. But that's not the real story, small-market publishers will tell you. In fact, most realized decades before Sam Walton's behemoth really started moving that the tiny number of retail stores would never be enough to sustain the paper.

When the day of reckoning came, they were ready, says broker John Cribb. "They've always had to cultivate the small advertiser in ways that bigger papers didn't, and still don't," he says. "So downtown has gone away, and maybe more importantly, what's gone away is the local retailer -- but there are still tons of service businesses that have been cultivated by the smaller operations and not the bigger papers."

News Media's Tompkins learned that lesson long ago: "We go after the services: plumbers, banks, lawyers, hospitals, funeral homes -- you're going to laugh -- even oil field services." In News Media markets, Tompkins says, the non-retail sales tax economy is typically two or three times retail. And the chain has specific programs to capture those ad dollars: "In that sense, we're a formula company."

Those papers, he adds, don't make much money from downtown merchants. So if Wal-Mart or another big-box retailer rolls into town, the papers take a modest hit for two or three years, and then it's as if nothing's changed.

Nor are small papers as addicted to classified ads as metros have become over the last couple of decades, notes Ed Seaton at the Manhattan (Kan.) Mercury. "Although, having said that, classified is important, and it's growing in Manhattan principally because Fort Reilly is doubling in size, and that's really driving real estate," he adds.

The tight sales relationships help even in difficult times when papers have to cut more deals to keep the advertising coming, Jon Rust says. Some Rust papers are feeling metro-like pressures on real estate and auto classified.

Community papers have a fundamental advantage over even the best-zoned metros, says the NAA's Scaife. No matter how focused the metro's preprinted insert may be, for instance, it's still considered the big-city paper -- whereas "the community paper is very specifically about" its town, he adds.

3. Maintain a Fast-and-Loose Corporate Culture

The Readership Institute's landmark Impact study in 2000 found that one big reason many daily newspapers, especially the biggest ones, were sabotaging their attempts to grow readership was their insistence on maintaining a corporate culture of self- interested "silos" of operation and a military-like hierarchy.

But that's rarely a problem at small papers. The Union's Pelline experienced the silos working in metro papers and its polar opposite in the free-for-all culture of CNet's start-up. Community papers, he says, are closer to online culture: "It's much more collaborative, with multi-tasking and reporters willing to be more flexible. In the past there was a more pragmatic reason for it because the staff was just not so big. But now, we're more strategic about it."

And just as the old-time small-town reporter routinely lugged around a Speed Grafix on his beat, their do-it-all DNA accounts for an embrace of digital that might surprise metros. Rust Communications, for instance, is heavily recruiting local bloggers so that, Jon Rust says, whether one of its papers sends a reporter to a local event or not it has someone there reinforcing a sense of engagement with readers. Smaller-market papers chase digital for an old-fashioned reason -- revenue. It's working at Rust Communications: Online revenue doubled in 2007.

Whether it's a one-paper, mom-and-pop shop or a multi-state operation, one thing the most successful small-market papers have in common is that the publisher calls the shots. Seattle-based Pioneer Newspapers owns 21 papers in the Pacific Northwest and Utah, and depends on the publisher -- often a hometown product -- to do what he or she thinks is right for the market. "We want the publisher to be the face of paper in the community," says President David Lord. "The vast majority of people in the community in, for instance, Klamath Falls, Ore., don't know the [Herald and News] is owned by somebody in Seattle."

Dallas-based American Community Newspapers (ACN) makes its group publishers get out in the field. ACN publishes three dailies and 83 weeklies around Dallas, Washington D.C., Columbus, Ohio, and Minneapolis/St. Paul, Minn., flanking wheezing metro markets with free- distribution products.

Group publishers close their offices one day each week and hit the streets with their sales team. "They learn more about the customers and about the community," says Gene M. Carr, ACN's CEO.

4. Put Down Deep Roots

At the most successful small-market papers, the publishers, the editors, and even the reporters don't move around that much. News Media Inc. goes a little farther. Its general hiring philosophy is to strive to get locals from whatever business background -- and teach them how to run their hometown paper.

Getting editors and publishers who truly know their audiences -- personally, even -- pays off journalistically and financially, argues Al Cross, director of the University of Kentucky's Institute for Rural Journalism & Community Issues. In early January, he still had on his desk a Christmas Eve column from Brad Martin, editor of the 5,700- circulation weekly Hickman County Times in Centerville, Tenn. He reads a few paragraphs filled with names and references that mean nothing to his listener.

"Brad Martin is just presuming, correctly I think, that everybody reading this column will recognize these names," Cross says. "Now that's a home run. That's an editor communicating with a reader, and at the same time helping them understand he has a unique job, to use an overused word. Now Hickman County is not a growing place -- but that's a fat paper. Just judging on the number of pages, it's healthy."

By contrast, metros tend to staff their local zoned editions and stab at hyperlocal with young reporters who don't know what it's like to carry a mortgage and would much rather be downtown, says the Union's Pelline.

In smaller markets, it's who you know that often counts the most -- and nothing can squash that quicker than a high turnover of sales representatives. Deborah Marshall, publisher of the Boonville Daily News and The Record in Missouri had to deal with the headache with fleeing reps who were hurting business. When polling advertisers in the community, the papers found out the hard truth. "It was mostly, 'Why would we want do business with you when we don't see the same person again?'" she recalls. "People do business here with people they trust."

5. Give More Than Lip Service to Community Service

There's more to running a successful smaller-market newspaper than printing local news, says Ray Carlsen, executive director of the Inland Press Association: "As I go across the country, I'd say as a general rule, the most effective papers in terms of business success are the ones who are best in community service." One example, he says, is the Newton (Iowa) Daily News, whose publisher Jim Nelson in many ways held the community together when it received devastating economic news.

Newton was once the washing machine capital of the world. But in 2005, when the sole remaining manufacturer in town -- Maytag Corporation -- put itself up for sale, there was natural civic panic. After all, the plant and its world headquarters provided some 4,000 jobs in a town of 15,000.

First the paper showed that the impact of a shutdown would not be as bad as people thought, because many workers commuted as much as 75 miles to their Newton jobs. And the paper reminded the community there was a reason Maytag was located in Newton. "We tried to make the community feel better about itself," Nelson says. "We told them, you've got skills, you've got education, you are a desirable employee. Keep your head up -- and we'll try to get you some jobs here."

Working with the American Press Institute's Steve Gray, the paper organized an all-day seminar that pulled together 150 business, labor, civic, and religious leaders to brainstorm the town's economic future. That led to the formation of a task force to push for specific economic projects. By the time new owner Whirlpool Corporation made its announcement that the Maytag plant and headquarters were closing down in the fall of 2007, Newton had already landed several projects, including a state-of-the-art auto racing speedway.

"We felt the paper was the one catalyst in the community that could get the community together," Nelson says, "and that if the community benefits, we benefit."

But this was no one-time event for Daily News journalists, he adds: "Myself and all the editors and the publisher are just heavily involved in the community. There's hardly a board in town that doesn't have a newspaper member on it."

6. Cultivate a Personal Touch

Clay Morgan is petrified of "hump day." The Texas weeklies Aransas Pass Progress and Ingleside Index, where Morgan serves as publisher, are distributed every Wednesday. Roughly 80% of the circulation consists of newsstand sales -- and with industry stats pointing to sharp declines in single-copy, it's understandable Morgan dreads the middle of the week. "It terrifies me," he says.

But in some ways, Morgan is a victim of his own success. When he arrives at the papers' building at 6:30 in the morning, readers greet Morgan hungry for the latest edition. By early Thursday, the racks and retail outlets that sell the Progress and Index -- for 75 cents -- are picked clean.

When Morgan arrived at the paper in 2006, he realized the paper did virtually no promotion. Just dumping more weeklies into outlets wouldn't magically make them fly off the shelves. Morgan and his team also worked with the clerks and vendors selling the papers, establishing relationships in order to improve the displays and signage. No matter if it's a big grocery store or a small convenience mart, "If they know you are important to them, they will try and sell papers," he adds.

The personal touch is paying off. Household penetration of the paid weekly is an enviable 70%, and ad revenue has climbed nicely.

7. Don't Forget: Papers Don't Run Themselves

Sure, there are some inherent advantages in publishing in small markets, but success is never guaranteed. "They're very hard to run," News Media chief John Tompkins says flatly. "You've got to be very disciplined. We bought many of our papers because bigger companies tried to do it -- and they couldn't get it done." His company's rigorous template has even calculated how many outbound telemarketers a newspaper needs for each $1 million in sales.

Private ownership helps, according to SNA's Nancy Lane. In her observation, private chains try to educate and train themselves through tough times, while publicly traded companies tend to cut away at expenses -- and the quality of their product.

"We're willing to invest because we know we're in for the long term," says David Lord of Pioneer Newspapers. "As long as we're smart, we're in a great position of strength."

That's how Tompkins has it figured, too. Occasionally in his hometown, neighbors will tell him how sorry they are that he's stuck in the "dying" newspaper industry. But then, he adds, he's been hearing that dire forecast for a long time: "I've been waiting 40 years for the other shoe to drop."
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Author:Saba, Jennifer; Fitzgerald, Mark
Publication:Editor & Publisher
Geographic Code:1USA
Date:Feb 28, 2008
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