Jim Moroney, executive vice president of A.H. Belo Corp. and publisher and CEO of The Dallas Morning News, has overseen some of the most dramatic changes ever to have occurred at the publisher's flagship paper. He cut circulation, instituted some of the industry's steepest subscription rates, and earlier this year, instituted a paywall. So far, the strategy appears to be working, and partially as a result of these steps, A.H. Belo was able to declare a dividend, its first in three years. Moroney spoke with News & Tech Editor-In-Chief Chuck Moozakis last month.
News & Tech: A.H. Belo recently declared a dividend and posted a first quarter financial report that, although the company reported a small loss, seemed to indicate that you are in good shape for the rest of the year. What can you say about the strategy A.H. Belo has in place to compete in a marketplace that still remains very shaky for most newspaper publishers?
Moroney: The strategy that we actually began several years ago was to focus on quality circulation and get out of just distributing copies indiscriminately to increase reported circulation and hope we could raise rates. That may have been a successful formula 15 years ago, but the media landscape has changed. Targeting has become much more important, and mass circulation just for the sake of mass is not where things have gone, nor where things are going.
In early 2008, we saw another factor: significantly declining ad revenues. We asked ourselves, what would we do if revenues continued to decline into 2009 in the same way they were declining in 2008? These circumstances led us to conclude that we had to change the mix of revenues for our business: The traditional 80/20 model (advertising to circulation) wasn't going to support the business any longer; we needed to become less dependent on ad revenues and obtain revenues from other sources, and one of those sources was the consumer.
We believed there was an opportunity to test the elasticity of home-delivery pricing to determine if we could raise the rate to a much greater degree than the volume would drop; in other words, was there significant inelasticity in our home delivery price? Through research, we found out we could increase our subscription rates at The Dallas Morning News by 40 percent and only face a 12 percent decline in volume.
But we didn't want to leave a gap in our distribution due to the volume decline, so we decided to develop Briefing, a Wednesday-Sunday broadsheet newspaper of 12-24 pages delivered to 200,000 homes that would fill in some of the places where we would experience a decline in penetration.
We raised the subscription price to The Morning News by 40 percent in one step, in May of 2009. Since that time, we've been able to grow our circulation revenue through 2009 and 2010, and that has been measured in incremental millions of dollars. It's had an important effect on our total revenues. (Editor's note: Monthly subscriptions at The Morning News are priced at $33.95.)
News & Tech: Does maximizing the revenues you can get from print subscriptions remain a viable strategy for you in 2011? Are newspaper publishers guilty of not charging as much for their product as they should?
Moroney: I don't really understand why the most important thing we do, which is to create quality journalism, why do we then turn around and give away copies of our newspaper for pennies apiece and call it paid circulation? Why do we devalue our content - our most valuable asset - in this way? I truly don't understand it.
News & Tech: What were some of the other sources from which The Morning News is attracting revenues?
Moroney: We ramped up commercial printing and commercial distribution, which presently generates close to 10 percent of our total revenue.
News & Tech: So what's the mix today?
Moroney: Instead of 80/20, it's more like 60 percent advertising, 30 percent from subscribers and consumers, and the rest commercial printing and commercial distribution.
News & Tech: How did your strategy to diversify revenues integrate with your decision to begin charging readers to view The Morning News' content online? (Editor's note: The Morning News launched its paywall in March, charging $16.95 per month for access to all digital content.)
Moroney: Our monthly digital subscription rate is lower than our print subscription, but it's high enough to generate meaningful revenue. This way we can charge a rate that passes on some of the savings (associated with eliminating the cost of newsprint and distribution) to subscribers but at a level at which we can build a business.
Our thoughts going into this were these: First, our best customers are our home-delivery customers. They are paying $33.95 per month for the paper and we want to give them additional value. Second, how are our home delivery customers interacting with our digital content and how are nonsubscribers interacting with our digital content? What are the similarities and what are the differences? Knowing this information is critical to how we continue to transform our business to a more digital one. In order to get at this information, we had to be able to segregate print subscriber access from non-print subscriber access. That's why we had to have a pay model that is not as porous as the metered model and others.
The doomsayers cry out, "But your page views will drop!" Our response: How valuable are pages that you're selling at 70 cents per thousand? I'm not worried about the loss of page views that are sold at remnant rates. There's very little financial value there. We expected a 40 percent decline in page views, but in the first 12 weeks the average weekly decline was only 19 percent. That's less than the percent of our page views we were selling at remnant rates.
In fact, since the day we launched our subscriber content initiative, our digital ad revenues have increased, not declined. Frankly, I've never thought there was anything wrong with creating a bit of scarcity. Also, more than 65,000 of our print subscribers have authenticated through a registration process in order to access out content through our digital platforms. That's a great run rate for 90 days.
News & Tech: How has the monthly subscription strategy fared for The Providence (R.I.) Journal and Press-Enterprise in Riverside, Calif.?
Moroney: It's worked in Providence; we are charging $30 per month for subscriptions there. We didn't meet with the same success in Riverside. That's a particularly competitive DMA and a reader can get a yearly subscription to certain papers' Sunday editions (competing papers in the Los Angeles DMA) for only $10. It is hard to effectively price lead in that environment so we have hired a consultant to see if we can be successful with segmented pricing targeted to specific households.
I do believe that many newspapers have a lot of headroom in their home-delivery price. If they raised it, it would yield them significantly greater circulation revenue, lower expenses due to less newsprint and distribution costs and lower marketing expenses because they wouldn't be buying and replacing all that discounted churn circulation.
News & Tech: Some industry leaders say it's important to learn to live on digital dimes instead of "print dollars" that have supported newspapers for decades. Do you agree? Can A.H. Belo do that?
Moroney: I think what John Paton at Journal Register Co. has done is remarkable. And I have a great deal of respect for him. But there is one area, when it comes to digital-ad revenue, where we might not see eye to eye. And that place is this: In the first quarter of this year, more than 1 trillion digital ad impressions were served in the United States. That represents a supply/demand problem that won't reset itself for years to come. There is no way to aggressively raise CPMs in the digital space with so much inventory being created and made available. I'm afraid we're not trading digital dollars for digital dimes; we're trading digital dollars for digital pennies.
Here's the math: At the Morning News, we did approximately 40 million page views per month. If we had three ads on each page, and if we sold every ad on every page every day, and you assume a $10 average CPM, we would generate just over $14 million annually. We invest $35 million in our newsroom. I just don't think digital dimes will get you there. And certainly digital pennies won't. Metro newspaper sites just won't scale to make those dimes and pennies add up anywhere close to the revenue being lost in the print product. We must find different ways to realize the value of our digital audiences than just CPM based advertising. Go ahead and stack the digital ad dimes. Yet at the same time, I'd be looking for sources of revenue other than advertising.
News & Tech: You've been a proponent of ensuring that The Morning News has the reporting staff it needs to cover the market. What's your rationale?
Moroney: It's my belief that a durable business needs two things: a sustainable competitive advantage and something that's differentiated. The advantage that a local newspaper company has is the breadth and depth of its reporting based on the scale of its newsroom. If you keep scaling down the newsroom so that it's on par with, say, a local television news operation, you lose your competitive advantage in the marketplace and your reporting won't be differentiated from local television news reporting. You're leveling the playing field for your competitors. And that's generally not a good thing to do.
News & Tech: The iPad, tablet computers and smartphones have led some industry analysts to say that mobile represents a second chance for an industry that made more than its share of mistakes when it came to exploiting the Internet. Do you agree?
Moroney: Absolutely. I believe in mobile so much that I am leading a mobile national ad revenue taskforce with assistance from industry colleagues and the Newspaper Association of America.
The idea is the following: to allow national advertisers to purchase mobile ads across newspapers through a single transaction. As an industry, we can come together as a group to offer a one-buy, one bill opportunity through a sales organization representing these newspapers and get it right and make it easy for national advertisers. As an industry, we didn't get this right in print. We didn't get it right with our websites. We have a chance to get this right with mobile. I hope we have something in shape before the end of the year.
News & Tech: The Dallas Morning News has invested money in upgrading controls and associated systems at its presses in recent years. Do you have plans for additional investment in Dallas? What about in Riverside and Providence?
Moroney: Those upgrades have been great investments for us. Production plants in all three markets put out a great product.
We still have excess capacity in all three markets, but by the end of 2011 or 2012, if we pick up a few more commercial contracts we could be out of headroom.
There are some things we are looking at on an ROI basis to increase efficiency and then there is the possibility of getting different equipment than what we have now that would have a different ROI across the entire value chain of printing.
To do that, we have to believe we'll be printing newspapers in 10 years, which we do believe. Then we'll have to see how much savings will be accrued to generate the ROI. We're still investigating.
News & Tech: In late 2010, it appeared as if some of the worst was behind newspapers, but first quarter reports this year have been largely disappointing for many publishers. Are you still optimistic about the industry?
Moroney: The hope was that the decline in core business ad revenues would attenuate in 2011, but so far we haven't seen that. I don't think anybody has any visibility as to what the rest of the year will be like. At this time, there doesn't appear to be any predictable, consistent pattern to newspaper print ad revenues.
We're living in uncertainty right now, yet I'm still optimistic. Newspaper companies have fantastic audiences. We have to find ways to monetize those audiences in ways that go beyond traditional advertising.
These audiences represent a tremendous reservoir of value we can tap into, and I'm confident that as an industry we are going to figure it out.
What won't go away, as long as we produce quality journalism, is that we will have loyal, quality audiences that are important to marketers. We must find a way to extract financial value from those audiences that goes beyond CPM-based advertising. There are lots of smart people in the industry. If we think it through, we'll find the answers.